Contractors in California must secure a $15,000 bond to become and maintain a contractor license. This requirement is enforced by the Contractors State License Board (CSLB).
A license cannot be issued or renewed without a bond on file. The contractor license bond must be written by a surety company accredited by the California Department of Insurance.
Through bonding, a contractor only pays a fraction of the price, between $69 and $700 for the California contractor bond. Pricing is based on personal credit, contractor classification, years in business and current bonding.
Brokers that offer this bond shop with various markets in order to find a price that works best for you.
Contractor license bonds act as a safety net for the public that was put in place by the State Legislature of California. A contractor must have a bond in place for the purpose of protecting the public from any damage caused by the contractor.
A contractor’ client or vendor has the ability to file a claim on the bond, which will be paid out if the surety company proves the claim is valid. It is then up to the contractor to pay the surety back for any money paid out, in addition to legal fees if applicable.
The contractor license bond may not be the only bond a contractor is responsible for in California.
A bond of qualifying individual (BQI) is required when the owner of the business does not have the necessary expertise in a certain trade. In these cases, a Responsible Managing Employee (RME) or a Responsible Managing Officer (RMO) must be appointed as an expert in the trade they are qualifying for the business. A $12,500 BQI must be filed for each qualifier that has less than 10% ownership of the contractor business.
A disciplinary bond is required when a contractor does not follow state license law and the contractor's license was dissolved due to this. A disciplinary bond must be filed in order to operate with a contractor license following the disciplinary action. The cost of this bond varies based on the severity of the violation. Although the disciplinary bond will not have a limit of less than $15,000, the limit could go up to as much as ten times the amount of the contractor license bond.
Limited liability corporations (LLC) must purchase an LLC Employee/Worker Bond with a limit of $100,000. This bond protects employees of an LLC by ensuring that the company does not neglect paying its employees’ wages, interest on wages, or fringe benefits. This bond is in addition to the $15,000 contractor license bond, and any other required bond types for the corporation.
General liability insurance is not required of all California contractors but it is still recommended to protect against financial ruin. Many commercial and all government projects will require proof of liability insurance prior to allowing a contractor on a job. A general liability policy covers contractors for amounts owed due to damages or injuries that arise from the contractors work.
Workers comp insurance is mandatory for any contractor that has an employee. This policy is in place to provide benefits to an employee, or their family, if they sustain an injury, become ill or are killed due to work performed.