Changes Are Coming to California Contractor License Bonds

Author, Matt Gaynor, Director, Surety Department, Rancho Mesa Insurance Services, Inc.

Currently, all contractors licensed in the State of California are required by the Contractors State License Board (CSLB) to have a $15,000 contractor license bond on file with the state. This amount has been in effect since January 1, 2016.

Effective January 1, 2023, State Bill 607 will require the contractor license bond amount to increase from $15,000 to $25,000 (California Business and Professions Code Chapter 367).

If you are a contractor and currently have a $12,500 bond of qualifying individual (BQI) for your company, the BQI bond is also required to increase to $25,000 effective January 1, 2023.

Although we have several months to get this in place, touch base with your bond agent to discuss the timing of the increase relative to the anniversary date of your CSLB bond.

You may be required to pay a prorated additional premium to cover the increase.

The term of your bond may be prorated, which would change the renewal date.

Bonding companies may not offer renewals on their current bonds. If this is the case with your bond company, you will need to put a new bond in place on the effective date of the cancellation.

If you would like more information on how your particular CSLB bond might be affected, please contact me at (619) 937-0165 or mgaynor@ranchomesa.com.

What is an LLC Employee/Worker Bond?

Author, Andy Roberts, Account Executive, Surety Division, Rancho Mesa Insurance Services, Inc.

In California, when a contractor opts to organize their business as a Limited Liability Company (LLC) they are required to maintain an LLC Employee/Worker Bond in the amount of $100,000 in order to obtain their Contractors License, per the California Business and Professions Code, Section 7071.6.5. After our clients receive notice of this requirement, we are often asked why this bond is required and what does it protect against.

LLCs are a very popular type of business structure, as they provide the owners, or members, a high level of protection from a liability standpoint because only the LLC, not the owners personally, will be held liable for the debts and liabilities incurred by the business. While this type of protection is good for the owners, California wants to ensure that the LLC’s employees/workers are protected from certain types of monetary damage they may suffer at the hands of the LLC, and they accomplish this by requiring the LLC to have this bond executed by an admitted surety company. 

By issuing the bond, the surety company is providing the Contractors State License Board (CSLB) a guarantee that the workers employed by the LLC will receive payment of their wages, up to a limit of $100,000. Additionally, the bond covers interest on wages, fringe benefits, welfare fund contributions, and apprentice program contributions. Should an LLC fail to provide any of the guarantees listed above, a claim may be filed against the bond, which the surety company will pay in order to settle the claim. Once the claim has been settled, the surety will look to the LLC to reimburse them for any money paid out.

Please note, due to the high risk associated with these bonds, they aren’t written as easily or freely as the $15,000 Contractors License Bond, which a lot of sureties provide instant quotes on just based on the owners credit score. In order to qualify for an LLC Employee/Worker bond, sureties will require a completed commercial bond application, Indemnity Agreement executed by all owners and their spouses, company financials, and personal financial statements for all owners.

Should you have any questions regarding LLC Employee/Worker bonds or need one quoted or placed for your business, please give me a call at (619) 937-0166.