Table of Contents
- Check Requirements & Exemptions Before Applying for the Contractor Examination
- Determine What Contractor License You Need
- Meet the Basic Licensing Requirements
- Obtain a Contractor Bond and Liability Insurance in California
- Fill Out a Contractor Licensing Application
- Complete a CLSB Conducted Background Check
- Take and Pass the California Contractors Exam/Submit Bonding & Insurance Information
- Understand & Practice Industry Laws and Regulations
- Frequently Asked Questions
- Final Thoughts
In California, the construction industry contributes $129 billion, or 3.7% of the state’s GDP. As a result, the California Contractors State License Board (CSLB) has strict licensing requirements to protect consumers against unlicensed work. Becoming a licensed contractor in California requires meeting several prerequisites and following certain steps.
The CSLB is responsible for ensuring that all contractors in California meet safety standards and demonstrate adequate experience and knowledge to perform their jobs safely. Here’s what you need to know about how to become a licensed contractor in California:
1. Check Requirements & Exemptions Before Applying
In California, a contractor’s license is required to work on any construction project valued at $500 or more in labor and materials costs. Depending on the type of work you plan to do, there are four main types of contractor licenses that you may need to obtain.
A license can be allocated to any one of the following entities: an individual, a partnership, a corporation, a limited liability company, or even a joint venture. The owner/s of this permit depends on who registered it—the single licensee with the California Secretary of State (if applicable) or among the parties in the agreement for Joint Ventures.
Additionally, there are multiple situations that are classified as exemptions from licensing. Before applying for a contractor examination, it is important to make sure you are aware of the requirements for your situation. Here are the types of licenses available, the exemptions, and the special requirements that should be considered before applying for licensing.
Types of Contractor Licenses
General contractors are licensed to perform all construction phases, from the demolition and building process to subcontracting various tasks. They are also able to contract larger projects. Specialty contractors have limited scope for what kind of work they can do: roofing, electrical, plumbing, carpentry, concrete pouring, stucco application, etc.
In California, there are four main types of contractor licenses:
- Class A General Engineering Contractor
- Class B General Building Contractor
- Class B-2 Residential Remodeling Contractor
- Class C Specialty Contractor
Specialty contractors Class C-2 through C-61 cover specialty trades like flooring and floor covering, fire protection, glazing, warm air heating, ventilating and air conditioning, building moving/demolition, and asbestos abatement. Some trades, like asbestos and hazardous material removal, require multiple certifications.
For those in a niche industry, you may only need to register for a specialty license. The CSLB also offers specialized certificates for trades like swimming pool/spa maintenance and repair, fireplace/wood stove installation, fire extinguisher servicing, and swimming pool contracting.
Exemptions From General Contracting Licenses
There are some exemptions from licensee requirements or a general contractor’s license in California. Most commonly, if you are working on a project valued at less than $500, it may be exempt from licensing. Bear in mind, however, that the sum of all contracts related to such projects must not exceed this limit; attempting to break down the cost of larger projects into smaller amounts will not qualify them for exemption purposes. Here are some specific exemptions from licensing requirements:
- Employees who receive wages do not typically manage their own businesses and have no authority or oversight over the execution of a project or its end product;
- Civil servants participating in public projects;
- Court officials performing within the confines of their role;
- Public utilities working under predetermined conditions;
- Oil and gas operations conducted by a landowner or leased individual;
- Owner-builders who construct or enhance existing structures on their own property, either completing the work themselves or utilizing their employees (compensated with wages);
- Security alarm company operators/installers (licensed and regulated by the Bureau of Security and Investigative Services)
After determining if you’re eligible for exemptions, you should explore the different types of licenses available and the special requirements for each. Make sure to check the California Contractors State License Board website for deadline reminders, application forms, and more information.
2. Determine What Contractor License You Need
The type of contractor license you need depends on the kind of work you intend to perform. When determining which licensing requirements apply to your situation, there are a few things to consider. It is important to understand what type of projects you will be working on and which specific tasks each project requires.
