What? You really need a Contractors License?

Interview by David Parikh for OCBusinessStartUp.com

Background We have had requests to do articles on businesses that are don’t require a lot of capital or specialized training.  But, as noted in the articles, you may be require a Contractors License from the State of California State Contractors Licensing Board (CSLB).  So we wanted to look into specifically what the law required.  We understand that a lot of people may not be compliant with the law because the law as understood by many people appears to be different from the law enforced by the CSLB and California’s Attorney General.  Urban myths, half truths and misstatements by people who are not compliant with the law are what many people have come to believe is the law.  It’s fairly complicated.  So we contacted Melanie Bedwell in the CSLB’s office of Public Affairs.

(We are not a legal site, so please seek legal advice from an attorney with an expertise in labor law.  Also note the reason we felt it necessary to ask the CSLB these questions is that we felt the law was not clear in the minds of many people.  This is not a Political Website and we did not mean to imply that we either fully support the current law or are advocating changes in the law.)

The representative of the CSLB made it clear that according to the California law you need a contractor’s license if you are hired to do construction or building improvement that has a value of $500 or more.  The value includes both your time and materials.  There is no legal way to get around this requirement.

  • No Handyman’s License.  Even though we know that some handypersons claim to have them, the state of California does not have a Handyman’s license.  Also, the state does not recognize handyman licenses issued by private companies, other states, or Canadian Provinces.  The handyman license seems to be an urban myth.  Also you can not avoid the licensing requirement by calling your self a “handyman.”
  • Work as an Employee You can work as an employee of the homeowner who has the right to do work in her own home without a license.  The only thing is you don’t have the right to put a lien on the property. This is generally false, but it is a judgement call to some degree.  If you are directing your work, provide your own tools and set your own hours, you are considered a contractor and need a license.

The critical issue seems to be how a job is defined and the value of the job.  We asked about what is meant by the “value” of the job.

Q: (OCBusinessStartUp.com): According to your website, you need a contractor license if the value of the job is $500 or more.  What if the home owner buys the materials?  For instance, can a homeowner pay you $499 to install tiles she has already purchased?

A:(Melanie Bedwell CSLB Public Affairs) No.  The project is still VALUED at more than $500—labor and materials.  It is also illegal to identify a project in cost segments to try to skirt this law, per Business & Professions Code Section 7048.

Next we asked about the practice of basically splitting the job up and writing separate invoices

Q: (OCBusinessStartUp.com)   Is the $500 limit an aggregate limit or a per job limit.  For instance, a homeowner pays $400 for the tile install this week then $200 to install new faucets next week and then $400 to paint the room the following week.  Is this one job or three?  If you have a gardener making $50 per month, do they need a contractor’s license?

A:(Melanie Bedwell CSLB Public AffairsI answered the first part of this question above.  Whether this is one job or three depends on the contract and when the improvements were discussed.  Were these all discussed as one project or separate projects at different times?  Circumventing the law by splitting these projects up would be illegal. If they were negotiated at separate times, they could be considered individual jobs.

Gardeners who provide services under $499 are not part of the $500 threshold.  (Sprinkler repair, sod replacement, etc. that goes above $499 in aggregate cost—material AND labor—requires the C-27 Landscaping contractor license.)

Follow Up Question (OCBusinessStartUp.com) Regarding people who are contracted for a job every period [weekly, monthly, by-weekly].  I didn’t do a good job asking the question.  I used the example of a gardener.  They make more than $500/year but don’t get paid all at once.  Gardeners who provide services under $499 are not part of the $500 threshold.  I am not clear as to what you meant.  Are gardens (i.e. lawn service) exempt from getting a contractors license?

A:(Melanie Bedwell CSLB Public Affairs) [Regarding] the landscapers, if each job is less than $500 the person does not need to be licensed.  If a visit includes an agreement to provide services that will total $500 or more, a state C-27 Landscaping license would be necessary.  Obviously, a lawn service provider will earn more than $500 on an annual basis, but generally lawn service providers don’t charge the threshold amount for each visit.

A lot of people are competent in doing the work, but they may not have test-taking skills necessary to do well on the exam.  We asked if there are any exemptions.  

