California LLC Employee Worker Bond: A Comprehensive Guide
November 10th, 2020
This guide provides information for insurance agents to help contractors on the California LLC Employee/Worker bonds
At a Glance:
- Average Cost: $1,354 – $5,000 per year, based on the business owner’s credit and financial standing
- Bond Amount: $100,000
- Who Needs It: All contractors operating an LLC in the state of California
- Purpose: To ensure the public will receive compensation for any damages should the contractor fail to comply with contractor licensing law
- Who Regulates Contractors in California: The California Contractors State Licensing Board (CSLB)
Background
The California Contractors License Law and Reference Book require contractors operating in the state to obtain a contractor license with the CSLB. The California legislature enacted licensing laws and regulations to ensure that contractors engage in ethical business practices.
In order to provide financial security for the enforcement of the license law, contractors whose business entity is an LLC must post a cash deposit or purchase and maintain a $100,000 contractor’s LLC employee/worker surety bond to be eligible for licensure.
What is the Purpose of the LLC Employee/Worker Bond?
California requires contractors who operate their business as an LLC to purchase the Contractor’s LLC Employee/Worker Bond as part of the application process for the Contractor License. The bond ensures that the contractor’s employees/workers will receive compensation for financial harm if the contractor fails to pay them for their labor. In short, the bond is a type of insurance that protects employees/workers if the contractor breaks licensing laws.
Does the LLC Employee/Worker Bond Cancel Out the Contractor License Bond?
No, all contractors must obtain the 15,000 Contractor License surety bond to be eligible for the California Contractor License. LLCs will need to purchase the $100,000 Contractor LLC Employee/Worker bond in addition to the $15,000 Contractor License Bond.
Some contractors may also need to purchase a $12,500 Bond of Qualifying Individual, and in more rare cases, a Disciplinary Bond.
How Can an Insurance Agent Obtain a California LLC Employee Worker Bond?
BondExchange makes obtaining a California LLC Contractor Bond easy. Simply login to your account and use our keyword search to find the “contractor” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.
At BondExchange, our 40 years of experience, leading technology, and access to markets ensure that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.
Is a Credit Check Required for the California LLC Bond?
Yes, surety companies will run a credit check on the owners of the company to determine eligibility and pricing for the California LLC Employee/Worker bond.
Contractors with excellent credit and work experience can expect to receive the best rates. Contractors with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the contractor’s credit.
How Much Does the California LLC Employee/Worker Bond Cost?
The $100,000 California Contractor’s LLC Employee/Worker surety bond can cost anywhere between $1,354 to $5,000 per year. Insurance companies determine the rate based on a number of factors including your customer’s credit score and experience. We also offer easy interest-free financing for premiums over $500. The chart below offers a quick reference for the approximate bond cost on the $100,000 bond requirement.
$100,000 California LLC Employee Worker Bond Cost
| Credit Score* | Bond Cost (1 year) |
|---|---|
| 750+ | $1,354 |
| 700 – 749 | $1,805 |
| 675 – 699 | $2,000 |
| 650 – 674 | $2,257 |
| 600 – 649 | $5,000 |
*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.
How Do California Contractors File Their Bond With The California CSLB?
Most surety companies will file the bond electronically with the CSLB on behalf of the contractor. When completing the bond form, the surety company should include the following information:
- Legal name, license number, and address of entity/individual(s) buying the bond
- Premium on the bond
- Surety company’s name, address, and phone number
- Bond amount
- Date the bond goes into effect
After the bond has been filed, contractors can check their license and bond status on the CSLB website.
How Can Contractors Avoid LLC Bond Claims in California?
To avoid claims on the Contractor’s LLC Employee/Worker Bond, contractors must follow all license regulations in the state, including some of the most important issues below that, tend to cause claims:
- Pay all fringe benefits to employees
- Pay all employee wages and interest on the wages
What Other Insurance Products Can Agents Offer LLC Contractors in California?
California requires all contractors with employees to obtain worker’s compensation insurance.
In addition, LLC contractors must purchase general liability insurance with a minimum limit of $1 million. The limits are based on the number of employees as follows:
- 5 or fewer employees: $1,000,000
- Each additional employee: $100,000 additional coverage
- $5,000,000 maximum requirement
Bonds are our only business at BondExchange, so we do not issue any form of insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.
How Can Insurance Agents Prospect for California Contractor Customers?
California conveniently provides a public database to search contractors in the state. The database can be accessed here. Contact BondExchange for additional marketing resources.