The CSLB’s website offers a general contractors guide which provides an overview of the various types of contractor licenses available and details on each type’s scope. Check the CSLB’s list of exemptions to determine whether you are eligible for one or more licenses. If your project requires a license, but your job falls under one of these exemptions, you may not need a license.
The Difference Between General and Specialty Contracting
It is also important to understand the requirements for each type of contractor license, as they may vary depending on the scope of work and experience in the trade. Different types of contractor licenses may require varying experience levels; some require at least four years, while others require up to ten years. The CSLB also has special requirements for certain contractor classifications, including an additional criminal background check and a current photo I.D.
For most projects, general engineering and building contractors oversee the work of specialized subcontractors. For specific tasks such as roofing or plumbing, a contractor licensed in the relevant specialty is generally hired for that one job alone. If you need only these kinds of services done quickly and efficiently, it’s best to go with an expert who has experience in those areas specifically.
If a general building contractor wishes to provide specialty services, they must either hold the corresponding license or enlist an actual specialist for that particular job. The only instance where this isn’t necessary is when the task requires more than two types of work on a single structure.
3. Meet the Basic Licensing Requirements
In addition to having experience and training, you must meet all of the basic requirements for licensing. Contractor license applicants must prove they have the necessary financial resources to adhere to any laws or regulations affecting their business.
Applicants must also provide proof of a valid Social Security number and be at least 18 years old. The CSLB will conduct an extensive background check on each applicant, so it is important to ensure that all information provided is accurate and up-to-date.
If you’re looking to obtain a license in California, the qualifications are easy. To be eligible for one of these licenses, make sure you meet these criteria:
- Be 18 years or older
- Possess the necessary expertise and proficiencies to successfully oversee daily operations of a construction business, including field supervision (or have representation with the equivalent abilities and experience to serve in your stead)
- Demonstrate four years of verifiable experience at the journeyman level, foremanship/supervision, or contracting in the requested licensure classification.
- To ensure the safety of consumers against unprofessional workmanship and employees from non-payment, it is required to obtain a bond with a value of $25,000.
Verifiable Experience for Contractor Licensing
Verifiable experience is documented evidence of the applicant’s employment, education, and training specific to their licensure classification. This includes paid and unpaid positions such as apprenticeships or non-payment arrangements (e.g., bartering).
It must be provided in the form of documentation from employers, schools, training centers, or mentors. Experience documents must be turned in with a completed application and must meet all of the criteria outlined in the CSLB’s Experience Verification Guidelines.
Applicants should also note that completing an apprenticeship program does not guarantee licensure; applicants are still required to verify their experience and pass any necessary exams.
Occasionally, 3% of applications will be thoroughly reviewed to authenticate the background experience by examining payroll records or related documents. To guarantee accuracy, CSLB staff may contact a certifier or any other person involved for validation purposes.
4. Obtain a Contractor Bond and Liability Insurance
As required by the California Contractors State License Board (CSLB), all licensed contractors and applicants must secure a bond or its monetary equivalent with a minimum value of $25,000. This is mandated in section 7071.6 of the California Business & Professions Code to protect customers from any financial damage resulting from an individual contractor’s activities.
Obtaining a bond is the final step in the licensing process. The bond guarantees that you will abide by all state and local regulations when conducting business. The bond also serves as an extra layer of protection for customers in case of disputes or non-payment issues.
Before 2023, a requirement of $15,000 was applicable to contractors, but that has now been increased to $25,000. As of January 1, 2023, Senate Bill 607 mandated an increase in contractor license bonds, a bond of qualifying individual and disciplinary bonds to a full $25,000.
The bond must be issued by an insurance company or a surety company and submitted to CSLB for approval. Obtaining a bond is easy; the process requires you to submit an application and pay a monthly premium.
For fast and easy bonding services throughout California, ContractorBond.org specializes in License bonds but also has competitive rates on bid and performance, qualifying individual, roofing, and swimming pool bonds.
What Is a Contractor Bond?
Not to be confused with liability insurance, contractor bonds are a form of surety bond that serves as an agreement between three parties:
- The principal (the contractor applying for the license)
- The obligee (the CSLB) and
- The surety (the bond issuer).