Q: (OCBusinessStartUp.com)  I understand that contractors need to take an exam to get a license.  We have a lot of people in the state that do not have high literacy skills in English or Spanish.  Is there a special accommodation made for them with respect to the test?

A:(Melanie Bedwell CSLB Public Affairs) When requested, special foreign language accommodations are made for license applicants.

Follow Up Question (OCBusinessStartUp.com) I was referring to literacy in general rather than literacy in a particular language.  It seems like a lot of people are skilled at the job, but they may not feel capable of passing a written test.  … If someone has a learning disability or just cannot read at a high grade level are there any accommodations made for them by the CSLB?

A:(Melanie Bedwell CSLB Public Affairs) [Regarding] individuals who have lower-level English skills because of lack of education, if the person can provide documentation that they dropped out of school or that they had/have a learning disability, CSLB lets them have someone else read the examination to them.  But, just as with a foreign language, the “translator” must complete an application and be approved in advance.

We asked about which type of license would be required to start a handyperson business.  As we noted above, California does nto have a Handyman License.  But a lot of people would like to do small one-day jobs, and don’t want to invest in getting a Contractors License or have the formal experience to qualify for such a license.

Q: (OCBusinessStartUp.com)  Suppose a handyman is hired to change out electrical plugs, fix broken shingles on the roof, and paint a room.  Do they need to have a contractors licenses C33 (painting and decorating) C39(roofing) and C10(electrical)?

A:(Melanie Bedwell CSLB Public AffairsThis question is similar to [the question above regarding separate invoicing]. The licenses would be necessary if these are part of a planned improvement project—the total sum of all work.  You can’t split work up.  With more than two trades involved in your scenario, the “B” General Building licensed contractor could do these projects.

We would like to thank the CSLB for taking the time to answer our questions with such great detail.

Updated Information We had been getting a lot of questions regarding the regulations regarding the license requirements to work legally as a Contractor.  We went ahead and asked CSLB Public affairs Representative Malanie Bedwell for some clarifications on these issues.  
 

The first question gets into the topic of whether you need to have a contractors license if you are acting as a Salesperson–selling construction services.  Since customers seem to avoid people referred to as Salesmen/women, often the terms consultant, interior designer, or coordinator are used.

Q: (OCBusinessStartUp.com) Is it legal to be a construction consultant or coordinator.  Basically the job involves bidding on the job and arranging other contractors or workers to come in and do the job.  Also arranging to purchase the materials.  The consultant or coordinator doesn’t get paid more than the threshold ($500) from the homeowner, but might make a commission from the supplier or contractor.  The homeowner pays the workers, contractors and suppliers directly.  So is this person acting, according to the law, as a general contractor or as a sales person?  The assumption being that former would need a contractor license while the latter would not.

 A:(Melanie Bedwell CSLB Public Affairs)

Melanie referred us to the Business and Professions Code.  We added bold print below.

§ 7026.1. “Contractor”

The term “contractor” includes all of the following: (a) Any person not exempt under Section 7053 who maintains or services air-conditioning, heating, or refrigeration equipment that is a fixed part of the structure to which it is attached.

(b) (1) Any person, consultant to an owner-builder, firm, association, organization, partnership, business trust, corporation, or company, who or which undertakes, offers to undertake, purports to have the capacity to undertake, or submits a bid to construct any building or home improvement project, or part thereof.

(2) For purposes of this subdivision, a consultant is a person, other than a public agency or an owner of privately owned real property to be improved, who meets either of the following criteria as it relates to work performed pursuant to a home improvement contract as defined in Section 7151.2:

(A) Provides or oversees a bid for a construction project.

(B) Arranges for and sets up work schedules for contractors and subcontractors and maintains oversight of a construction project.

(C) A temporary labor service agency that, as the employer, provides employees for the performance of work covered by this chapter. The 280 SECTION VI. LICENSE LAW, RULES, REGULATIONS, AND RELATED LAWS provisions of this subdivision shall not apply if there is a properly licensed contractor who exercises supervision in accordance with Section 7068.1 and who is directly responsible for the final results of the work. Nothing in this subdivision shall require a qualifying individual, as provided in Section 7068, to be present during the supervision of work covered by this chapter. A contractor requesting the services of a temporary labor service agency shall provide his or her license number to that temporary labor service agency.

