CSLB Law & Business Exam flashcards

The Responsible Managing Employee must work at least 32 hours per week or 80% of business operating hours to satisfy CSLB active-engagement rules.

• RME must be a bona fide, permanent employee
• 32 hours/week or 80% of operating hours standard
• Failure to meet this can trigger CSLB investigation

Memory trick: '32 or 80 keeps the RME happy.'

Retention is a percentage of contract payments withheld by the owner until project completion, creating a cash flow gap for contractors who must cover costs before receiving the withheld funds.

• Common retention rates: 5-10% of contract value
• Retention delays cash receipt despite costs being paid earlier
• Must be factored into cash flow planning and financing needs

Memory trick: Retention is cash held hostage until the job is truly done.

Public works employees must receive 1.5x the prevailing wage for hours worked beyond 8 per day or 40 per week, and 2x after 12 hours per day.

• Governed by Labor Code §1815
• Applies unless a valid alternate workweek exists
• Overtime is calculated on the prevailing wage rate, not minimum wage

Memory trick: Eight is straight, past that it's paid at 1.5.

An individual capable of identifying existing and predictable hazards and who has authority to take prompt corrective action to eliminate them.

• Required to inspect trenches daily and after rainstorms or other hazard-increasing events
• Must have specific training in soil analysis and protective systems
• Distinct from a licensed engineer, who is needed only for certain designs

Memory trick: Competent person checks the pit before you dig deeper

A withdrawal of business funds by a sole proprietor for personal use, which is not a deductible business expense and does not affect net profit.

• Not recorded as an expense on the income statement
• Reduces owner's equity, not profit
• Self-employment tax is based on net earnings, not draw amounts

Memory trick: A draw is taking your own money out — it's not a paycheck or expense.

A Cal/OSHA regulation (8 CCR §5194) requiring employers to inform and train employees about hazardous chemicals, including maintaining accessible Safety Data Sheets.

• SDS must be accessible during all work shifts
• Containers must be properly labeled
• Employees must receive HazCom training

Memory trick: Know the chemical, know the SDS

In a bona fide emergency, a contractor may begin extra work immediately but must still document the change order in writing and obtain signatures as soon as reasonably possible.

• Emergency work may start before paperwork is signed
• Written documentation must follow promptly
• No dollar threshold exempts change orders from being in writing

Memory trick: Act fast, then get it in writing fast too.

An accounting method for long-term contracts that recognizes revenue based on the proportion of costs incurred relative to total estimated costs.

• Percent complete = Costs to date ÷ Total estimated costs
• Revenue recognized = Percent complete × Total contract price
• Commonly used for multi-month construction projects

Memory trick: Costs so far divided by total costs tells you how much of the pie is done.

Employers must report any work-related serious injury, illness, or death to Cal/OSHA within 8 hours of becoming aware of the incident.

• Reporting is done by phone or through Cal/OSHA's online reporting system.
• 'Serious injury' includes inpatient hospitalization, loss of a body part, or permanent disfigurement.
• Failure to report timely can result in significant civil penalties.

Memory trick: Eight hours to dial when it's serious.

A federal tax covering Social Security and Medicare contributions for self-employed individuals, calculated at 15.3% of 92.35% of net earnings.

• 15.3% combines 12.4% Social Security and 2.9% Medicare
• Applied to 92.35% of net self-employment earnings, not the full amount
• Half of SE tax is generally deductible on the contractor's income tax return

Memory trick: 92.35 then 15.3 — two steps before the self-employment tax bill arrives.

A California payroll tax paid entirely by the employer at 0.1% on the first $7,000 of each employee's wages, funding job training programs.

• Employer-paid only, never withheld from employees
• Rate: 0.1% on first $7,000 of wages per employee
• Reported alongside SUI and SDI on EDD payroll tax returns

Memory trick: ETT: Employer Trains Talent, and Employer pays the Tab.

