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Contractors State License Board Helps Clarify Who Must be Covered by Workers' Compensation Insurance

Dear Licensee:

The Contractors State License Board (CSLB) is an active member of the Joint Enforcement Strike Force (JESF), a coalition of state agencies working together to combat the underground economy. JESF member agencies include the CSLB, Employment Development Department (EDD), Department of Labor Standards Enforcement (DLSE), Division of Occupational Safety and Health (DOSH), Department of Insurance, Franchise Tax Board (FTB) and the Board of Equalization (BOE). As a JESF member, it is the CSLB's duty to keep you informed about your rights and responsibilities as an employer.

Our records indicate that at least one home improvement salesperson is registered to your contractor's license. EDD has advised us that, in nearly all instances, home improvement salespersons are considered employees under California law. Consequently, we feel obligated to advise you that if your relationship with any home improvement salesperson falls under the "common law rule" noted below, you are required to provide workers compensation insurance and comply with payroll tax withholding and reporting requirements on behalf of these employees.

According to EDD, the common law rule provides that an employer-employee relationship exists when an employer has the right to exercise control over the manner and means by which an individual performs services. Consequently, EDD considers an individual whose employment is subject to this condition to be an employee of any contractor who retains this right of control relative to the performance of the employee's services. This likewise includes the activities of a home improvement salesperson as defined under Business and Professions Code Section 7152.

According to the Department of Insurance, "willful failure to secure workers' compensation for your employees is a violation of Labor Code Section 3700.5, a misdemeanor punishable by up to one year in county jail and a $10,000 fine for the first offense." Failure to comply with the laws relating to workers' compensation insurance, payroll deductions, and employment taxes could subject your business to scrutiny and/or audit by the EDD, DLSE and/or other JESF agencies. Consequences for noncompliance could include penalties assessed against your business, criminal charges, and/or the suspension or revocation of your contractor's license.

For more information about your responsibilities as the employer of a home improvement salesperson, and for information on obtaining workers compensation insurance and complying with payroll tax laws, you can contact the agencies listed on page 2 of this bulletin.

Business and Professions Code Section 7152

  1. "Home improvement salesperson" is a person employed by a home improvement contractor licensed under this chapter to solicit, sell, negotiate, or execute contracts for home improvements, for the sale, installation or furnishing of home improvement goods or services, or of swimming pools, spas, or hot tubs.
  2. The following shall not be required to be registered as home improvement salespersons:
    1. An officer of record of a corporation licensed pursuant to this chapter.
    2. A qualifying person, as defined in Section 7068.
    3. A salesperson whose sales are all made pursuant to negotiations between the parties if the negotiations are initiated by the prospective buyer at or with a general merchandise retail establishment that operates from a fixed location where goods or services are offered for sale.
    4. A person who contacts the prospective buyer for the exclusive purpose of scheduling appointments for a registered home improvement salesperson.
    5. A bona fide service repairperson who is in the employ of a licensed contractor and whose repair or service call is limited to the service, repair, or emergency repair initially requested by the buyer of the service.

For more information about your responsibilities as the employer of a home improvement salesperson, and for information on getting workers' compensation insurance and complying with payroll tax laws, you can contact the following agencies:

Employment Development
Department (EDD)
Payroll taxes and wage report information
www.edd.ca.gov
(888) 745-3886
Contractors State License Board (CSLB)
Licensing, workers compensation and bond requirement information
www.cslb.ca.gov
(800) 321-CSLB (2752)

 
Department of Labor Standards Enforcement (DLSE)
Workers compensation insurance, payroll deduction statements, labor and employment information
www.dir.ca.gov/dlse
Department of Insurance
Workers compensation insurance information
www.insurance.ca.gov
(800) 927-HELP (4357)

If you have questions about these requirements, you can contact your workers' compensation insurance provider or the Contractors State License Board's Workers' Compensation Unit.

 

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