(D) Any person not otherwise exempt by this chapter, who performs tree removal, tree pruning, stump removal, or engages in tree or limb cabling or guying. The term contractor does not include a person performing the activities of a nurseryperson who in the normal course of routine work performs incidental pruning of trees, or guying of planted trees and their limbs.  The term contractor does not include a gardener who in the normal course of routine work performs incidental pruning of trees measuring less than 15 feet in height after planting.

(E) Any person engaged in the business of drilling, digging, boring, or otherwise constructing, deepening, repairing, reperforating, or abandoning any water well, cathodic protection well, or monitoring well.

Added Stats 1971 ch 1365 § 1. Amended Stats 1991 ch 1160 § 6 (AB 2190); Stats 2003

ch 759 § 1 (AB 544); Stats 2004 ch 183 § 10 (AB 3082); Stats 2012 ch 371 § 1 (AB 2237),

effective January 1, 2013.

 

 The CSLB provided us with these additional resources.

Here’s a broader response from a news article. Be sure you’re signed up to receive CSLB’s “Email Alerts” so you receive these automatically (link below).

http://www.cslb.ca.gov/GeneralInformation/Newsroom/PressReleases/PressReleases2012/News20121231.asp

https://www2.cslb.ca.gov/OnlineServices/MailList/MailSignup.aspx

Also, representatives of contractors must be registered as Home Improvement Salespersons. Please read the Q&A’s on the link below:

http://www.cslb.ca.gov/applicants/HomeImprovementRegistration/BeforeApplyingForHIS.asp 

Our Takeaway, generally speaking, you do not need to have a contractors licence if you directly for a contractor (under a contract), and you are a Registered Home Improvement Salesperson.  From our understanding, it would not be legal to independently advertise and bid on projects and then find people to do the work.  There are exceptions for HVAC work, gardeners, and people drilling wells.  

We had several questions about being a comercial gardner vs. being a commercial gardner.

Q: (OCBusinessStartUp.com)  There is an exemption for residential landscapers if the charge less than the minimum amount every month.  Does that apply to commercial gardeners?  For instance people who do the plants at shopping centers or hotels.

 A:(Melanie Bedwell CSLB Public Affairs) Monthly/weekly yard maintenance workers do not need a C-27 Landscaping license. Larger, contracted jobs require licensure.

C27 – Landscaping Contractor

California Code of Regulations
Title 16, Division 8, Article 3. Classifications

A landscape contractor constructs, maintains, repairs, installs, or subcontracts the development of landscape systems and facilities for public and private gardens and other areas which are designed to aesthetically, architecturally, horticulturally, or functionally improve the grounds within or surrounding a structure or a tract or plot of land. In connection therewith, a landscape contractor prepares and grades plots and areas of land for the installation of any architectural, horticultural and decorative treatment or arrangement.

Authority cited: Sections 7008 and 7059, Reference: Sections 7058 and 7059 (Business and Professions Code)

http://www.cslb.ca.gov/generalinformation/library/licensingclassifications/C27Landscaping.asp

Note, there is another issue not related to contractors licenses.  It is our understanding that Homeowners are exempt from the requirement buy Workers Comp insurance if they hire someone to do normal household maintenance such as lawn maintenance   It is our understanding that this exemption does not hold if persons are employed to maintain commercial or agricultural vegetation.  And if you are an employer hiring people to do work, you probably need to have Workers Comp insurance for your employees regardless of whether or not they are doing residential yards.    Again, California’s regulations are very complex and we are not legal experts.  You can contact the workers comp board or an attorney specializing in labour law for more information.  

Q: (OCBusinessStartUp.com) Readers still seem to be confused on how a project is defined.  From what I understand, they cannot divide up a job into smaller jobs and charge less than $500 per job.  If a bunch of small jobs are discussed at one time, for instance paint the walls, paint the ceiling, repair flooring, replace window air conditioner, and then done one at a time are they considered to be four small jobs or one project?  What if the handyperson comes back for each job at a different time and is paid separately for each job?  What if the homeowner is happy a small job and calls the handyperson back for another job, and another job?

