Becoming Inactive & Rules for Independent Contractors

While we get set to celebrate our American Independence holiday this July 4th, our first inquiry raises an important question about ‘independent’ contractors you may have also used on your job. How can a contractor be sure he is working with ‘independent’ contractors and not ‘employees’ on the jobsite…

Q:  I have read your column for several years and now have a problem, which you may be able to address.  I am being investigated by the CSLB for work my company performed on a single-family home.  This is the first time I have ever had any issues with the Contractors Board but I am worried they might take my license.  One of the issues they are investigating is how I list my employees on tax forms.  Most are independent contractors so do not get directly reported to the various state agencies.  Am I doing something wrong here?  If you use this question in the column, please don’t use my name or any other information that could identify my business.  Thank you.

 

A: Thank you for the email question, and while I can’t provide legal or tax advice, let’s see if we can find the handle on this ‘tool’ for contractors.  The issue of “Independent Contractors” is one that has been around the construction industry (and for that matter all industries), for many years.  Based on other correspondence I’ve received, I assume you do not withhold payroll taxes or Social Security and issue these “independent contractors” 1099 forms at the end of the year, rather than a W-2.

 

According to the CA Dept. of Industrial Relations (DIR) and Employee Development Department (EDD) you need to look at a number of factors to determine if these individuals are actually employees or legitimately independent as you have them classified.  For instance, is the work they’re performing a part of your regular business operations?  Do you supply the tools (and daily direction) for these people to perform the work? And, how “permanent” is this working relationship?

 

An Industry Bulletin addressing this and other topics related to the classification of “independent contractors” was just issued by the CSLB.  According to the Board, EDD provides a number of free online courses and classroom seminars “to help contractors learn the ropes of state employer reporting laws”.   These include, workshops on state payroll taxes; avoiding errors in payroll tax reporting; and, the most applicable to your question: “Employee or Independent Contractor”.  For details, you may want to visit: “www.edd.ca.gov/Payroll_Tax_Seminars.

 

Please be assured that we keep all correspondence confidential and never use the questioner’s personal or business name in any column.

 

Q:  In 2012, my husband and I incorporated our business and had his Sole Ownership license reassigned to the corporation with him as Responsible Managing Officer (RMO).  Recently, we both took positions with other businesses and have decided to dissolve the corporation.   Because we don’t want to loose his status as a licensed contractor all together, we are thinking he should apply for a new license as a Sole Proprietor, exam waived, and then inactivate the license and keep it current, just in case he needs it again.   My question: is it possible to submit an “Application for Original Contractor’s License” with an “Application to Inactivate”? Thank you in advance for your help!

 

A:  You have to have a license number in order to submit an Application to Inactivate.  The way you would want to go about this is to submit a Waiver application along with a simple request in writing that states “please issue my license Inactive”.  Have your husband sign the request.  That way no Bond or Worker’s Compensation proof will be required, and it will automatically be issued Inactive.  As you are probably aware, he will receive a new license number.

 

 

If you, or any other contractor, would like our assistance with the process just get in touch.

Foreign vs CA LLC, Business Names, LLC Liability Insurance Requirement

A ‘suspense’ thriller has a happy ending for this Limited Liability Company (LLC) that begins our contractor Q&A. We save time and money for a ‘General’ whose plan was defeated by a single word. Our final Q&A helps plot the route for another LLC seeking a ‘foreign’ designation for their company…

Q:  Our LLC license is currently suspended.  The CSLB’s website states that the suspension is due to the General Liability insurance being expired.  We recently submitted a new insurance certificate to update both the Worker’s Comp insurance and the Liability coverage.  Can you tell why they updated the workers comp insurance and not the liability?

A:  I spoke with someone at the CSLB and it appears they just missed the Liability portion of the Certificate.  As you are probably aware, the CSLB only requires proof of liability insurance for LLC’s and not other types of entities, so it is sometimes missed.  Your license has been updated and is now current and active.

Q:  We recently applied for a license for our partnership, which is called ‘X & Y’ Construction.  The initials stand for our names (which have been changed to protect the innocent!).  We saw on the CSLB’s pending application website that the application was rejected because “name is not compatible with the General Engineering classification”.  Does that mean we have to re-apply and start over?