After a valid cancellation, the homeowner must make any delivered materials available for the contractor to pick up at the residence, but has no duty to ship or pay for them.

• Homeowner is not required to transport goods
• Goods must be kept in substantially received condition
• Contractor is responsible for retrieval

Memory trick: Leave it at the door, the contractor comes to get it.

LLC contractors must carry commercial general liability insurance of at least $1,000,000 per occurrence in addition to their required surety bonds.

• Minimum $1,000,000 CGL per occurrence
• Required because LLC members have limited personal liability
• Separate from the LLC employee/worker bond

Memory trick: Limited liability means extra insurance liability coverage.

Under California Labor Code §6409.1, any amputation is automatically classified as a serious injury, triggering mandatory reporting regardless of hospitalization.

• Amputation qualifies automatically as serious
• Overnight hospitalization is not required
• Must be reported to Cal/OSHA within required timeframe

Memory trick: Lose a part, report from the start — amputation is always serious.

Any modification to scope, price, or completion date on a home improvement contract must be documented in a written change order signed by both parties.

• Must be in writing and signed by both parties
• Becomes part of the original contract
• Protects against billing disputes

Memory trick: No signature, no scope shift.

The swimming pool down payment cap is the lesser of $200 or 2% of the contract price; for lower-priced contracts, the 2% figure can be less than $200.

• Formula: min($200, 2% of price)
• At $10,000 price, 2% equals exactly $200
• Below $10,000, the 2% figure becomes the binding (smaller) limit

Memory trick: Two percent or two hundred — whichever is thinner wins.

The Notice of Cancellation form must be printed in at least 10-point boldface type so it is clearly noticeable to the homeowner.

• Must be at least 10-point type
• Must be boldface
• Purpose is to make the cancellation right conspicuous

Memory trick: Bold and big so the buyer can't miss it.

An applicant must show at least four years of journey-level (or higher) practical experience within the ten years preceding application to qualify for a CSLB license.

• 4 years journey-level experience minimum
• Must fall within the last 10 years
• Some experience may be substituted with education/apprenticeship credit

Memory trick: Four years of real work in the last ten counts.

CSLB requires only one qualifying individual to satisfy the experience and examination requirement for any licensed entity, including partnerships with multiple partners.

• One QI suffices regardless of number of partners/officers
• Other partners can be listed but need not individually qualify
• Applies uniformly across sole proprietorships, corporations, LLCs, and partnerships

Memory trick: 'One qualifier rules them all' — no matter how many partners, one QI suffices.

California businesses must report independent contractors paid $600 or more to the EDD within 20 days of payment or contract execution, whichever is earlier.

• Threshold is $600 or more
• 20-day filing deadline from earlier of contract or payment
• Used to help enforce child support and tax compliance
• Filed with the Employment Development Department

Memory trick: Sign the deal, start the 20-day clock.

A written cancellation notice is effective on the date it is mailed (postmarked), not when the contractor receives it.

• Protects homeowner from mail delivery delays
• Postmark date controls, not receipt date
• Applies to the 3-day right to cancel

Memory trick: Once it's in the mailbox, the clock stops for the buyer.

A contractor may renew an expired license within five years of expiration by paying delinquent fees; after five years, the license is canceled permanently.

• Five-year window to renew with back fees
• No retesting needed within that window
• After five years, must apply as a brand-new licensee

Memory trick: Five years to fix it, or start from scratch.

California employers must carry workers' compensation insurance (or be certified self-insured) as soon as they have one or more employees.

• Required before the employee starts work
• CSLB requires proof of coverage to issue/renew a license
• Failure to carry coverage can result in stop orders and criminal penalties

Memory trick: No work comp, no work start.

A surety bond CSLB requires of every active licensee to protect consumers, employees, and the state from losses caused by the licensee's violations.