A:(Melanie Bedwell CSLB Public Affairs) Your questions are broad. If I ask for painting bids (one category of work), it’s not likely that I’m going to ask for air conditioning repair. (The painting job, alone, is likely to exceed $500 and require a licensed contractor.) It doesn’t matter which type of trade is being requested.

Maybe this example will help: I hired a handyman to fix a small portion of a damaged fence ($250). A month later, I used that same handyman to help repair a closet door ($20). Totally different jobs; completely acceptable.

Q: (OCBusinessStartUp.com) A reader wanted to know if they needed a contractor license if they used hazardous chemicals, but they were doing small jobs.  The chemical in question was paint stripper.

A:(Melanie Bedwell CSLB Public Affairs) ‘Sounds dangerous. CSLB-licensed contractors take an asbestos exam, but others who routinely work with hazardous materials ought to check with Cal/OSHA to determine if they need to be registered:

http://www.dir.ca.gov/dosh/

Q: (OCBusinessStartUp.com) A reader wanted to know if he could hire a handyman by the hour and that person did not have a contractor license.  Basically, could the project be defined as something like a day’s work?

Handymen always work by the hour. As long as the total labor and material costs are below $500 they can hire anyone. If work costs exceed $500, the person must be a state-licensed contractor. You might be asking about owner-builder guidelines? If so, the owner-builder who hires someone is considered to be an employer and must follow state employment  laws:

http://www.cslb.ca.gov/Resources/GuidesAndPamphlets/OwnerBuildersPamphlet.pdf

—————————

Our Takeaway It seems like the limit is so low that if you are doing any home improvement or repairs you will need to have a contractors licence to advertise for work.  Most jobs will be grater than $500 in value.

So, How do you get a Contractors License?

Getting a Contractors License

State booklet http://www.cslb.ca.gov/Resources/GuidesAndPamphlets/BlueprintForGettingLicensed.pdf

Based on this, it appears that you will need to have four years relevant of work experience.  But if you have a 4-years college of college ( a degree in accounting, business, economics, mathematics, physics, or areas related to the specific trade or craft for which application is being made; a JD, or if have not completed all your classes, substantial college work in accounting, architecture, business, construction technology, drafting, economics, engineering, mathematics, or physics.  Apparently the CSLB determines what is substantial experience.) you can qualify with only two years of experience.  If you have an AA degree in Building Construction Management from an accredited school, your work experience required is 1 ½ years.  If you attended community college or a trade school, you can get by with only two years of experience.  And up to three years of experience credit if you have graduated with degrees specific to your classification (type c license).

The educational/experience requirements seem to be the same for a class C specialty and Class B general license.  It will cost you about $650 from the state board to get the license and you will need to get a bond of $12,500.  (You can either put this money up or go through a bonding company that charges you a fee.)

Additional Requirements if you contracting business has employees.  The CSLB requires you to have a workers compensation insurance plan in place if you have employees or if your license requires Responsible Managing Employee (RME), or if your are a roofing contractor.

As with any business hiring an employee, you will also need to get an Employment Identification Number (EIN) with the IRS so you can pay federal employment taxes (for social security, medicare and withholding).  You will also need to get a separate employment number with the California Employment Development Department (aka EDD).  This is so you can pay into the state program for disability insurance and unemployment insurance.

To avoid these expenses, many California Contractors have decided that it is not cost effective to hire employees.  If you plan to work without employees, you must request to be exempt from the workers compensation insurance by filling out this form: CSLB Exemption Form 

The other issue is that you need to have a clean criminal background.  (Contact the CSLB to see what convictions are an issue.  Anything  felonies or crimes involving fraud will likely be a problem.)  If you owe the state money or are delinquent in child support payments  these may be cause problems with the CSLB.

The best way to move forward seems to be contacting a contractors license school so that you can be successful on the exam.  They will know all the details to get your app approved.

[We are still working on this part of the article.  Please let us know what we’ve got wrong and your opinion. ]

© 2011 OCBusinessStartUp.com