 

A:  No, it does mean that you need to re-apply and start over.  It just means that you need to make a correction to your business name.  Unless you put a descriptive term that relates to your specific trade, only General Building licensees may use the word “Construction” by itself.  For example, you could change your name to ‘X & Y’ Engineering Construction, as one option.

 

Q:  Your company frequently files documents for us at the CA Secretary of State.  We have a domestic CA corporation that we want to convert to a foreign LLC, both entities are currently registered with the Secretary of State.  Do you know what the process is to accomplish this? We appreciate your service and know you can likely help us now.

 

A:  Thanks. A California corporation cannot convert or merge in to a foreign LLC directly.  So the process would entail converting the California corporation in to a California LLC, and then at that point you can convert that “new” LLC in to the foreign LLC.  We can of course file these documents for you so contact us if you’d like assistance. 

 

CSLB Registrar Sands to Retire

Steve Sands, who’s been at the helm of the Contractor’s Board (CSLB) since 2001 has announced his plan to retire at the end of the year and the process of selecting the next Registrar of Contractors is underway in Sacramento. Under Mr. Sands’ leadership, CSLB has been recognized as a leader in proactive enforcement programs and partnerships with state and local agencies that help curb the underground economy. CSLB’s Licensing, Examination, Enforcement, and Public Affairs programs have been used as models for the National Association of State Contractors Licensing Agencies (NASCLA) and other agencies within the Department of Consumer Affairs. We wish him the best!

 

Construction Manager, CSLB Complaints, JV Licensing and AZ Classification Changes 2014

Not a real earthquake like we experience in California, but contractors with Arizona licenses are being ‘shaken up’ about important changes in classifications. If you want to work over the border this may be a good time to get going with your application.  We find ‘it’s one for all, all for one’ in answering a JV license inquiry…

Q:  I am a licensed contractor in Arizona.  I have a residential General Building license.  I heard that there are going to be some major changes to the classifications come July 1, 2014.  Is this going to require that licensees re-apply for a new license?

 

A:  The Arizona Registrar Of Contractors (ROC) is revamping their entire classification list to more closely resemble that of other States.  Many licenses will be “reclassified”, most notably to no longer differentiate between residential and commercial; in the case where the work being performed is similar whether it’s residential or commercial.  The license reclassifications will occur automatically without any action needed from current licensees.  And just FYI, your General Building license will not be affected by these changes.

Q:  We have a Joint Venture (JV) license that is due to expire at the end of the month.  I understand that we need to have the Responsible Managing Officer (RMO) of each entity sign the renewal, however one of the RMO’s is technically retired but not yet disassociated.  We are in the process of replacing him but have not yet done so because we are still within the 90 allowed days.  How should we handle the renewal?  We have projects currently in process.

A:  A Joint Venture renewal application needs to be signed by each of the Qualifying individuals that make up the JV.  Even though you have 90 days to replace the Qualifier on the license, without the RMO’s signature the renewal will not be acceptable.  Before you can renew the license you will need to either disassociate the retired individual from the license or replace him with a new Qualifying individual.  As you may already know, a Joint Venture is made up of two or more entities, so understand that it is the original entity’s license that you need to make the corrections to, not the Joint Venture itself.  In other words, a JV license remains in good standing when each of the entities that comprise it is in good standing.

 

Q:  I am a “C-27” landscaping contractor and I am losing a lot of business due to unlicensed individuals doing landscaping work, over $500, at a cheaper rate due to the fact that they are unlicensed.  How do I go about getting these individual caught and cited?

A:  You would want to file a complaint with the CSLB.  Complaints must be filed in writing either online or by submitting a complaint form which is available on the CSLB’s website. It’s leads like this that help the unlicensed enforcement unit at the Board establish ‘stings’ to catch these criminals.

 

Q:  We have a large construction company based in Texas.  We have some work we’d like to bid on in Southern California, but we don’t actually perform the work.  We will handle the design, planning, and coordination of the projects but then we will use licensed contractors to do the work.  Are we required to have a Contractor’s License?

A:  Yes.  Even as a Construction Manager sub-contracting all work to licensed contractors you are required to have a license.  Bidding on work and signing contracts for construction projects requires a license in the State of California.  Please contact our office if you would like assistance with obtaining a license.

