California makes this decision largely for you through the ABC test. Under AB5, your tutors are presumed to be employees unless you can prove all three conditions: they’re free from your control in how they perform work, they do work outside your usual course of business, and they have an independently established business doing the same type of work.

For most tutoring centers, condition B is the problem. If you run a tutoring center and hire tutors to tutor, they’re doing work that’s central to your business. That alone makes employee classification the default under California law.

Even if you could somehow satisfy condition B, conditions A and C create challenges. If you set tutors’ schedules, assign them students, provide curriculum or teaching materials, or require them to work at your location, you’re exercising the kind of control that points toward employment. Unless the tutor operates their own tutoring business, advertises their services independently, has other clients, and would continue tutoring if they stopped working for you, they probably don’t satisfy the third condition either.

When tutors are employees, your payroll obligations include withholding federal and California state income taxes, withholding and matching Social Security and Medicare taxes at 7.65% each, paying California unemployment insurance, paying Employment Training Tax, carrying workers’ compensation insurance, reporting wages on W-2s annually, and filing quarterly payroll tax returns with both the IRS and EDD. For a tutoring center paying $50,000 annually in tutor wages, the employer-side payroll taxes and workers’ comp typically add 10% to 15% on top of the wages paid.

If you legitimately have independent contractors, the math looks different. You don’t withhold taxes, don’t pay the employer share of payroll taxes, and don’t need workers’ comp coverage for them. You issue 1099-NECs at year end for payments over $600. The contractor handles their own tax payments and insurance.

The risk with contractor classification is significant. If the EDD or IRS audits you and determines those contractors should have been employees, you owe back payroll taxes, penalties, and interest going back years. California is aggressive about this, particularly with tutoring and education businesses where misclassification is common.

Some tutoring centers maintain a core staff of employee tutors who work regular shifts at the center using company materials. They might also maintain relationships with a few genuine independent tutors who have their own clients, set their own rates, work in students’ homes or online, and use their own teaching methods. The second group might legitimately be contractors. The first group cannot be.

Getting classification wrong creates problems that compound over time. Every paycheck to a misclassified worker is another liability building up. Los Angeles QuickBooks bookkeepers who understand both California employment law and the education industry can help you structure payroll correctly from the start, so you’re not dealing with back taxes and penalties down the road.