Contractor Law Class

Employment Requirements

Official exam weight: 20%

Official subtopics

  • Employees vs. independent contractors (the 20-factor test)
  • Workers' compensation insurance requirements
  • Payroll records, rest and meal periods, overtime
  • New-hire reporting and immigration verification
  • Employment tax withholding and reporting

Study note

Employment rules are the largest single section of the exam at about 20%, and for good reason: a contractor's payroll decisions drive legal exposure under the California Labor Code, the unemployment and workers' compensation systems, and federal immigration law.

The core issue is classification. The exam repeatedly tests the difference between an employee and an independent contractor, because employees carry obligations that genuine subcontractors do not: payroll tax withholding, workers' compensation coverage, overtime, and meal and rest breaks. Learn the classification tests applied in California and the consequences of misclassification — a worker treated as a subcontractor who should have been an employee creates liability for unpaid premiums, taxes, and penalties.

Workers' compensation is a second major theme. Contractors must carry workers' compensation insurance when they employ workers, and licensure depends on it — CSLB requires proof of coverage, and an uninsured contractor faces suspension and penalties. Questions often pair the coverage requirement with exemptions and with what happens when an audit or an injury exposes a coverage gap.

Payroll compliance is the third theme: keeping accurate payroll records, paying agreed wages, honoring meal periods and rest breaks, and paying daily overtime where California law requires it. Expect questions on record retention, itemized wage statements, and how a worker's complaint reaches the Labor Commissioner.

Finally, hiring itself is regulated. California requires new-hire reporting to the state child-support agency, and federal law requires verification of each employee's identity and work authorization. Withholding and reporting obligations continue for as long as the worker is employed.

In practice questions, watch the facts that change the answer: whether the worker is licensed, who supplies the tools, who controls the manner of the work, and whether the relationship is genuinely independent. Read each scenario for the classification issue first, then the payroll issue, then the licensing consequence — that is usually how the question was built.

This is an original study note written for this site. It summarizes what the section covers so you can plan your studying; it is not legal advice. Practice questions in this section cite the underlying California statutes and regulations directly.

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Sources behind this section

Official documents cited by practice questions in this section, ranked by how many questions cite each one, from the September 27, 2026 law snapshot.

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Statutes (160)

Official guides (1)

Law snapshot date: September 27, 2026