Paying RME’s,Getting LLC’s and Changing A Sole Owner License

We speak volumes of words to each other each day, but one word makes all the difference when written into contractor’s regulations. It’s been a whirlwind of change as contractors nail down the benefits of operating under the new LLC (Limited Liability Company) rules now available in California…

Q:  I have a current General Building license and I am trying to find out if I can pay my RME as a 1099 Independent Contractor.  The reason for this is that we don’t have work year-around and we just plan to pay him piece-meal when we have a project.

 

A: RME stands for Responsible Managing Employee.  1099 forms are typically used when you are paying someone who is not your employee.  An RME must be a bona fide employee of the firm and be regularly employed by the firm and actively involved in the operation of the business at least 32 hours per week or 80 percent of the total business operating hours per week, whichever is less.  That being said, there is no wage requirement for RME’s so technically you can pay him “piece-meal” as long as he is on payroll and receiving wages at least 80 percent of the time that you are actively engaged in projects.

 

Q: I am an attorney and my firm has used your company several times in the past to assist my clients with CSLB issues.  I am in need of your assistance again.  One of my clients, an engineering firm with a General Engineering “A” license, is currently structured as a corporation in California.  They want to continue to operate as a corporation, but they plan to form a LLC to own the corporation, as opposed to the individuals have direct ownership.  Is this possible?

 

A:  The CSLB does not have any rules or regulations with regards to who can or cannot own a licensed corporation.  When applying for a license, the CSLB does require you to disclose how much equity the qualifying individual has in the company (if any), however they do not look in to ownership beyond that.  As long as your client intends to continue to do business as a corporation, and not as an LLC under the guise of a corporation, there is no need to inform the CSLB of the ownership transfer.

Q: Is there any way to change a sole proprietorship license to a different entity without re-applying for a new license?

A: Any time you change or form a new entity you are required to re-apply for a contractor’s license.  In certain circumstances you can request that a sole proprietor license number be transferred to the new entity, but that still involves re-applying for the license. Please feel free to call our office if you’d like assistance in this process.

 

“C-9” & “C-35” Conflicts & Solar Installation Rules for Swimming Pools

We shine the light of knowing into the dark corners of myth, misconception and mistaken ideas about solar that will be good news for pool contractors. Another dispute can be settled by the word, ‘if’, which draws a line in the ‘sand’ for plaster and drywall work…

Q:  You helped me get my “C-53” swimming pool license a few years back and I have a question for you.  A few of my customers have asked me to install solar heating for their residential pools that I have serviced, but I have been told by other contractors that I specifically need either a “B” (General Building) or a “C-46” (Solar) license to do these installations.  Is that correct?

 

A: Nice to hear from you again!  Since solar contracting is an ever-expanding part of construction these days, there is a lot of talk and also a lot of confusion over the proper license that a contractor needs in order to perform this work.  A “C-53” Swimming Pool contractor is authorized to include the installation of solar heating in swimming pools projects, so you will not need to obtain any additional classifications.

 

There are also several other classifications that allow contractors to perform solar installation/repair jobs: “A” (General Engineering); “B” (General Building); “C-4” (Boiler) contractors are authorized to perform solar heating specifically associated with boilers, hot-water heating and steam fitting; “C-10” Electrical contractors can perform solar projects that involve electrical energy; “C-36” Plumbing contractors can perform solar to heat water or fluids; and of course “C-46” Solar Contractors can perform all types of solar installations.

 

Q: Hello, I am a regular reader of your Q&A column in our local Contractor’s Association newsletter.  Thank you for your engaging reading.  My question may be a good candidate to share as I have not read anything of the sort in the 4 years I have been following you.  I am licensed as a “C-9” (Drywall) and a “C-35” (Lathe and Plaster) contractor.  I am losing drywall business to a local large plastering contractor and decided to check his license status.  It turns out he does not have a “C-9” license.  Where is the line drawn between a lathe and plaster contractor and a drywall contractor?  Can a “C-35” contractor take on regular drywall services?

 

A:  Thank you for reading the column.  We appreciate you contacting us it’s why we are here to help.  The “C-9” and the “C-35” are two distinct classifications.  A “C-35” contractor cannot do a project that is exclusively drywall, and likewise, a “C-9” contractor cannot do a project that is exclusively lathe and plaster.  The two classifications are similar though, so a C-35 can do some of the work that falls under a “C-9” classification, if the work is supplemental and incidental to the lathe and plaster job.  This is the same for a “C-9” contractor with regards to lathe and plaster; he/she can perform some “C-35” work, if it is incidental and supplemental to the drywall job.

