Is your sub an independent contractor? California's construction subcontractor test (Labor Code §2781)

Why it matters

If a person you pay counts as your employee, the employer duties in the Labor Code, the Unemployment Insurance Code and the wage orders apply to you for that person. For a GC that hires subs, the question is which test decides it. This is a plain-language summary; talk to an employment or construction lawyer about your own crews.

The default: the ABC test

Under Labor Code §2775(b)(1), for purposes of the Labor Code, the Unemployment Insurance Code and the wage orders, a person providing labor or services for pay is an employee unless the hiring entity shows all three:

1. A. The person is free from the hiring entity's control and direction in doing the work, under the contract and in fact.
2. B. The work is outside the usual course of the hiring entity's business.
3. C. The person is customarily engaged in an independently established trade, occupation or business of the same nature as the work.

Part B can be hard for a GC to show when the sub is doing construction work. That's why the construction rule below matters.

The construction subcontractor rule: §2781

Labor Code §2781 says the ABC test, and the Dynamex decision behind it, don't apply to the relationship between a contractor and an individual doing work under a subcontract in the construction industry. Instead, employee status is decided under Labor Code §2750.5 and the Borello test, but only if the contractor shows all of these:

1. The subcontract is in writing.
2. The sub is licensed by CSLB and the work is within the scope of that license.
3. The sub has a business license or business tax registration, if its home city or county requires one.
4. The sub keeps a business location separate from yours.
5. The sub has the authority to hire, and to fire, other people to provide or help with the work.
6. The sub takes financial responsibility for errors or omissions in its work, for example through insurance, indemnity obligations, performance bonds or warranties.
7. The sub is customarily engaged in an independently established business of the same nature as the work.

The California Labor Commissioner's office lists "certain individuals performing work under a subcontract in the construction industry" among the groups where the Borello test applies only after extra requirements are met (DIR independent contractor FAQ). Special conditions for construction trucking applied only through December 31, 2024.

Then §2750.5 and Borello

Meeting §2781 doesn't make the sub independent automatically. It means the older rules decide. Under §2750.5, a worker doing work that needs a contractor's license is presumed to be an employee, and the presumption can be overcome by showing, among other things, that:

• the sub controls how the work is done, and the result is what you bargained for,
• the sub is customarily engaged in an independently established business, and
• the independent status is real, not a way to avoid employee status. The section lists signs such as a substantial investment in the business, bidding by the project rather than by time, supplying its own tools, hiring its own employees, and holding a license.

And separately: anyone doing work that needs a contractor's license has to hold a valid license to have independent contractor status. That's why an unlicensed "sub" is a workers' comp and payroll problem for the GC. See risks of hiring an unlicensed sub.

What to keep in the file for each sub

• Signed subcontractIn writing, signed before the work starts.
• CSLB license and classificationA dated copy showing Active and a class that covers the scope. See classifications and scope.
• Local business license or tax registrationIf the sub's city or county requires one.
• The sub's own business addressNot your yard or office.
• Proof of financial responsibilityCertificates of insurance, plus the indemnity and warranty terms in the subcontract.
• Signs of an independent businessIts own crew, tools, other customers, and bids by the job.

General information for California contractors, current as of November 4, 2026. It isn't legal advice; rules change, so check the official source linked above.

More guides

• How to check a California contractor license (CSLB): a GC's checklist
• Workers' comp and subcontractors in California: what GCs should check
• Certificate of insurance checklist for California general contractors
• Additional insured and waiver of subrogation for subcontractors: a California GC's guide
• Risks of hiring an unlicensed subcontractor in California (for GCs)
• Workers' comp premium audits and subcontractors in California: how to prepare
• California contractor's license bond ($25,000): what it covers for a GC
• Matching a sub's California license classification to the work
• Is a sub's certificate of insurance real and current? How California GCs can check
• A sub's CSLB license was suspended or expired mid-job: what California GCs should do
• Paying subs in California: the 7-day prompt payment rule and retention release
• A sub's CSLB record warns of a future suspension or class removal: what California GCs should do
• Preliminary notices and lien waivers from the GC's side in California
• Hiring subs on California home improvement jobs: what changes for the GC
• A sub's CSLB record says "exempt" from workers' comp: what California GCs should check
• How to check a California sub's CSLB complaint and disciplinary history