Here's an alternative.
There are hundreds, maybe thousands, of contract engineering firms ("job shops") in the United States, probably hundreds in California alone. They are in the business of doing what your "employer" wants you to do, they know how to do it, they have been doing it for decades, working with the biggest, most-established companies in the country. They have forgotten more about providing engineering services to clients, and paying the engineers, than you can learn in a lifetime.
Call a few of them. Set up meetings. Budget a few hours for it. You want to talk with the most experienced recruiter in the office, the Old Guy Who Has Been There And Done That. Explain your situation, and tell them that, rather than go through all of the headaches yourself, you want to investigate the possibility of THEM handling all the headaches, for their usual markup of course. (You can probably word this better than I can, but you get the idea.)
The shop may or may not be willing to talk about their markup. My personal opinion is that this is perfectly OK. What they make off of you, after your rate is paid, is THEIR business.
Also, talk about what you do, and your recommended rate. It would not surprise me to learn that you are currently grossly underpaid.
AND, mention that, if the client declines, you're going to be available immediately, and you'd certainly be open to working with them. (You will see this again.) In fact, if they have any current leads that you fit, you would certainly be interested in hearing about them. (They may already have a req from another client, for which you fit, for which the client is willing to pay much more than your current "employer".)
If it were me, personally, I'd start with Yoh, Belcan, and maybe TAD Technical. These are three of the oldest and best.
I'd also hit up CE Weekly, get a subscription, and find some other shops with offices in your area.
Once you have a shop lined up, then ask your "employer" if, rather than you setting up a personal corporation, they'd be willing to work with an established Contract Engineering firm, who does this kind of thing for a living, who does this every day, who has been doing this for decades. Doing this is simpler for everyone, and, by going through an established firm, they avoid having to teach you how to do business with them. They also avoid the risk of having you reclassified by IRS as an employee, which exposes them to all kinds of legal and financial liability.
If they say "No", WALK AWAY FROM THEM. Immediately. They've just thrown up a HUGE red flag. This is where the other discussions with the shop come into play.