For those who may have missed it a complete list of the new and revised 2013 laws affecting State Contracting Practices, please visit our website at www.cutredtape.com or call with any questions.

New Regulations & Legislation for Contractors in 2013

If you are reading this now and are unlicensed, a resolution to become a licensed contractor is a good choice in 2013.  While most of us have been working to make (and keep!) New Year’s resolutions, the CSLB has been hard at work implementing new laws and regulations for contractors…

 

First, contractors should be aware that employee-reporting laws have been strengthened by the passage of Assembly Bill 1794.  The new law, which took effect January 1, 2013, authorizes the Employment Development Department (EDD) to share new-hire employee information with agencies in the state’s Joint Enforcement Strike Force on the Underground Economy (of which the CSLB is a member) and the State Compensation Insurance Fund.  This new practice of information sharing among state offices will ensure that employers are accurately reporting their employee payroll to their insurance carrier for establishing their Worker’s Compensation premium.

 

Contractors are currently required to carry adequate Worker’s Comp insurance for employees or submit an exemption or Certificate of Self-Insurance.  However, a CSLB study revealed that nearly half of licensed contractors either claim an exemption based on having no employees or maintain a minimum policy under which no employees are reported to their insurance carrier.

 

“This landmark legislation benefits consumers, contractors, and employees,” said CSLB Registrar Steve Sands.  “When employers properly report and insure employees, consumers are protected by Workers’ Compensation insurance coverage if an accident occurs on their property, businesses pay less in insurance premiums, and employees are eligible for unemployment insurance when they’re properly listed on the payroll.”

Next up, Assembly Bill 2237, sponsored by the CSLB, more clearly defines the term “consultant” as it relates to building and construction work.  The new law states that anyone who provides or oversees bids for construction, arranges for subcontractor work and schedules, and/or has oversight for a project is, in fact, acting in the capacity of a contractor and must be state-licensed.  In California, a state contractor license is required for any project that is $500 or more in combined labor and material costs.

Another CSLB-sponsored bill strengthens enforcement authority over contractors who violate state contracting laws.  AB 2554 amends Business and Professions Code sections 7011.4 and 7106.5 to enable the CSLB Enforcement division and its representatives to issue notices to appear in court related to disciplinary actions against a license.

Several other laws affecting consumers, contractors, and the construction industry took effect as the new calendar arrived:

AB 2219 indefinitely extends the requirement that all C-39 Roofing contractors obtain workers’ compensation insurance coverage, even if they certify that they have no employees.  The bill also extends, indefinitely, the requirement that insurers conduct annual audits, and requires that these audits be conducted in person to verify the accuracy of the reported number of employees.

AB 2114 enacts new construction permit requirements for swimming pools, spas, or public wading pools.

AB 2339 requires state regulators and those involved in the heat pump and geothermal heating and cooling industries to evaluate policies and develop infrastructure for wider use of these technologies.

SB 1576 allows the CSLB to take administrative action if a licensee files a false complaint again another licensee.

For a complete list of the new and revised laws affecting State Contracting Practices, please visit our website at www.cutredtape.com or call with any questions.

HIC & Owner Purchases, Partnership Licensing and NV Bid Limits

A new year brings new opportunity to learn, grow and profit. We work together here to help find answers to common problems and give contractors a resource they can count on in building their business. Every year also brings new regulation, changes in interpretation, and greater complexity in understanding how to work as a licensed contractor. Sometimes those rules create problems of their own requiring a little ‘creative’ thinking, while a Nevada contractor finds no amount of ‘slicing or dicing’ will trim a project to his bid limits…

 

 

Q:   I understand that under the CA Home Improvement Act, a contractor must state the amount of compensation as a sum certain, as opposed to “time and materials” or cost-plus arrangements.  Many of my clients find this problematic, especially when they must purchase large material quantities in excess of the $1,000 deposit limit, such as lumber drop-shipments.

I am not aware of any way to get around this problem.  However, it occurs to me that if contractor and homeowner decide to exclude the lumber purchase from the contract, such that contractor is not charging profit & overhead on the materials, then it should be acceptable for the owner to purchase the lumber from the supplier directly.  I ‘m not asking you for a legal conclusion, but are you aware of any specific prohibition against this approach?