 

 

“C-6”, Experience Credit, BQI for Qualifiers & Splitting Licenses

What you believe you know or think is right may not always be the case when it comes to contractor regulations. We often hear from contractors who heard a rumor or were given inaccurate or incorrect information by someone else. Another aspiring contractor hopes to ‘qualify’ his experience into a license number but first we have to disappoint a contractor who hopes to ‘divide and conquer’ with just half his license…

 

Q:  I have a Sole Owner license that has HVAC and Electrical classifications.  I went to work for a company that wanted me to add my Electrical classification to their General Building license so I did that.  Being that you can only use one license at a time when you are a Responsible Managing Employee (RME), I inactivated my Sole Owner license when I became the RME for my company.  With summer coming up, I was wondering if it’s possible to reactivate just the HVAC classification on my license so that I can do side jobs?

A:  The CSLB does not allow you to split a license in which one classification stays active while the other is inactive.  When you inactivate license you cannot use the license, period.

Q: I have been told that I can act as the Responsible Managing Officer (RMO) for two companies as long as I have a Bond of Qualified Individual (BQI) attached to both licenses?  Is that correct?

 

A:  There are several scenarios in which a person can act as an RMO for two different companies, however the BQI doesn’t play a role in how many licenses you are listed on.  The BQI is necessary only when the Qualifying Individual owns less than 10% of the company.  Having a BQI on file does not permit you to be on two licenses at the same time. Contact us to discuss this at greater length and we may be able to help you.

 

Q:  I have really enjoyed your site (www.cutredtape.com) and have found it very valuable.  Thank you!

 My question is regarding whether my experience running a wood products  manufacturing business over the past 2 years combined with my Bachelor’s degree in business would be sufficient experience to qualify for the finish carpentry and millwork license.  We would now like to be able to subcontract out installations of our products and we believe a license is required to do so.

A:  Yes, a license would be required in order to subcontract out the installation of your products.  To qualify for a “C-6” (Cabinet/Millwork) license you are required to show a total of four years of work experience.  At least one year of that needs to be practical experience, meaning you have to prove that you’ve physically done the installation work full time for at least a year.  You would likely get two years of experience credit for your Bachelor’s Degree in business.  Therefore, it doesn’t appear that you meet the experience requirement just yet.

 

Disaster Bid Scams, Worker’s Compensation & NV Reciprocity

With the ‘Silver’ state in his sights, a ‘Golden’ state contractor will learn if his license number is a good bet in neighboring Nevada. The countdown is on for another contractor with concerns about his Worker’s Compensation coverage, and we ‘smoke out’ a rare alert for both contractors and homeowners…

Q:  My husband has an inactive “B” (General Building) license in California and he is interested in transferring it to Nevada.  I read that they have a reciprocal agreement so what is exactly involved in transferring the license?

A:  In order to qualify for reciprocity in Nevada, your husband will need to show that he has been actively licensed for five out of the last seven years.  If he meets that requirement the Trade Exam is waived, and he would only be required to take the Business/Management Exam.  When applying for reciprocity, he would still need to go through the application process, provide a financial statement, and do fingerprinting and background check.

However, if his license has been inactive for over two years out of the last seven years then in addition to the items mentioned above, both the Trade and the Business/Management exams would be required, and he would also need to obtain references and complete a resume to verify his work experience.

 

Q:  I’ve had a Sole Owner contractor’s license for a couple years now and as things have picked up lately I hired an employee about 6 weeks ago.  I have a Worker’s Comp policy in place, however I have not submitted the certificate to the CSLB.  A homeowner recently asked why my license shows that I am Exempt from Worker’s Compensation Insurance when I have an employee on the job with me.  I showed her my certificate but she questioned whether my license was valid since it doesn’t show the policy on there yet.  Am I okay to be working?

 

A:  First of all, licensees are required to submit proof of Workers’ Compensation Insurance coverage to the CSLB.  I assume that you obtained Worker’s Comp coverage immediately upon hiring your new employee.  The CSLB will back date the policy on the license up to 90 days, so assuming your policy effective date coincides with when you hired your employee, you should be in compliance.

That being said, as far as the homeowner is concerned, she can choose whether or not she is satisfied with what you’ve provided or not.  Technically your license is current and active and you have a valid insurance policy to cover your employee, so the only thing left to do is notify the CSLB, and preferably before the effective date goes beyond the 90 days!

