Pitfalls to avoid to keep your license in good standing

#1 Not completing your final audit when you stop working with State Fund:

In recent years, we have been running into more and more problems with contractors who had State Fund workers compensation insurance. If you had a state fund policy and for any reason whatsoever you decide you don’t need it anymore – and you stop filing the returns without doing a final audit, they will continue to bill you. They will bill you based on a higher rate and it will accumulate. Eventually, you will end up with a large bill that can be anywhere between $20,000-$50,000, and if you don’t contest, you or your RMO will not be able to get a new policy with them. If you have no more employees or you don’t need worker’s comp policy anymore and you want to close the account. They may just ask you for a final return. We suggest you do the audit and close the account properly so you don’t have a problem next time you need workers comp or the next time you are hiring people.

#2 Moving and not updating your address with CSLB

You will not receive your renewal documents and you will not be able to renew your license if you don’t update your address with CSLB which can lead to an expired license until you fix that. Unfortunately, you will not be allowed to conduct any work and it can be expensive fines if you get caught. It is really important that you keep a current address on file with the license board. Save yourself from the extra citation by keeping your correct address on file.

#3 Collect more than the allowed deposit (Up to 10% or $1,000 whichever is less)

If you collect more than the legal deposit on a contract (10% of the total amount or $1,000 maximum, whichever is less), this is a really easy way to invalidate your contract with the homeowner. If the homeowner decides to dispute the contract or doesn’t want to pay you a payment, you will not be able to take that contract to court because it’s going to be an invalid contract. You must stick to the rules. The licensing board will not be on your side trying to help you when you violated one of their major rules. Contrary to regular business practices, even a verbal agreement is considered an invalid legal agreement. Construction law is different and a specific contract/language must be used between a contractor and a homeowner to make it valid.

#4 Not having a legal written contract with all the necessary clauses

A handshake and verbal agreement is not a valid contract. You must have the formal contract that includes all the legal requirements that are specified by the license board. It is easy to find them at a contractor bookstore and you can customize them with your name and you can add the other variables. They are all legal and they will withstand any investigation and court hearings. Anything else will not. You will lose any case you have if you don’t have the legal format that is required by the license board on your contract.

#5 Not giving your clients 3-day notice to rescind

When a contract is signed, you must give your customer a three-day notice with a right that they can rescind the contract and then be able to cancel within three days. When there is an urgency, you can have them typically sign a waiver. However, in construction law, you can not do it unless you have a valid reason. If you ignore the three-day notice, any work you did during those three days, the homeowner is not required to pay you. If you want to take that chance, that is up to you. We would like you to know that you are taking a risk.

#6 Advertising without a license number

If you distribute flyers without your license number or put an ad on Craigslist / Yelp without a Contractor’s License- you are exposing yourself to the risk of a citation. It is really easy to catch and it is a no-brainer for the investigator. Also, if you run into any problems with the customer, the homeowner, it will just be added to the complaints. That means you will have the complaint of whatever the customer is complaining about plus all the violations- such as charging too much on the deposit or not having your license number listed in the ads. These tips are the easiest way to protect yourself or at least not expose yourself unnecessary to additional citations which you will not be able to argue against.

#7 If you work with a RMO – Not allowing sufficient supervision by the RMO

It is important for you to understand that your RMO is exposed to risk through your business. If you don’t obtain a worker’s compensation insurance policy or have issues with customers, then his/her license is at risk and therefore it is extremely important that you cooperate with your RMO. You need to respond to the RMO and that includes allowing supervision of your projects & operations. If the RMO feels that he/she is being ignored or not having access to important information- he/she will resign based on those reasons.

RMO agency will not give you a substitute RMO, and there should be no reason for you to not allow supervision. We will not be able to replace the RMO for you.

#8 Not pulling permits when needed

Another easy way to get a citation that you can not dispute is taking on jobs without permits. You can not dispute that if a permit was required and you did not apply for it. You will be guilty as charged, you will be cited and your license might get suspended, and in some cases revoked. It depends on what else went on. Get your permits!

#9 Hiring unlicensed subcontractors (Remember they are considered to be your employees)

Hiring unlicensed subcontractors is a bit tricky. They appeared to be contractors. They have their own crews, they provide their own labor and materials and they act like a contractor. You set a price with them either by the phone or a set price agreed on in person. You don’t pay for labor and you don’t pay for time. It is very convenient. Many unlicensed subcontractors are providing a lot of work. An unlicensed contractor is simply an employee in the eyes of the law. That means that you are required to deduct taxes and pay workers comp. If you are a licensed- then you are considered a contractor. If you’re unlicensed, your an employee- it is as simple as that. Otherwise, you’re exposing yourself to risk, not just to the license board but also with the IRS and the state. It is a risk not worth taking.