 

A:  It’s a good question and one that has been raised in the past by Capitol Services’ clients.  According to the CSLB, the owner may purchase the material directly from the supplier without running afoul of the 10%/$1000 limit.  Other options would include having a joint check from the owner to the contractor AND material supplier (although the direct check is cleaner); or a payment and performance (i.e. blanket) bond similar to what a “big box” store carries which allows the contractor to receive payment prior to the materials being supplied.

 

I would recommend contacting the CSLB if your clients want to investigate posting such a bond specific to a given project.

 

 

Q:  We’re going to start a partnership with three partners.  My two primary questions are: A) What happens if one of the partners leaves; and B) Is Worker’s Compensation coverage required by the CSLB if we have no employees?

 

A:  If any one of the three partners leave the license for any reason, the company (or one of the partners) has 90-days to notify the CSLB.  The Board will cancel the license but will allow the remaining partners to complete jobs in progress if such a continuation request is made in writing.  As for Worker’s Comp being required, this should not be necessary unless you have employees.  Our understanding is that the three partners will not require coverage; however, it is best to confirm this with your insurance carrier.

 

Q: We currently have a Contractors License in Nevada with a bid limit of $100,000.  We are looking to bid a tract with 30 units but no one home is more than $100,000.   Are we okay to bid on this since each unit is less than $100,000?

 

A: The monetary limit is the maximum contract a licensed contractor may undertake on one or more construction contracts on a single construction site or subdivision site for a single client.  The job in question is 30 separate units, but it appears to be one single project for a single client, so you cannot bid on the project if the total amount for all units is over $100,000.  Bidding one ‘slice’ isn’t going to buy the whole cake, so to speak.

 

Nevada does allow you to request that your limit be raised for the purpose of one project, or you can also apply to raise it permanently.  In either case you would be required to provide a new financial statement.

License Renewal ‘SCAM’, RME’s and Military Experience

Answering questions, solving problems and alerting contractors to potential trouble is all in a day’s work. As we do here, when you see a veteran let them know you appreciate their service, and help them if you can. Does military construction work qualify for a civilian license? We ‘double down’ on a contractor’s inquiry on RME’s…

We recently included an Industry Alert in the column regarding a SCAM that is being perpetrated against existing contractors and applicants hoping to become contractors. At their December 11th CSLB meeting held in Norwalk, the Board asked that this warning be reiterated as much as possible.

The current SCAM involves at least one unscrupulous company that is contacting existing contractors whose licenses are up for renewal. According to CSLB Registrar Steve Sands, “The caller leads the licensee to believe he or she needs to pay money over the phone to get continuing education credit or renew a license.” CSLB staff will never ask for a credit card over the phone and there are no continuing education requirements to renew a CSLB license.
Since the CSLB discontinued posting applicant lists on its website last month, there appears to be a decrease in these type of calls. Nevertheless, someone pretending to be a Contractors Board employee recently contacted one of our clients. The RMO was told his test was going to be scheduled on a date in January when in fact the company’s application had not even been reviewed or accepted. Again, beware!
Q: I was discharged from active military duty about 18 months ago and want to apply for a CA contractor license. All my related experience was in the military including work in Iraq handling various types of construction. Do you know how the Contractors Board will evaluate this experience?
A: First off, thank you for your service. As we discussed, in many cases, veterans possess transferable skills to meet the minimum experience and training requirements for a state contractor license. The CSLB offers a Veterans Application Assistance Program for those who are transitioning from military service to civilian employment. This program offers priority services to veteran applicants by evaluating transferable military experience and training, as well as education. From our years of experience helping veterans with their contractor’s licensing, it appears you have the required 4 years to qualify for the license exam.
Q: We are currently licensed in Arizona and we would like to obtain a similar license in California. Arizona didn’t have a classification that closely fit with the type of work we do, but they had determined that we needed a sheet metal license. We install material handling systems, manufacturing process systems, and other industrial machinery. What California license would we need?
A: There is a “C-43” Sheet Metal license here in California that would be equivalent to the license you hold in Arizona; however, based on what you described we believe the “C-61”/”D-21” (Machinery and Pumps) would suit you better. The machinery and pumps classification will cover you for basic industrial machinery installations such as the material handling and manufacturing process systems that you mentioned. If you’re doing heavier industrial work then you may want to consider the “A” General Engineering license.
Q: Is it possible to have two RME’s on a license?
A: It’s possible to have two, Responsible Managing Employees (RME), if each one holds a different classification. For example, if you hold the “B” General Building class and the other qualifier has a “C-10” Electrical classification, both of you can be on the license simultaneously. You cannot however have two individual RME’s for one classification.