EmploymentQuestion 970 of 1605
A contractor advises a worker to obtain an EIN and 'set up an LLC' so the contractor can pay him as a 1099 contractor, even though the worker performs the company's core framing work under close supervision. What is the risk?
a.The LLC automatically makes the worker a valid independent contractor
b.The worker, not the contractor, bears all legal exposure
c.The arrangement likely fails the ABC test and constitutes misclassification despite the LLC and 1099
d.There is no risk once a 1099 is issued
Explanation
Forming an LLC, obtaining an EIN, and issuing a 1099 do not convert an employee into a lawful independent contractor. The ABC test still applies: framing is within the company's usual course of business (prong B fails) and close supervision undercuts prong A. This is misclassification, and Labor Code §226.8 penalizes the hiring contractor, not just the worker, for willful misclassification.
Law Reference: Labor Code §226.8; joint enforcementPractice all 1605 questions free — no signup required.
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Reviewed by Abraham Chen — Licensed California General Contractor (CSLB License #1101856 — verify)