10.1 Hiring: Worker Classification, Verification, and New-Hire Reporting

Hiring: Worker Classification, Verification, and New-Hire Reporting

Quick Answer: Before anyone climbs a ladder for you, five things must be true: you are registered with the EDD (required within 15 days of paying more than $100 in wages in a calendar quarter), you carry workers' compensation (mandatory for a C-39 regardless of employee count), the worker's Form I-9 is complete within three business days of the first day of work for pay, the DE 34 new-hire report is filed within 20 days of the start-of-work date, and the worker has the written Labor Code § 2810.5 wage notice. The classification question answers itself in roofing: under Labor Code § 2750.5 an unlicensed person doing licensed work is conclusively an employee, and under the ABC test in Labor Code § 2775 a roof installer fails prong B because installing roofs is your usual course of business.

Employment Requirements is 20 percent of the Law and Business exam — the largest single content area after contracts.

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1. Employee or Independent Contractor

Misclassification is the most expensive mistake a small roofing contractor makes, because a single injury converts it into an uninsured workers' compensation claim.

Two Independent Tests, Both of Which You Must Pass

Labor Code § 2750.5 — the licensing presumption. Any person performing services for which a contractor license is required, who does not hold a valid license, is conclusively presumed to be an employee. Conclusively means it cannot be rebutted — not by a signed agreement, not by 1099 reporting, not by evidence that you did not control the work.

Labor Code § 2775 — the ABC test. For workers outside that presumption, the hiring entity must prove all three:

• (A) The worker is free from the control and direction of the hiring entity in connection with the performance of the work, both under the contract and in fact;
• (B) The worker performs work that is outside the usual course of the hiring entity's business; and
• (C) The worker is customarily engaged in an independently established trade, occupation, or business of the same nature as the work performed.

Prong B is fatal for a roofing company hiring roofers. Installing roofs is the usual course of a roofing business, so no amount of independence on prongs A and C saves the classification.

What Misclassification Actually Costs

A legitimate subcontract is different. A licensed sheet metal or framing subcontractor with its own CSLB license, its own workers' compensation policy, its own general liability coverage, and its own employees is a subcontractor. Verify and file all three documents before the sub mobilizes.

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2. Employer Registration and Insurance

• EDD registration. Register as an employer within 15 days of paying more than $100 in wages in a calendar quarter. Registration produces the state employer account number used on every DE 9 and DE 9C.
• Federal EIN. Obtain an Employer Identification Number from the IRS before the first payroll.
• Workers' compensation. A C-39 must carry an active policy or a valid Certification of Self-Insurance whether or not it has employees, and the certificate must be on file with CSLB. A lapse suspends the license by operation of law.
• Cal/OSHA programs. The IIPP, Code of Safe Practices, and — where Labor Code § 6401.9 applies — the Workplace Violence Prevention Plan must exist before the employee starts, because training on them is part of onboarding.

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3. The Hiring Sequence

Form I-9 Rules That Trip Employers

• Verify identity and work authorization for every new hire, citizens included.
• The employee chooses which acceptable documents to present. Demanding a specific document, or more documents than required, is document abuse and is separately unlawful.
• Do not complete an I-9 before a job offer is accepted.
• Retain the I-9 for three years after the date of hire or one year after employment ends, whichever is later, stored separately from the personnel file.
• E-Verify is voluntary in California for most private employers, and California law restricts using it improperly against existing employees or applicants.

Form DE 34 and Its Contractor Cousin

• DE 34 — Report of New Employee(s): for employees, within 20 days of the start-of-work date. The data feeds child support enforcement.
• DE 542 — Report of Independent Contractor(s): required when a business is required to file a federal Form 1099-NEC for a service provider and either the contract exceeds $600 or that amount is paid; filed within 20 days of whichever comes first.

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4. Non-Discrimination in Hiring

California's Fair Employment and Housing Act applies to employers with five or more employees and prohibits discrimination based on race, color, religion, national origin, ancestry, sex, gender identity and expression, sexual orientation, marital status, age (40 and over), disability, medical condition, genetic information, military or veteran status, and other protected characteristics.

Practical rules for a roofing contractor's hiring process:

• Ask about the ability to perform essential job functions with or without reasonable accommodation — climbing ladders, carrying bundles, working at height — not about disabilities or medical history.
• California's Fair Chance Act generally bars asking about conviction history until after a conditional offer, and requires an individualized assessment before withdrawing the offer.
• California generally prohibits asking about salary history and requires disclosing the pay scale for a position on reasonable request.
• Apply physical requirements consistently and document them in the job description.

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5. Required Postings

Post where employees customarily see notices, at the office and at long-duration job sites: the Cal/OSHA "Safety and Health Protection on the Job" poster, the Form 300A summary from February 1 through April 30, the workers' compensation notice naming the carrier, the current minimum wage order and the applicable Industrial Welfare Commission wage order, paid sick leave, payday notice, harassment and discrimination notices, and the emergency contact and directions sheet for the job site.