California labor law · read from the State’s own summary
Can a group practice pay a licensed therapist as a 1099 contractor?
Under California’s ABC test a worker is an employee unless the hiring entity proves three things, and the second — that the work is outside the usual course of the hiring entity’s business — is the one a therapist seeing a therapy practice’s clients has trouble with. Psychologists were moved to the older multi-factor test; marriage and family therapists, clinical social workers and counselors were not. Here is what the Labor Commissioner’s Office says, and the one exception that can apply.
The test →The test
The ABC test starts from “employee” and makes the practice prove otherwise.
Since 1 January 2020 (AB 5, codified at Labor Code §§2775–2787, from the Supreme Court’s Dynamex decision) a worker is an employee for the Labor Code, the Unemployment Insurance Code and the wage orders unless the hiring entity satisfies all three of the following. The words are the Labor Commissioner’s Office’s; the therapy examples are this site’s reading of them.
A worker subject to the type and degree of control a business typically exercises over employees is an employee; the business need not control the precise manner of the work to have kept that control. A practice that sets the schedule, assigns the clients, requires its forms and its record system, and sets the fee has a hard time with A.
The Labor Commissioner’s examples: a retail store hiring a plumber is outside its business; a bakery hiring cake decorators is inside it. A therapy practice’s business is therapy. A contracted therapist “in a role comparable to that of an existing employee” will likely be viewed as working in the usual course of the business. This is the prong that decides most therapist arrangements.
The independent business must actually exist when the work is performed — licensure, advertising, offers to the public, other clients — not merely be possible later. A therapist whose only clients come through the one practice does not meet C, and the practice cannot create C by labeling the therapist a contractor.
Who is exempt
Psychologists are on the list. MFTs, LCSWs and LPCCs are not.
The Labor Code moves some occupations from the ABC test to the older Borello multi-factor test. The Labor Commissioner’s summary of that list (June 2026) reads, in the relevant line: “Certain licensed physicians, surgeons, dentists, podiatrists, psychologists, or veterinarians.” Marriage and family therapists, clinical social workers, professional clinical counselors and educational psychologists do not appear on it, nor on the professional-services list that reaches Borello after extra conditions. A licensed psychologist in a group practice is therefore judged on Borello’s many factors; a licensed MFT, LCSW or LPCC in the same practice is judged on the three prongs above unless the business-to-business exception applies.
Under Borello no single factor decides; the principal one is whether the practice has the right to control the manner and means of the work, weighed with whether the work is a regular part of the practice’s business, who supplies the office and tools, whether the psychologist has invested in a business of their own, the method of payment, the permanence of the relationship, and whether either side can end it at will. A psychologist on a percentage split with the practice’s clients, in the practice’s rooms, on the practice’s schedule, does not obviously pass it either; it is only a different test.
The exception
A professional corporation contracting with a practice can reach Borello — if all thirteen conditions hold.
| The business-to-business exception requires all of these |
|---|
| The therapist is a sole proprietor or a formed entity (a professional corporation, for a therapist) |
| Free from the practice’s control and direction, in the contract and in fact |
| Provides services to the practice itself rather than to the practice’s clients — or its own employees do the work under its own name and it regularly contracts with other businesses |
| A written contract stating the payment amount or rate and the due date |
| Holds any business license or business tax registration the jurisdiction requires |
| Maintains a business location separate from the practice’s (a residence counts) |
| Is customarily engaged in an independently established business of the same nature |
| Can contract with other businesses and keep a clientele without restriction |
| Advertises and holds itself out to the public as available for the same services |
| Provides its own tools and equipment, consistent with the work |
| Can negotiate its own rates |
| Can set its own hours and location, consistent with the work |
| Is not doing work that needs a Contractors’ State License Board license |
The thirteen conditions as the Labor Commissioner’s Office lists them. Meeting all of them moves the question to the Borello multi-factor test; it does not by itself make the therapist a contractor. The third condition — services to the practice rather than to its clients — is the one a percentage-split arrangement rarely meets.
What a 1099 does not do
Signing a contractor agreement and receiving a 1099 decides nothing.
The Labor Commissioner’s Office answers the question directly: being labeled an independent contractor, being required to sign an agreement saying so, or being paid without withholding and given a 1099 instead of a W-2 “does not determine employment status.” The test does. A practice found to have misclassified a worker can owe unpaid minimum wage and overtime, unemployment insurance taxes and workers’ compensation, plus the employee’s share of payroll taxes with penalties and interest; willful misclassification carries a civil penalty of $5,000 to $25,000 per violation under Labor Code §226.8, and EDD may add 15% of any tax deficiency. A worker who believes they are misclassified can file a wage claim with the Labor Commissioner, a report of labor law violation, or a lawsuit, and is protected from retaliation for doing so.
The tax side is separate and can differ: a worker can be an employee under California law and not under federal law, and the Franchise Tax Board keeps a page on what that means for a California return. The economics of the two forms of the same offer — what a percentage split on a 1099 has to be to match a salary with the employer’s half of payroll tax, SDI and benefits behind it — are on the W-2 vs private practice page; the engine there is the one to run before signing either.
Associates
For an associate the question does not arise.
An associate in a private practice setting is a W-2 employee or a volunteer, never a contractor: the Board’s supervision agreement has the supervisor affirm exactly that, the Board asks for W-2s when the hours are submitted, and the practice collects the fee and pays a wage. The hiring page has the arithmetic and the agreement item; the associate pay page has what the wage tends to be.
Then what
The law is the frame. These pages fill in the numbers.
The same offer, both ways
W-2 job vs private practice
Salary, benefits and the employer’s payroll share against a rate, a caseload and your own costs.
Hiring on the other side of the table
The associate cost and break-even calculator
The loaded W-2 cost, your supervision hours, salary or split, and the caseload where they pay.
If you form the corporation
The corporation costs $800 before you see a client
The entity the business-to-business exception would need, and what it costs to keep.
Where every figure came from
Sources.
The law, as the State summarizes it
- Labor Commissioner’s Office, Independent contractor versus employee (FAQ, June 2026) — the ABC test, the Borello factors, the occupations moved to Borello, the business-to-business exception, the 1099 rule, penalties; read 4 September 2026
- Labor Code §2775 — the ABC test (the section to check)
- Labor Code §2778 — the professional exemptions, including psychologists
- Labor Code §2776 — the business-to-business exception
- Labor Code §226.8 — willful misclassification penalties
The associate rule
Nothing here decides anyone’s status; the tests turn on facts a page cannot see. This is not legal advice. Statute text is cited to leginfo, which is the place to check it.
