Borello Test Explained: Worker Classification Rules in California

This article explains the Borello test and ABC test used for worker classification decisions under California employment law. It outlines when each test applies, key factors reviewed by EDD, and why proper classification affects taxes and worker benefits.

By Brad Nakase, Attorney

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Table of Contents

1. Introduction

2. The ABC Test and why it exists

3. How the Borello Test still shows up

4. Why proper classification matters

5. When to use which test

6. Conclusion

Introduction

Worker classification has become one of the most talked-about topics for California employers. The state’s Employment Development Department relies on the newer ABC test created under Assembly Bill 5, but the older Borello test has not disappeared. It is still used when the situation does not fit neatly into the ABC framework. Many business owners are unsure which approach applies to which worker. The rules are not impossible to understand. Let us break them apart.

The ABC Test and why it exists

Assembly Bill 5 brought a clear standard that pushes employers to classify more workers as regular employees. The idea behind the new law was simple. The state wanted a cleaner way to decide who is an employee and who is an independent contractor. It replaced the old patchwork with a short set of questions about control, independence, and the nature of the work.

The ABC test asks for clarity. Businesses must show three things at the very beginning of the working relationship if they want to treat someone as an independent contractor.

First, the worker must actually be free to decide how the work is done. Not just on paper, but in the real day-to-day arrangement.

Second, the work being done must fall outside the usual activity of the business. If a bakery hires someone to bake bread, the test leans toward an employee relationship.

Third, the worker must already be engaged in a trade or type of business of the same nature. In other words, the person must be running their own independent business.

If a business fails to meet even one of these conditions, the worker is treated as an employee. This is why so many long-time contractor roles have shifted into employee roles across the state.

How the Borello Test still shows up

Before Assembly Bill 5, the Borello decision was the standard. It does not disappear under the new law. It continues to help in areas where the ABC test does not apply, such as workers who fall into specific exemptions written into California law.

The Borello test approach looks more like a long checklist than a firm rule. It asks a series of questions instead of setting a fixed threshold. The central idea is the same. Who controls the work? Who takes on the risk? Who brings their own tools? Who invests in their own business? No single answer decides the result, but the collection of answers guides the classification.

EDD still publishes the worksheet that lists the Borello questions.

Do you direct the worker while the job is being performed
Can the worker leave or be removed at any time
Is the work part of the normal business activity
Does the worker run a separate business
Is the worker able to make decisions that affect their own profit
Does the worker have money invested in the job that could place them at financial risk
Do you already have employees doing similar work
Do you supply the tools and materials
Is the job unskilled or semi-skilled
Do you provide training for the work
Is the person paid by the hour or a salary
Has the worker previously done the same job for you as an employee
Does the worker personally believe they are an employee

Answering yes to the early control-related questions usually points toward an employee relationship. Answering no to questions about independence or separate business activity leans in the same direction. The remaining questions fill in the finer details.

When the worksheet still leaves doubts, employers may ask EDD for a formal written ruling. This comes through a detailed request called the Determination of Employment Work Status. Businesses sometimes rely on this when hiring in areas where the law is unclear.

Why proper classification matters

Worker classification sits at the center of how payroll taxes are collected and what protections a worker actually gets. When a business labels someone as an independent contractor even though the job looks and functions like regular employment, two things happen at once. The state loses the payroll taxes it should have received. The worker loses access to benefits that only employees can claim.

Think of unemployment insurance, disability benefits, paid family leave, & the broader safety net that applies only when a person is on the payroll. Those protections simply don’t exist for contractors. That’s why the EDD keeps a close watch. They run audits, check paperwork, and verify how each person is treated in real, day-to-day work.

If a company gets it wrong, the fallout isn’t small. Back taxes, penalties, interest, & correction costs stack up faster than most businesses expect. The financial impact can feel the same even if the mistake wasn’t deliberate.

When to use which test

Courts leaned on the Dynamex decision for guidance before the ABC test arrived. Dynamex had introduced a simpler approach for deciding who counted as an independent contractor. But Dynamex did not erase the older Borello test framework. Borello had been around for decades, built on a long list of factors that employers had to weigh and interpret.

The result was confusion. Companies were unsure which rule applied, and workers were often misclassified simply because the standards felt scattered. AB 5 stepped in to settle this by making the ABC test the main roadmap. Borello remained in the background for the special situations and exemptions that AB 5 carved out. So today, classification in California is a mix of history: Dynamex opened the door, Borello still fills in gaps, and the ABC test is now the default standard.

The ABC test is the starting point for most workers in California. If the worker does not fall under an exemption, the ABC test applies immediately. If the worker is in a category where ABC does not govern the relationship, the Borello test fills the gap. Many of the carve-outs for professional services, referral arrangements, creative work, and construction still require the Borello factors to be satisfied before a worker can be treated as an independent contractor.

Conclusion

Businesses hiring workers in California must start with the ABC test, then move to the Borello test only when the law clearly allows it. Both tests share one goal. They’re designed to show who genuinely holds the reins over the work and whether the person doing the job is running a real, independent business of their own.

When a company gets that call wrong, the trouble doesn’t stay small. It can snowball into legal questions, back taxes, and financial fallout that nobody wants to deal with. That’s why employers are better off taking a close look at how each working relationship actually functions right from the start, instead of trying to fix things after the fact.

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Borello Test Explained: Worker Classification Rules in California

Introduction

The ABC Test and why it exists

How the Borello Test still shows up

Why proper classification matters

When to use which test

Conclusion

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