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  • State Disability Issues (SDI)
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Over 50 Years In Practice
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ASK THE CALIFORNIA EMPLOYMENT TAX AND PAYROLL TAX ATTORNEY – IT’S OFFICIAL – THE EDD ANNOUNCES WHO IS AN EMPLOYEE AND WHO MAY BE AN INDEPENDENT CONTRACTOR

By Robert S. Schriebman
2025

Introduction

The EDD has issued an official publication in which they announced who is an employee under the ABC Test as well as circumstances where the ABC Test is not applicable.  The EDD also sets forth the definition of statutory employees as well as services excluded by statute from the definition of employee.  This article will discuss the new announcement.

Before going into specifics, if the employer treats the worker as an employee, one does not have to weave their way through the complexity of the ABC Test, the exceptions to the ABC Test, and the Borello exceptions to the exceptions!

Who Is an Employee?

Section 621 of the CUIC defines an employee as follows:

  • An officer of a corporation
  • A worker is defined as an employee under Labor Code Section 2750. In addition to the Labor Code, we now have the ABC Test as well as the old standby – the Borello
  • An employee may perform services on a permanent temporary, or less than full-time basis. The law does not exclude services from employment that are commonly referred to as day labor, part-time help, casual labor, temporary help, probationary, or outside labor.

Who Are Statutory Employees?

The starting place for defining a statutory employee is CUIC § 621 “Definitions.”  The clearest directive in the statute is that an employee means any officer of a corporation.   In my practice I see too many clients who are corporate officers giving themselves 1099s or not declaring any compensation because they take out corporate loan proceeds or pay no attention to the law.  Ignoring the complexity of all these new laws will cost you big time taxes and penalties with both the EDD and the IRS.

The long-standing definitions of statutory employees include the following:

  • A member of a Limited Liability Company (LLC) that is treated as a corporation for federal income tax purposes.
  • An agent-driver or commission-driver engaged in distributing food products or laundry or dry-cleaning services.
  • A traveling or city salesperson, other than an agent-driver or commission-driver.
  • A home worker performing services at the direction of the homeowner. i.e., a live-in nanny or someone other than one who has an independent cleaning business.
  • An author engaged to create a work of authorship that was specifically ordered or commissioned by another person.
  • An unlicensed subcontractor working for a licensed general contractor.

Services Excluded by Statute from the Definition of Employee

Services of certain employees are specifically excluded from the employer’s duty to withhold payroll taxes:

  • Family members – but this definition is restricted and limited to children under the age of 18.
  • A parent working for his/her child.
  • An individual employed by his/her spouse or a registered domestic partner:
    These very narrow exceptions have very limited application, and they apply only to sole proprietorships and partnerships but not corporations or LLCs.
  • Students under the age of 22 enrolled fulltime in an academic institution and performing services for credit in a qualified work experienced program.

How do EDD auditors apply the ABC Test when performing a worker status audit? 

After 4 years of experience in representing employers in EDD worker status audits, I have been generally disappointed in the lack of analysis when applying the facts on the ground to the ABC Test.  Auditors tend to totally ignore the facts.  They treat all relationships as employer-employee and pay no attention to whether the contractor has an independent business or is an exception to the ABC Test as set forth in the many exemptions under AB-2257.  This requires diligence on the part of anyone under examination and the willingness to fight back.

Conclusion

The issue of who is and who is not an employee under California law is complicated to say the least. A wise person will review CUIC § 621 as well as AB0-5 and AB-2257.  This is enough to make your head spin.  But I’m not done, we also have to look at the Borello Test which will be the subject of my next article.

***

Robert Schriebman has a successful practice in the Rolling Hills Estates area of Los Angeles County serving clients throughout California and the United States. He has successfully dedicated more than 50 years to helping individual taxpayers, business owners, CPAs, Enrolled Agents, and tax attorneys navigate the complicated tax systems of the federal and state governments.  Mr. Schriebman is in private practice.  He is not affiliated in any way with the EDD, and he is not employed by the EDD or any other agency of the State of California.

Robert Schriebman has written the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners a6502nd the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House.

Robert Schriebman has written over 20 books including the major manual used nationally by practitioners and the IRS, “IRS Tax Collection Procedures – A Manual for Practitioners” published by Commerce Clearing House in addition to the only 2 books ever published dealing with how California Employment Development Department (EDD) operates. See “California Tax Collection Practice and Procedures” and “California Taxation Practice and Procedure,” both published by Commerce Clearing House.

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