Tech companies routinely engage developers, designers, marketers, and fractional executives as contractors. California's AB 5 creates unique challenges for these arrangements, especially when contractors are deeply integrated into daily operations. This guide covers integration risk patterns, Prong B analysis for tech, B2B exemption requirements, and compliant structuring options.
Key Risk: Tech companies often give contractors company email, Slack access, daily standups, and treat them as "part of the team." This integration evidence can override even perfect contracts. The more a contractor looks and acts like an employee, the more likely they ARE an employee under AB 5.
Giving contractors @yourcompany.com email suggests they represent your company. Use their own email or a clearly labeled external domain.
Unlimited access to internal channels, @all notifications, and team discussions integrates contractors into company operations. Limit to project-specific channels only.
Mandatory daily meetings indicate schedule control (Prong A). Occasional project check-ins are fine; required daily attendance is an employment indicator.
Assigning work through Jira/Linear tickets like employees suggests task-level control. Better: project-based SOWs with contractor managing their own task breakdown.
Including contractors in sprint planning, retrospectives, and team velocity tracking treats them as team members, not independent service providers.
Providing equipment suggests economic dependence and control. Independent contractors typically provide their own tools and equipment.
Developers located outside California (and outside the US) are generally not subject to AB 5. California wage orders apply to work performed in California.
Hiring an agency (LLC/Corp) that provides developers. The agency is your contractor; their devs are the agency's classification problem.
Part-time executive contractors are common in startups. May qualify for professional services exemption if properly structured.
Contractor working 40 hours exclusively for your company. Despite "contractor" label, this arrangement often fails all three prongs.
Designer or marketer engaged for specific project (rebrand, campaign, website) with defined scope and timeline.
| Requirement | What It Means | Evidence Needed |
|---|---|---|
| Business entity exists | Contractor has LLC, Corp, or sole proprietorship | Business license, EIN, formation docs |
| Provides services directly | Entity (not individual) is the contracting party | Contract with LLC/Corp, not individual |
| Written contract | Contract specifies services, payment terms | Signed MSA and SOW |
| Actual control over work | Contractor determines how to perform services | No method instructions, outcome-based deliverables |
| Customarily engaged | Contractor provides this service to multiple businesses | Other clients, marketing, public-facing business |
| Bona fide business | Real business operations, not just for you | Website, insurance, equipment, business location |
| Work outside hiring entity's place of business | Contractor doesn't work at your office | Remote work, contractor's own workspace |
| Sets own rates | Contractor determines their pricing | Contractor's rate card, negotiated rates |
| Can work for competitors | No exclusivity or non-compete restrictions | Contract allows other clients including competitors |