The bond is essentially legal protection in case the contractor does not follow the rules and regulations of their licensure. It is designed to protect any individual or entity who may suffer financial loss due to a contractor’s negligence in fulfilling their agreement.
The contractor bond is a legal agreement that guarantees payment in the event of any contractual violation by the licensed individual or company. The bond must remain valid for one year after the date it was issued. In the face of a claim, the surety (issuer) will make restitution to affected customers up to the full amount of coverage.
The CSLB mandates that all California contractors purchase a $25,000 license bond (or equivalent) to be licensed. This benefits customers because they are protected if they experience financial loss due to actions made by the contractor. With this security in place, clients can rest easy knowing their investments are secure from any misconduct.
Typically, the price of a contractor bond is quite low – often just $65 annually or up to $450. That being said, your credit score, how long you’ve been in business, any lapses in coverage, and whether you’re eligible for multi-year discounts will all influence the final cost of the Contractor License Bond. As such, it’s worth doing some research before committing!
Why Is a Contractor License Bond Required?
If you go down the route of an unlicensed or unbonded contractor, it means you don’t have access to this same level of protection and security as consumers. Criminal prosecution and/or civil action are more likely to occur from customers if a contractor performs substandard work or engages in any illegal activities.
Contractor license bonds are designed to protect the public, ensuring contractors comply with California Business & Professions code laws and regulations or face a bond payout. Not only does this result in financial losses for the contractor, but it could also bring about disciplinary action from CSLB.
In addition to protecting customers, the contractor license bond also serves as an additional motivation for contractors to maintain high standards of professionalism and practice at all times. It ensures that individuals who receive their CSLB license remain compliant and trustworthy.
It is the contractor’s responsibility to ensure their bond remains valid for the duration of their license period, so it’s important to review your bond carefully and renew it if needed in a timely manner. Purchasing a bond from an experienced provider can help you easily navigate these steps.
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Liability Insurance Insurance for Contractors
Contractor liability insurance is separate from contractor bonds, and it’s important for contractors to have both. Liability insurance is designed to protect you in the event of a claim against your business, covering any potential legal costs or damages awarded to claimants.
While contractor bonds provide protection for customers, liability insurance provides coverage for the insured individual or company. It helps to safeguard you against claims of negligence, injury, or damage to property.
In California, insurance is not required unless a contractor is operating as an LLC, in which case there are minimum requirements for the liability insurance the LLC must carry to practice legally. Generally, contractors need at least $1 million coverage per occurrence and up to $2 million aggregate coverage on their policy for any bodily injury and property damage claims.
No two contractor insurance policies are the same. Still, nearly all of them provide coverage for: Bodily Injury, Property Damage, Product and Completed Operations (PCO), Medical Payments, and Personal & Advertising Injury. Ensure your policy is unique to your business so you’re fully protected from any potential risks associated with contracting work.
It’s important to select the right liability insurance coverage for your business or project to stay on the right side of CSLB regulations and protect yourself from unexpected legal costs.
As mandated by the state of California, contractors with employees must carry workers’ compensation insurance to cover any wages lost or medical bills resulting from on-the-job injuries. Depending upon your customers and the services you provide, it might be beneficial to acquire builder’s risk insurance or surety bonds as well.
The Difference Between Contractor Bonds and Insurance
It’s easy to confuse contractor bonds with liability insurance because the two serve similar purposes in many ways. However, it’s important to understand that they are actually two different products intended for different ends.
|Provided By Contractor Bonds||Provided By Liability Insurance|
|Protecting contractor/owner||Attorney fees & legal costs|
|Protecting the CSLB||Paying lawsuit settlements|
|Transferring to a surety company the cost of damages||Paying for customer/client medical expenses|
|Paying for repairs as a result of damage caused by your company|
Unlike contractor license bonds, insurance does not need to be repaid in case of harm or injury. Ultimately, the best-case scenario would be for a contractor to have both bonding and insurance coverage.
5. Fill Out a Contractor Licensing Application
Once you have met all of the requirements, the next step is to fill out a contractor licensing application. The application will ask for extensive information, including:
- Business name
- Mailing address
- Business phone numbers & email
- Requested license type or class
- Business entity type (Sole proprietorship, Partnership, LLC
- Surety bond
- Liability insurance policy
- Details of responsible managers, members, or directors, and more.