• Current amount is $25,000 (raised from $15,000 in 2023)
• Required for all active license classifications
• Separate from the bond of qualifying individual (BQI)

Memory trick: 'Twenty-Five for staying alive' — $25,000 keeps your active license valid.

California requires 1.5x pay for hours worked beyond 8 in a day (up to 12) and beyond 40 in a week.

• Double time applies after 12 hours in a day
• 7th consecutive workday also triggers overtime
• California overtime rules are stricter than federal law

Memory trick: Eight is great, past that comes the rate.

A CSLB license may carry several classifications, but each one must be backed by a qualifying individual with verified experience in that specific trade; additional qualifiers may be added as needed.

• One license can list multiple classifications
• Each classification needs a qualifier with relevant experience
• Additional RME/RMO can be added for classifications the primary qualifier lacks

Memory trick: Each trade on the license needs its own proven expert.

A contractor who has a direct contractual relationship with the property owner is not required to serve a preliminary 20-day notice on that owner to preserve lien rights.

• Applies only to the owner, not to lenders
• Subcontractors and suppliers must still serve notice
• Owner already has knowledge of a direct contractor's involvement

Memory trick: If you shook hands with the owner, no notice needed for them.

California law requires contractors to notify a regional utility notification center like USA North 811 at least two working days before excavation to have utilities marked.

• Prevents accidental strikes on gas, electric, water, and other lines
• Applies to nearly all excavation, including trenching
• Failure to call before digging can result in fines and liability for damages

Memory trick: Call before you fall into a gas line

If an employee reports to work as scheduled but is given less than half the scheduled shift, the employer must pay for half the scheduled shift, with a 2-hour minimum and 4-hour maximum.

• Applies when scheduled work is not provided as promised
• Minimum 2 hours, maximum 4 hours of reporting pay
• Total pay for the day must meet this floor, including hours worked

Memory trick: Show up, get sent home early—get paid for at least half the shift.

Serious workplace injuries, illnesses, and deaths must be reported to Cal/OSHA, the state agency overseeing occupational safety.

• Cal/OSHA is a division of the California Department of Industrial Relations
• Reports must go to the nearest Cal/OSHA district office
• Other agencies like police or CSLB are not substitutes for this report

Memory trick: Call Cal, not the Cop or the Clerk

Every home improvement contract must display the contractor's license number and related CSLB information for consumer verification.

• Allows homeowners to verify license status
• Required under Business and Professions Code 7159
• Missing license info can be a citable violation

Memory trick: No license number, no valid contract cover.

A home improvement contract must be written in the same language used to negotiate the sale, so the homeowner can understand its terms.

• Applies to the language principally used in oral negotiations
• Protects non-English speaking homeowners
• Violation can render the contract unenforceable

Memory trick: Speak it, write it — same language both ways.

A report that categorizes unpaid customer invoices by how long they have been outstanding, helping a contractor manage collections and cash flow.

• Common buckets: current, 31-60, 61-90, over 90 days
• Helps identify slow-paying clients before cash flow suffers
• Older buckets signal higher collection risk

Memory trick: The older the invoice, the colder the cash.

The three-day right to cancel applies to home improvement contracts no matter where the contract was signed, unlike general door-to-door sales law.

• Applies at showrooms, offices, or homes
• No dollar threshold exception
• Distinguishes HIC law from general Home Solicitation Sales Act

Memory trick: Anywhere signed, three days remain.

California pays straight time up to 8 hours, 1.5x for hours 8–12, and 2x for hours beyond 12 in a single workday.

• Double time also applies after 8 hours on the 7th consecutive workday
• Calculations use the employee's regular hourly rate as the base
• Weekly overtime (over 40 hrs) uses similar 1.5x rules

Memory trick: 8 straight, 4 at time-and-a-half, rest at double.

An additional $15,000 bond CSLB may require as a condition of probation for a contractor whose license was reinstated after disciplinary action.

