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: “


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.