Double-check that your qualifications meet the necessary criteria before submitting a nonrefundable $450 application fee to ensure you don’t waste money. If they do, then it’s time to submit an Easy-Fill application or request a paper copy of the licensing application.
The CSLB Easy-Fill application will take care of delivery once it is submitted. If you choose to submit a paper application, once it is complete, it must be signed and mailed or hand-delivered to the CSLB office in Sacramento.
Contractors State License Board
P.O. Box 26000
Sacramento, CA 95826-0026
The application is a detailed document, and it’s important to be precise with the information you provide in order to ensure that your application is processed quickly and correctly.
6. Complete a CLSB Conducted Background Check
Upon acceptance of your application by the CSLB, you must submit fingerprints for a criminal background check. The CSLB will provide instructions on how to safely and easily obtain this service, where it can be done, as well as the cost associated with it.
The background check is important because the CSLB wants to make sure that only those with a clean record, free from criminal or fraudulent activities, are licensed as contractors.
To ensure the selection process is secure, you may be required to verify your work experience through a randomized system. You can use an employer, foreman or supervisor, and even another journeyman for this step in the process. The purpose of such action is to check whether you have gained the adequate experience necessary to run a construction business smoothly and efficiently.
Don’t be deterred from applying for a license even if you have a criminal record. The Contractors State License Board has the authority to deny an application based on convictions related to contractor duties and qualifications; however, they may also decide in your favor should sufficient rehabilitation efforts be demonstrated.
7. Take and Pass the California Contractors Exam/Submit Bonding & Insurance Information
When all of your paperwork has been received, you’ll be able to schedule your exam with the CSLB at one of their authorized testing centers located in Fresno, Oakland, San Jose, San Diego, Sacramento, Oxnard, San Bernardino, or Norwalk.
These exams are typically administered in two parts: Law & Business and a trade-specific section based on the license classification you applied for. The Law & Business portion is currently administered as an open-book exam, while the trade-specific section is a closed-book test.
The CSLB provides study guides and sample questions to help candidates prepare for the exam. The study guides contain an in-depth analysis of the test topics, example questions to help with your preparation, relevant research resources, and a strategy for taking the exam. With this comprehensive guide, you have all you need to get ready for success on examination day!
Once you have successfully passed both parts of the exam, it’s time to submit your surety bond and insurance information (if applicable). You must provide proof that a contractor license bond in the amount of $25,000 has been purchased and registered with the CSLB. If you need workers’ compensation insurance, a copy of the policy must also be provided to the CSLB.
8. Understand & Practice Industry Laws and Regulations
It’s important to stay updated on industry laws and regulations that can affect your business. Depending on your license type, you may be required to abide by specific rules set forth by local or state government agencies, along with federal ones.
What Are the Laws and Regulations I Need to Be Aware of as a Contractor?
Before starting any job, you should always contact the local building department to find out about any specific requirements that must be met in order for you to legally operate as a contractor. There may be local city ordinances or state statutes that are specific to your line of work.
As a contractor in California, you must adhere to the Business and Professions Code, which covers a wide range of topics such as licensing and enforcement procedures, advertising regulations, employee qualifications, insurance requirements, and more.
You should also be familiar with the Building Standards Code, which is a set of safety and structural standards adopted in each county. It is important to stay up-to-date on these laws and regulations as they can affect your ability to operate and can also help you protect yourself from legal action or penalties.
Additionally, it is a good idea to become familiar with other industry standards, such as the National Electrical Code, which sets safety standards for installing and maintaining electrical systems. The California Building Energy Efficiency Standards are also important to understand. These standards dictate how much energy a building must use to meet efficiency requirements set by the state government.
Understanding and following all applicable laws and regulations ensures that your business runs smoothly and efficiently. And, of course, understanding these laws will also help protect you from legal action or penalties.
What Are the Record-Keeping and Reporting Requirements for Contractors?
Contractors must submit various reports to the CSLB, such as reports of changes in ownership or business structure and financial documents. Additionally, contractors are required to submit a sworn statement of their financial condition at least once every two years.