• Separate from the standard $25,000 contractor's bond
• Required as a probation condition, not for all licensees
• Protects consumers during the probationary period

Memory trick: 'Disciplined? Add fifteen' — $15,000 disciplinary bond on top of the standard bond.

When a sole qualifying individual leaves a licensed entity, the entity has 90 days to replace the qualifier before the license is automatically suspended.

• License goes into 'qualifier-out' status upon disassociation
• 90-day window to name a new qualifier
• Automatic suspension follows if the deadline is missed

Memory trick: 'Ninety days or the doors stay closed.'

A written Cal/OSHA-required program that identifies workplace hazards, establishes safe work procedures, and provides employee safety training.

• Required for virtually all California employers
• Must be in writing and site-specific
• Distinct from Form 300 injury/illness recordkeeping logs
• Must include hazard identification, correction, and training procedures

Memory trick: Every jobsite needs its own safety playbook.

Portable ladders used for access, including in trenches, must extend at least 3 feet above the landing surface to provide a safe handhold for climbers.

• 3-foot extension above landing is required
• Applies to trench egress ladders as well as general ladder use
• Failure to extend creates unsafe mounting/dismounting conditions

Memory trick: Three feet high, safe goodbye — ladders must stick up past the edge.

A document signed after payment is received in which the contractor/subcontractor waives further lien rights for that payment, protecting the homeowner.

• Signed only after payment is actually received
• Distinct from conditional waivers used before payment
• Protects homeowner from mechanics liens

Memory trick: Pay first, then get the release that locks out liens.

Under Labor Code §1771, public works contracts of $1,000 or less are generally exempt from state prevailing wage requirements.

• Applies regardless of funding source as long as contract value is $1,000 or under
• Does not apply once contract value exceeds $1,000
• Separate from CUPCCAA informal bidding thresholds, which are different limits

Memory trick: Under a grand, no wage demand.

Awarding bodies must file a PWC-100 form with DIR after awarding a public works contract to report project and contractor details.

• Required under Labor Code §1773.3
• Filed by the awarding body, not the contractor
• Helps DIR track projects for prevailing wage enforcement

Memory trick: PWC-100: post the win.

A person must register as a Home Improvement Salesperson only if they solicit, sell, negotiate, or execute home improvement contracts on behalf of a licensee away from the licensee's place of business.

• Clerical/delivery staff are exempt
• Owners and qualifying officers are also exempt
• Registration requires fingerprinting and a fee, not a bond

Memory trick: 'No sale, no register' — only sellers of home improvement contracts must sign up.

Labor Code §1775 allows civil penalties up to $200 per day per worker for willful prevailing wage violations, in addition to back wages owed.

• Penalty amount depends on willfulness and violation history
• Applies per worker, per day of violation
• Enforced by the Labor Commissioner

Memory trick: Willful means $200 a day, no delay.

If a contractor fails to give the required Notice of Cancellation, the homeowner's right to cancel remains open until proper notice is furnished.

• Based on Civil Code 1689.7
• Protects consumers from contractor noncompliance
• 3-day clock does not start without proper notice

Memory trick: No notice, no clock — cancellation stays open

Under the multi-employer worksite doctrine, a controlling employer (such as a GC with supervisory authority) can be cited for hazards it should have reasonably detected and corrected, even if created by a subcontractor.

• Applies when GC has general supervisory control
• Does not require GC's own employees be exposed
• Based on duty of reasonable care, not automatic fault

Memory trick: Control the site, control the risk — GCs must catch hazards they didn't cause.

A service/repair transaction is exempt from the three-day right to cancel when the buyer initiates the specific repair request and the work is completed during that same visit without additional solicitation.

• Buyer must initiate the specific request
• No additional goods/services solicited
• Work completed same visit qualifies for exemption

Memory trick: You called, they fixed it same day — no cancel needed.

California law limits the down payment on a home improvement contract to $1,000 or 10% of the contract price, whichever is less.

