Why Cleaning Companies Fail AB5's ABC Test

The Prong B Problem: If cleaners perform the core service your business sells (cleaning), they are working "within your usual course of business." This is textbook Prong B failure. Even perfect contracts and high independence indicators won't overcome this structural issue. The fix requires either (1) employee compliance, or (2) fundamental business model redesign.

Common Failure Patterns

These operational patterns virtually guarantee employee classification under AB5:

1 Customer Dispatch Model

Customer calls your company -> You dispatch cleaners -> Customer pays your company. This fails Prong B because cleaning is your usual business and Prong A due to high control.

2 Company-Set Pricing

You set all pricing customers pay. Cleaners don't negotiate rates or quote customers directly. Strong Prong A control indicator.

3 Checklists & SOPs

You provide detailed cleaning checklists, methods, product requirements, time standards. Even industry-standard procedures can be control indicators.

4 Route Assignment

You schedule which cleaners go to which jobs and when. This is dispatch and scheduling control (Prong A) even if cleaners have some flexibility.

5 Uniforms & Branding

Cleaners wear your company uniforms or use branded vehicles/supplies. Customers think they hired "your company's cleaners," not independent service providers.

6 Company Supplies

You provide cleaning supplies, equipment, or require specific products. This is both a control indicator (Prong A) and reduces independence (Prong C).

The ABC Test Applied to Cleaning

Prong A: Control & Direction

Typical result: FAIL or WARN
Cleaning companies typically control: pricing, job assignment, scheduling, quality standards, supplies/methods, customer complaints handling. Even with independent methods, the level of operational control usually fails this prong.

Prong B: Usual Course of Business

Typical result: FAIL
This is the killer. If your business is "residential cleaning services" and cleaners perform residential cleaning, they are working within your usual course of business. This is why cleaning companies almost never pass AB5 under traditional models.

Prong C: Independent Business

Typical result: FAIL or WARN
Do cleaners have: their own cleaning business? Multiple client companies? Business licenses? Liability insurance? Marketing presence? Most cleaners working for one company full-time lack these independence indicators.

Bottom line: Traditional "dispatch cleaners to customers" models typically fail all three prongs. This is why employee classification or structural redesign is necessary.

Cost Reality: IC vs Employee for Cleaning Business

Example: 5 cleaners, 30 hours/week each, $18/hour base (2026 rates)

Annual Cost Comparison

Independent Contractor Model
$140,400
Base payments only
Employee Model (Compliant)
$185,000
All-in costs
Additional Cost
+$44,600
+32% increase

Employee costs include: payroll taxes (7.65% FICA), CA unemployment (3.4%), employment training tax (.1%), workers compensation (~$8 per $100 payroll for cleaning), required breaks (unpaid but staffing coverage), and potential benefits. Does NOT include misclassification penalties.

The real calculation: Employee path costs 30-35% more BUT eliminates $25K+ per violation misclassification risk, wage claim exposure, and audit liability. For most cleaning businesses, this is cheaper than the risk-adjusted IC path.

Three Viable Compliance Paths

Pick one model and structure operations completely around it. Half-measures create maximum risk.

Model 1: Employee-Based Cleaning Company

Lowest Legal Risk

Accept that cleaners are employees. Design wage & hour compliance from day one. Price services to cover the real cost of employment.

  • Pros: Legally compliant, control over quality/scheduling, scalable
  • Cons: Higher costs (~30-35% more), administrative burden, ongoing compliance
  • Required: Timekeeping, break policies, workers comp, payroll taxes, wage/hour compliance
  • Best for: Companies that want to scale, need operational control, can price accordingly

Model 2: True Referral Platform

Medium Risk

Operate as a neutral marketplace connecting independent cleaning businesses with customers. No dispatch, no pricing control, no direct employment relationship.

  • Pros: Lower overhead, no employment liability if structured correctly
  • Cons: Less control, requires independent cleaners with real businesses, smaller margins
  • Required: Cleaners set pricing, own customer relationships, have multiple clients, operate as real businesses
  • Best for: Tech platforms, low-touch models, markets with established independent cleaners

Model 3: Management/Training Only (No Service Delivery)

Medium Risk

Don't provide cleaning services. Instead, provide business management services TO independent cleaning businesses (software, training, customer acquisition, back-office).

  • Pros: Your "usual business" becomes management services, not cleaning (helps Prong B)
  • Cons: Requires genuine B2B relationships, can't control cleaning operations, limited to support role
  • Required: Cleaners must be actual independent businesses, clear B2B contracts, separate invoicing
  • Best for: Franchise-style models, software/platform providers, business services companies

Critical Warning

Hybrid models ("we're a platform but we also dispatch and control") typically fail. Pick one model and structure operations completely around it. Half-measures create maximum risk.

Immediate Action Steps

Choose your compliance path and follow the appropriate checklist.

If Choosing Employee Path:

  1. Register with EDD for payroll taxes and unemployment insurance
  2. Obtain workers compensation insurance (shop rates - varies by carrier)
  3. Design compliant pay structure: hourly (not piece rate), clear OT calculation
  4. Implement timekeeping system (mobile-friendly for field workers)
  5. Create break policies and ensure compliance (especially for shifts >5 hours)
  6. Plan for travel time between jobs (must be paid as work time)
  7. Set up mileage/expense reimbursement (if using personal vehicles)
  8. Draft California-compliant offer letters and employment agreements

If Attempting IC/Platform Path:

  1. Confirm workers have independent cleaning businesses (not just 1099s)
  2. Verify they have: business licenses, insurance, multiple clients, own marketing
  3. Remove all control: no dispatching, no pricing control, no method requirements
  4. Customers must contract directly with cleaners (you facilitate only)
  5. Ensure your business sells platform/referral services, not cleaning services
  6. Document the B2B relationship and independence evidence
  7. Get legal review - this is high-risk and often fails under scrutiny
  8. Prepare for the possibility this won't survive audit/challenge

Tools & Resources

Interactive tools to analyze your specific situation.

1

AB5 Model Classifier

Run your business model through our interactive ABC test analyzer.
2

IC vs Employee Calculator

Calculate the true cost difference between contractor and employee models.
3

Quick Risk Screener

5-minute assessment to identify your biggest compliance risks.
4

Prong B Deep Dive

Detailed analysis of the "usual course of business" test.

Get Expert Legal Guidance

Schedule a consultation to get: (1) Business model review, (2) ABC test analysis specific to your operations, (3) Written compliance recommendation, (4) California-compliant agreement (IC or employment), and (5) Implementation Q&A.

Schedule Consultation ($450-650) Email Questions