SCAM ALERT: Attention Contractors & Homeowners:

As most are aware, California wildfires have left many areas burned and damaged. While most businesses are honest and have good intentions, unfortunately there are many unscrupulous individuals who prey on victims of natural disasters.  Working as an unlicensed contractor during a state of emergency is a felony.  Also, during states of emergency, it is illegal for businesses to increase prices of essential goods and services by more than 10 percent.  That applies to goods or services used for emergency cleanup, building material, housing, etc.

 

What a “B” Can’t Do, CA Corporate Licensing & RME/RMO

Times are improving for contractors large and small, and almost everyone in-between!  The North State Building Industry Association held its first Trades Job Fair in seven years in Sacramento this month. Among the skilled trades being sought were licensed plumbing, HVAC, landscaping, roofing, energy and electrical contractors. Unlike the last few years, now you can get licensed and likely go right to work..

 

Q:  I have a “B” license and plan on taking a project that involves many trades.  This will be the biggest job I have taken since becoming licensed 5 years ago.  Is there certain work that I cannot do with this class?  I was told that for some trades a General Building contractor is required to hire subcontractors.  Is this correct?

 

A: First, it depends on the type of project you’re going to work on.  As a “B” the first question you should ask yourself is: Does the project involve a structure that houses people, animals, chattels or moveable property.  If so, then Section 7057 allows you to self-perform most all work except for “C-16” (Fire Protection) and “C-57” (Well Drilling).  These are the two classifications that would require the hiring of a licensed sub-contractor.

Of course, as a General “B” you’re allowed to sub-contract some or all the work to properly licensed subs regardless of the trades involved.

Q:  I have an active contractor’s license for my corporation.  My wife and I recently formed a new corporation together and we have started running the business through the new corporation.  I submitted a name change request to change my current license’s business name to the new company name. The CSLB rejected the form stating that the name doesn’t match what’s on file with the Secretary of State.  But the new company is registered with the Secretary of State with the correct name!  I’ve tried to reach my technician but haven’t had any luck.  I thought you might be able to assist me.

A:  Absolutely we can help you.  Any time you form a new entity you are required to obtain a new contractor’s license.  A name change form will not suffice because it’s a new entity you are licensing, not simply a name change.  License numbers are not transferrable so you will receive a new license number.

 

Q:  I am listed as the RME on my company’s license.  I recently was promoted to Vice President so I need to update my status on the contractor’s license. In looking at the list of forms on the CSLB’s website, I’m not sure if I need to complete an application to add an Officer or an Application to Report Change of Corporate title. Which would you recommend?

A:  Actually, neither!  In order to change your status on the license from RME (Responsible Managing Employee) to RMO (Responsible Managing Officer), you will need to submit an application to replace the Qualifying individual.  As silly as it sounds, you are replacing yourself!

Here in the Sacramento area new construction is planned, underway or near completion on a new Soccer Stadium at Cal Expo, the new Sacramento Kings NBA Arena, plans for a street trolley system, Lite Rail expansion and new construction breaking ground on developments with hundreds of houses to be built, the opportunity for licensed contractors is growing here and across the state.

Public Work Bids, AZ Reciprocity, Partnership Licensing and Low Voltage Electrical DOSH

A change in public works bids is coming, and yes, more paperwork is likely going to be required. We ‘power up’ an answer for a ‘low voltage’ question and help another contractor plan for retirement in another state…

Q:  I am aware that employees working for electrical contractors are required to have their electrical certification through California’s Office of Occupational Safety and Health, also known as DOSH.  As a low voltage contractor, are my employees also required to be certified?

A:  As long as they are only performing work within the scope of the “C-7” low voltage classification then no, your employees are not required to obtain their electrical certification.

Q:  My partner (who is also my brother) and I currently have a General Partnership (GP) license.  We’d like to also add my other brother as a Partner.  First of all, can a partnership be made up of three individuals? My second question is this, if the partnership can be made up of three Partners, can we add our brother to our existing contractor’s license?

 

A:  Partnership licenses are issued to a specific General Partnership structure.  A General Partnership can be made up of two or more Partners, however you cannot add or delete them from an existing GP license.  A new license would be required for this new Partnership structure.