• Applies to home improvement contracts under B&P Code 7159.5
• Protects consumers from large upfront losses
• Cannot be waived by mutual agreement

Memory trick: Think 'Lesser wins' when it comes to down payments.

Contractors must give homeowners two copies of the Notice of Cancellation form when a home improvement contract is signed.

• One copy is retained by the homeowner
• One copy is used to send if canceling
• Failure to provide both copies can extend the cancellation period

Memory trick: Two copies, just in case.

The practice of mixing personal and business money in the same account, which weakens financial recordkeeping and tax documentation.

• Best practice: maintain a separate business bank account
• Commingling makes it hard to track true profitability
• Weak recordkeeping increases audit risk and complicates deductions

Memory trick: Keep business and personal money in separate lanes to avoid a financial pile-up.

A person who registers with the CSLB to solicit, sell, or negotiate home improvement contracts on behalf of a licensed contractor.

• Registration required before soliciting sales
• Can register with only one contractor at a time
• Must carry HIS registration card while working

Memory trick: 'No badge, no sale.'

Excavations made entirely within stable rock formations are exempt from Cal/OSHA's protective system requirements that normally apply to deeper trenches.

• Applies only if excavation is entirely in stable rock
• Exempts sloping/shoring/shielding requirement
• Does not exempt other excavation safety duties like inspections

Memory trick: Solid rock, no shoring shock — stable rock skips the protective system.

A $25,000 surety bond required for all active CSLB licenses to protect the public against certain licensee violations.

• Amount is $25,000 for all standard licenses
• Filed with the CSLB before license issuance
• Different from the LLC bond and the Bond of Qualifying Individual

Memory trick: 'Twenty-five for the license to thrive.'

Contractors on public works must keep certified payroll records for at least three years after project completion.

• Governed by Labor Code §1776
• Records must be available for inspection by DIR and awarding body
• Failure to produce records can result in penalties and withheld payments

Memory trick: Three years, no fears — keep the payroll near.

In California, earned vacation time vests as it accrues and is treated as wages; employers cannot use 'use-it-or-lose-it' policies, and accrued vacation must be paid out upon termination.

• Vacation vests as earned; cannot be forfeited
• Employers may cap accrual amounts, not forfeit earned time
• Must be paid at final rate of pay upon separation

Memory trick: Earned vacation is money in the bank—it never expires.

A tax owed on taxable purchases made from out-of-state sellers when California sales tax was not collected at the time of purchase.

• Complements the sales tax system to prevent tax avoidance
• Contractor must self-report and pay to CDTFA
• Applies to materials, equipment, and other taxable items

Memory trick: If sales tax wasn't collected, use tax fills the gap.

The removal of an uncollectible receivable from the books, recorded as an expense that reduces net income.

• Applies mainly under accrual accounting where revenue was already recognized
• Recorded as bad debt expense on the income statement
• Reduces accounts receivable on the balance sheet

Memory trick: Once you count it as earned, losing it becomes a real expense.

A required detachable duplicate form attached to home improvement contracts, allowing homeowners to exercise their 3-day cancellation right.

• Must be attached and detachable
• Given at time of contract signing
• Two copies required (per separate rule)

Memory trick: Tear it off, keep it handy — cancellation ready anytime

A rate used in job costing to spread indirect overhead costs across jobs, typically based on direct labor hours or dollars.

• Formula: Total Overhead ÷ Allocation Base (e.g., labor hours)
• Ensures each job absorbs a fair share of indirect costs
• Essential for accurate job profitability analysis

Memory trick: Spread the overhead like butter over labor hours.

Arbitration clauses in home improvement contracts must be prominently displayed in bold type and separately acknowledged by the homeowner to be enforceable.

• Minimum 10-point bold type required
• Separate signature or initials needed
• Protects homeowner from unknowingly waiving jury trial rights

Memory trick: Bold and initialed — no hidden arbitration surprises.