Bonding in California

A surety bond is a 3-party promise. The contractor (the principal) pays a surety company for a bond that a customer, employee, subcontractor, or the state (the obligee) can draw against if the contractor breaks the rules the bond covers. The surety pays valid claims up to the bond face value. The contractor then owes the surety for what the surety paid out. A bond protects the public. It is not insurance for the contractor. California uses bonds in several distinct places, and contractors regularly confuse them. Keep them separate. 1. CSLB Contractor's License Bond. Under Business and Professions Code section 7071.6, the Contractors State License Board requires every licensee to have a contractor's bond on file in the sum of $25,000 as a condition of license issuance, reinstatement, reactivation, renewal, and continued maintenance. The bond is filed with CSLB and covers damages to consumers, employees for unpaid wages, and the state for license-related violations within the scope of the statute. The $25,000 figure applies uniformly. There is no separate tier for general vs. specialty classifications. 2. CSLB Disciplinary Bond. Under Business and Professions Code section 7071.8, a licensee with a prior disciplinary record can be required to file a disciplinary bond as a condition of license issuance, renewal, restoration, or approval of officer changes. The statute sets the amount at not less than $25,000 and not more than 10 times the standard bond required by section 7071.6. The disciplinary bond must remain on file for at least two years while the license is current and active. This is in addition to the standard $25,000 license bond, not a replacement for it. 3. CSLB Bond of Qualifying Individual. Under Business and Professions Code section 7071.9, when the qualifying individual on a license is not the proprietor, a general partner, or a joint licensee, the qualifier must file a qualifying individual's bond in the sum of $25,000. This bond runs separately from the license bond and cannot be combined with bonds under sections 7071.5 through 7071.8. Narrow exceptions apply. For example, where the responsible managing officer owns at least 10% of voting stock in a corporation, or the qualifying individual owns at least 10% of membership interest in an LLC. 4. LLC Employee/Worker Bond. Under Business and Professions Code section 7071.6.5, every licensed limited liability company must have on file a surety bond in the sum of $100,000 as a condition of issuance, reissuance, reinstatement, reactivation, renewal, or continued valid use of a license. The bond protects employees against unpaid wages and, where a collective bargaining agreement applies, unpaid welfare, pension, and apprentice program contributions. This is on top of the standard $25,000 license bond. LLCs also carry an independent $1,000,000 liability insurance requirement under separate CSLB rules. 5. Public works payment bonds (California Little Miller Act). Under California Civil Code section 9550, a direct contractor awarded a public works contract in excess of $25,000 must, before beginning work, file a payment bond approved by the awarding body. The bond protects subcontractors, laborers, and material suppliers on that specific project. It is not the CSLB license bond. Public entities must state in the call for bids that a payment bond is required. Separate performance bond requirements often apply under the public entity's contract terms or the Public Contract Code. Premium math. A surety charges an annual premium, typically 1% to 3% of the bond face value for a contractor with strong credit and no prior claims. Weaker credit, tax liens, prior surety losses, or a new business can push the rate to 5% to 10% or more. A $25,000 CSLB license bond at 2% is $500 per year. A $100,000 LLC employee bond at a 1.5% rate is $1,500 per year, but rates for the LLC bond are often higher given the broader wage-and-benefit exposure. Project payment bonds on public works are priced per job, usually 0.5% to 3% of the contract price. What claims look like. For the CSLB license bond, a consumer files a complaint with CSLB or wins a civil judgment against the contractor. Valid claims within the scope of section 7071.5 are paid from the bond up to the face value; the surety then seeks reimbursement from the contractor. For the LLC employee bond, unpaid workers or benefit trust funds file claims directly against the bond. Bond, insurance, and workers' compensation are separate requirements. A California contractor carries CSLB bonds as described above, liability insurance where required (mandatory for LLCs; mandatory for licensees with employees under separate rules), and workers' compensation for any employee under Labor Code section 3700. Roofers (C-39) must carry workers' compensation regardless of whether they have employees. Confirm each requirement against the current CSLB rule before you assume you are compliant.