California Contractor License Law requires California contractor businesses organized as Limited Liability Corporations (“LLC”) to maintain a surety bond with a penal sum of $100,000, called a “LLC Employee/Worker Bond”. The bond is filed with the Contractor State License Board (CSLB) and benefits individuals employed or contracted by an LLC that are not properly compensated. The LLC Employee/Worker Bond is required in addition to the $15,000 contractor license bond requirement for all contractors.
How much does a $100,000 LLC Employee/Worker Bond cost in California?
LLC Employee/Worker Bonds cost between $2,000 and $15,000 depending on the personal credit of the LLC member(s), license history, license classification, personal financial reports of the LLC member(s) and business financial reports. As a relatively new requirement that became effective January 1, 2012, insurance carriers are still evaluating the overall risk leading to pricing that has varied year to year.
|Price Tier||Bond Cost*|
*Prices shown are for a one year term and are based on several factors including personal credit of the LLC member(s), license history, license classification, personal financial reports of the LLC member(s) and business financial reports. Not all available pricing tiers are shown. Rates do not constitute an offer of bonding and are subject to change at any time.
Why is the $100,000 LLC Employee/Worker Bond required?
An LLC Employee/Worker Bond is required by California Contractor License Law for all licensed contractor businesses organized as LLCs because the California legislature determined LLCs more frequently fail to properly pay wages or fringe benefits to workers employed by or contracted to work for them. Prior to 2012, a contractor business was not permitted to organize as an LLC.
In addition to the LLC Employee/Worker Bond, California Contractor License Law requires LLC licensees with five or less personnel to have at least $1,000,000 in general liability insurance coverage. For each additional personnel, the amount increases $100,000, up to a maximum of $5 million. Similar to the bond, a General Liability policy certificate must be submitted by the LLC to the CSLB. An LLC licensee that fails to comply with these requirements is suspended until the LLC complies. LLCs are also required to include their General Liability insurance information on their home improvement and service and repair contracts with customers.
How does a $100,000 LLC Employee/Worker Bond work?
The $100,00 LLC Employee/Worker Bond must be issued by an insurance carrier admitted by the California Department of Insurance. The insurance carrier issuing a surety bond, such as a LLC Employee/Worker Bond, will also be referred to as the “surety company” or the “bond company”. LLC Employee/Worker Bonds refer to the LLC as the “Principal”, the surety bond company as the “Obligor” and the CSLB as the “Obligee”.
The surety company provides the CSLB a guarantee (the surety bond) that the workers employed by or contracted to work for an LLC will receive payment for unpaid compensation up to a limit of $100,000 (“penal sum” or “bond amount”). In addition to wages, the bond covers interest on wages, fringe benefits, welfare fund contributions and apprentice program contributions.
The surety company also directly receives claims from the workers employed by or contracted to work for an LLC and determines the validity of such claims. Ultimately, contractors organized as LLCs are responsible for their actions and required by California Contractor License Law to reimburse the surety company for any payments made under the bond or face indefinite license suspension.
What other types of surety bonds are required of contractors in California?
All licensed California contractors are required to carry a $15,000 contractor license bond including contractor businesses organized as LLCs. In addition to the $15,000 Contractor’s Bond, a $12,500 Bond of Qualifying Individual may be required if the Qualifying Individual for a contractor license application is a Responsible Managing Employee, or Responsible Managing Owner/Manager/Member holding less than 10% voting stock/membership interest of the entity seeking licensure.
A Disciplinary Bond may also be required when a licensee, Qualifying Individual, or primary owner or manager of a licensee that has been subject to a CSLB disciplinary action resulting in suspension or revocation of the licensee’s license is seeking a new license, or continuation, renewal, or restoration of a license.
Contractors may also be required by the owner of a project to provide a bid, performance and payment bond, often referred to as Contract Surety Bonds, on a job by job basis.
How can insurance agents obtain a LLC Employee/Worker Bond for their customers?
California Contractors Insurance Services works exclusively with contractors for all of their business-related insurance needs.
If you’re an insurance agent looking for an efficient platform to access quotes and purchase bonds for your contractor clients from dozens of surety carriers, we recommend The Bond Exchange. Licensed in 50 states, The Bond Exchange has been helping insurance agents with their surety needs for over 40 years, developing an extensive database of over 10,000 unique bond requirements.