#10 running the risk of operating with no liability insurance

The license board does not require you to have liability insurance (as a corporation). However, it is very beneficial to have one because the risks are high. You’re dealing with homeowners homes. These are pricey projects and any damage can amount to a high cost. The one big benefit of having liability insurance is that when you get sued, the liability insurance will protect you. They will pay for you for legal costs to protect you because they’re protecting themselves, since you are insured and they’re the ones who are going to have to pay for the damage. They will either defend you or settle the case. Either way, that alone is worth getting liability insurance.

  • CSLB require LLCs to carry liability Insurance

One exception to the liability insurance is a LLC (limited liability corporation)- the license board does require LLCs to have liability insurance.

#11 Declaring to be exempt and hiring employees or unlicensed subcontractors

Another insurance that is not required by the license board is workers’ compensation. The reason it is not required is that you might be entitled to exempt. You and any other officer in your corporation can be exempt from worker’s compensation. That’s why it’s not required, however, it is highly recommended. If you have employees or if you hire subcontractors who are not licensed, you are required to have them covered by worker’s compensation.

#12 Doing work under a suspended license

Any work you do under these circumstances is a violation of the construction license law. You will be cited and not be able to collect money for the work done when your license is suspended. You must stop the work completely. Any work you continue is a violation of the code, violation of the contract and the homeowner will not have to pay you for that work

#13 Not responding to important CSLB letters regarding complaint /accusations. You will lose your right to defend yourself!

So you’ve got a complaint and you’ve ignored it? You did not respond to the license board? They are left with no choice and they will give you a citation or proceed to an accusation. They will not give you the chance to present your case and eventually your license will be suspended or revoked. You have a right to a hearing, mediation or arbitration and you have a right to defend yourself against any complaints. However you need to do it within a specific time frame. Any procrastination or ignoring requests on the license will result in you losing your rights for this case.

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Business & Professions Code 7068.1

The person qualifying on behalf of an individual or firm under paragraph (1), (2), or (3) of subdivision (b) of Section 7068 shall be responsible for exercising that direct supervision and control of his or her employer’s or principal’s construction operations as is necessary to secure full compliance with the provisions of this chapter and the rules and regulations of the board relating to the construction operations. This person shall not act in the capacity of the qualifying person for an additional individual or firm unless one of the following conditions exists:

(a)There is a common ownership of at least 20 percent of the equity of each individual or firm for which the person acts in a qualifying capacity.

(b)The additional firm is a subsidiary of or a joint venture with the first. “Subsidiary,” as used in this subdivision, means any firm at least 20 percent of the equity of which is owned by the other firm.

(c)With respect to a firm under paragraph (2) or (3) of subdivision (b) of Section 7068, the majority of the partners or officers are the same.

(d)Notwithstanding subdivisions (a), (b), and (c), a qualifying individual may act as the qualifier for no more than three firms in any one-year period.

“Firm,” as used in this section, means a copartnership, a limited partnership, a corporation, or any other combination or organization described in Section 7068.

“Person,” as used in this section, is limited to persons natural, notwithstanding the definition of “person” in Section 7025.

The board shall require every applicant or licensee qualifying by the appearance of a qualifying individual to submit detailed information on the qualifying individual’s duties and responsibilities for supervision and control of the applicant’s construction operations.

CAL. BUS. & PROF. CODE §7065.1.

Notwithstanding Section 7065, the registrar may waive the examination for a contractor’s license under any of the following circumstances:

(a)The qualifying individual has, for five of the seven years immediately preceding the application for licensure, been listed on the official records of the board as a member of the personnel of any licensee who held a license, which was active and in good standing, in the same classification being applied for, and who during the period listed on the license has been actively engaged in a licensee’s construction activities in the same classification within which the applicant applies for a license.

(b)The qualifying individual is an immediate member of the family of a licensee whose individual license was active and in good standing for five of the seven years immediately preceding the application for licensure, and the qualifying individual is able to show all of the following:

(1)The qualifying individual has been actively engaged in the licensee’s business for five of the seven years immediately preceding the application for licensure.

(2)The license is required to continue the existing family business in the event of the absence or death of the licensee.

(3)An application is made for a new license in the same classifications in which the licensee is or was licensed.

(c)The qualifying individual is an employee of a corporation seeking to replace its former qualifying individual and has been employed by that corporation under the following conditions:

(1)For five of the seven years immediately preceding the application for licensure, the qualifying individual has been continually employed by the corporation in a supervisory capacity in the same classifications being applied for.

(2)For five of the seven years immediately preceding the application for licensure, the corporation has held an active license in good standing in the same classifications being applied for.

The corporation has not requested a waiver under this subdivision within the past five years.

For purposes of this section, employees of a corporation shall include, but not be limited to, the officers of a corporation.