Contractors are required to maintain accurate and up-to-date records related to their business activities. This includes financial documents such as invoices and receipts, employee records, contracts with customers and subcontractors, proof of licensing requirements, insurance policies, and more.
What Are the Laws and Regulations for Labor and Employment for Contractors?
As a part of abiding by labor and employment rules, contractors must comply with the California Family Rights Act, which provides unpaid leave for employees who need to care for a family member with a serious medical condition. Additionally, contractors must ensure that all employees are properly classified as either employees or independent contractors and withhold any applicable taxes.
Contractors must adhere to labor and employment laws that protect workers’ rights. This includes providing a safe working environment, paying all employees the legally required minimum wage, giving breaks and overtime pay as mandated by law, and not discriminating against any employee based on race, gender, or other protected classifications.
What Are the Laws and Regulations for Workers’ Compensation for Contractors?
Contractors are required to adhere to certain safety guidelines and regulations in order to protect their employees from potential on-the-job injuries. This includes providing proper training, enforcing safety protocols, and maintaining a safe work environment. Contractors must also provide employees with any necessary safety equipment (such as hard hats, gloves, or protective eyewear).
In California, contractors must carry workers’ compensation insurance to cover any employee who is injured while on the job. This means that if an employee is injured while performing work-related tasks, they will be eligible for medical care and compensation for lost wages without having to file a lawsuit against their employer.
Frequently Asked Questions
From finding bids to handling unique tax situations, there are a multitude of additional requirements contractors in California face after obtaining their licensing. Here are some additional frequently asked questions about these unique situations.
How Do I Handle Taxes?
Tax preparation can be complicated for contractors, no matter the business classification (sole proprietor, partnership, or LLC). To ensure that all taxes owed are paid, contractors should keep accurate records of their income and expenses throughout the year to accurately calculate their net profits.
Contractors in California are responsible for ensuring that all taxes, including payroll, sales, and income taxes, are paid in full and on time. Contractors must also keep accurate financial records of their business transactions to ensure proper reporting of their tax liabilities.
The tax process for contractors in California, particularly those with Partnerships or LLCs, can be complicated, so it’s important to consult with a tax professional if you have any questions. In most situations, contractors must pay estimated quarterly taxes to the Internal Revenue Service (IRS) and the State of California Franchise Tax Board (FTB). This can be done using estimated taxes or by submitting payment electronically.
How Do I Find and Bid on Contracts?
Many counties and cities have websites listing government contracts available for bidding. It is important to identify your niche and target the types of projects that you are most qualified for. Once you have identified potential clients, make sure to follow up with them regularly, so they remember who you are and what services you offer.
As a new contractor, finding projects and bidding on contracts can be difficult. One of the best ways to get your business’s name out there is by networking with other contractors in your area. You can also attend local trade events or visit government websites for information about upcoming projects that are available for bidding.
How Do I Handle Disputes and Complaints?
Contractors in California are required to abide by the terms of their contracts and resolve any disputes or complaints efficiently. It’s always best to try and resolve any issues without going to court, but if necessary, you may need to seek legal advice from a qualified lawyer.
If you are dealing with a dispute involving a client or customer, it’s important to treat them respectfully and communicate clearly about the issue. Be sure to document any conversations in writing for your records. Additionally, you should follow all applicable laws and regulations when it comes to resolving disputes.
If a complaint is reported to the CSLB, the Intake/Mediation Center at CSLB will send contact letters to both you and the complainant, encouraging them to work with you to resolve the complaint.
Typically, these contact letters are received within two or three weeks of CSLB receiving the complaint. Whether it is assigned a Consumer Services Representative (CSR) depends on current staffing and workloads at CSLB’s Intake/Mediation Center.
Becoming a licensed contractor in California can be an exciting and rewarding experience. Though the process involves a lot of paperwork and regulations, following the steps outlined above will help ensure that you are properly licensed and legally compliant.
It’s also important to remain aware of any new laws or regulations that may come into effect so that you can stay up-to-date with your compliance requirements. Additionally, it’s essential to network and build relationships with other contractors in order to find projects and bid on contracts.
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