 

Q:  I have had a General Contractor’s (“B”) license in California since 1982 and I’m starting to think about retirement.  I want to move to Arizona when I retire but I’d like to get a plumbing license over there just to be able to continue some of my work.  Will I qualify for reciprocity since I’ve been licensed in California for so long?

A:  There are several requirements for qualifying for reciprocity in Arizona.  First, you have to show that you have been actively licensed in one of the reciprocal States for a period of five consecutive years.  Second, you have to show that you took the equivalent trade exam when you originally obtained your license in the reciprocal State.  While you likely meet the first requirement, since it is your desire to obtain a different classification in Arizona, you will not be able to show that you have passed the equivalent exam.  You would likely qualify for reciprocity for a General License in Arizona, however an exam would be required in order for you to obtain that plumbing license in Arizona so plan accordingly. If you need assistance get back in touch we often help contractors in AZ and NV.

Attention Public Works Contractors:

The CSLB recently released an industry bulletin to remind licensees about the new requirement that takes effect on July 1, 2014 with regards to bidding on public works projects.  AB 44 requires contractors to include the license number of each subcontractor listed in any bid or offer for the construction of any public works project.

Currently, the prime contractor is only required to put the name and business location of the subcontractors, however supporters of the new law believe that the name and business location of each sub is not sufficient information to determine the exact identity of the actual subcontractor.  This is especially true in large urban areas where many contractors have the same or similar business names, so the new law requiring the license number be listed seeks to address this problem.

 

“C-23”, “C-51”, RMO, LLC Members vs Managers & SWIFT Justice

Q:  Your firm assisted us in getting set up with our “B”, “C-23” (Ornamental Metal), and “C-17” (Glazing) licenses.  We would now like to add the “C-51” (Structural Steel) to the license.  Our company is very diverse and sometimes gets into areas that could be considered “structural” and we of course don’t want any problems.  Would this require an examination if we use the same Responsible Managing Officer (RMO) that holds our current licenses?

 

A:  Thank you for contacting us again.    While the CSLB will sometimes consider waiving a trade exam for an individual who has held a classification that is very closely related to the classification being applied for, in my opinion the “C-51” is not very closely related to the classifications currently on your license. I don’t believe the CSLB will grant a waiver of the trade exam in this case.

 Q:  We recently obtained a contractor’s license for our Limited Liability Company (LLC).  We noticed on the license that the CSLB has our personnel listed as “members” instead of “managers”.  I’m not sure if this was our mistake when we applied or the CSLB’s mistake, but regardless, we need to get that corrected.  How do we do that?

 

A:  This change can be made by completing an Application to Report Change of Title for Current Personnel of a Limited Liability Company with the Board.  There is no fee for filing this change.

As indicated in a recent CSLB press release, “one of the goals of (our) undercover sting operations is to convince those caught for illegal contracting that they’re far better off getting their license and working as a legitimate contractor.”  Unfortunately, for some individuals that message just doesn’t seem to sink in.

Of the 13 persons cited April 24 on illegal contracting charges at stings in Chino and Lake Elsinore, three were repeat offenders, including one who had a $5,000 warrant hanging over his head for failing to appear in court on a previous contracting violation.

As has often been covered in this column, the CSLB’s Statewide Investigative Fraud Team (SWIFT) regularly conducts these sting operations in order to put a dent in the underground economy.  In this most recent action, CSLB investigators requested bids for painting, fencing, concrete, and tile work at two locations, with the highest estimate coming in at $9,350 for a fence project. The suspect with the $5,000 warrant, is a very familiar figure to CSLB investigators. He’s an unlicensed painter from Riverside who has three prior misdemeanor charges related to illegal contracting, and has been cited twice by CSLB on administrative violations.

The Contractors Board tries to bring unlicensed contractors over to the legal side and will even give those caught in these stings an application to apply for a license.  However, according to CSLB Registrar Steve Sands, “we won’t tolerate these chronic offenders who think they can sidestep the law and endanger the public.”

Twelve of the 13 suspects, including the previous offenders, received misdemeanor citations for contracting without a license.  According to B&P Code 7028, conviction penalties for contracting without a license include up to six months in jail and/or up to $5,000 in fines — plus penalties escalate with successive violations.