CSLB Law & Business Exam flashcards

California employers must file quarterly wage and withholding reports (DE 9/DE 9C) with EDD by the last day of the month following the end of each calendar quarter.

• Quarters end March 31, June 30, September 30, and December 31.
• Reports are due the last day of the following month (e.g., April 30, July 31, October 31, January 31).
• Late filing can result in penalties and interest.

Memory trick: One month grace after each quarter's close.

When an employer discharges an employee, all unpaid wages are due immediately at the time of termination under Labor Code Section 201.

• Discharge = immediate payment
• Quit with notice = payment at time of quitting
• Quit without notice = payment within 72 hours

Memory trick: Fired means paid right then; quit means a countdown starts.

Under California's ABC test (Labor Code 2775), a worker is an employee unless the work performed is outside the usual course of the hiring entity's business.

• All three prongs (A, B, C) must be satisfied for independent contractor status
• Prong B fails when the worker does the same work the company sells
• Established by Dynamex and codified in AB 5

Memory trick: Same trade, same fate — employee, not contractor.

The Notice of Cancellation must be easily detachable from the contract so the homeowner can readily use it to cancel if desired.

• Must be physically separable from contract pages
• Given in duplicate to homeowner
• Design supports the homeowner's ability to exercise the right to cancel

Memory trick: Tear it off, mail it out, cancel with ease.

Contracts limited to repair or maintenance of existing structures may use simplified disclosures, but they remain subject to the three-day cancellation right and down payment limits.

• Simplified disclosures permitted, not full exemption
• Three-day cancellation right still applies
• Down payment cap of lesser of $1,000 or 10% still governs

Memory trick: Simpler paperwork, same protections.

California imposes civil penalties of $5,000 to $15,000 per violation for willfully misclassifying employees as independent contractors, rising to $10,000–$25,000 for a pattern or practice.

• Applies to willful misclassification, not good-faith errors.
• Also prohibits charging misclassified workers fees or deductions they wouldn't face as employees.
• Penalties are assessed by the Labor Commissioner or a court.

Memory trick: Willful mislabeling costs five to fifteen grand a head.

A financial statement dividing cash inflows and outflows into three categories: operating, investing, and financing activities.

• Operating: day-to-day business cash (revenue, expenses, payroll)
• Investing: buying/selling long-term assets like equipment
• Financing: loans, owner contributions, and loan repayments

Memory trick: Operate daily, Invest in stuff, Finance with others' money.

Employers must reimburse employees for all necessary expenses incurred while performing job duties, including required use of personal vehicles or tools.

• Applies to mileage, tools, and other necessary work expenses
• Cannot be waived by employer policy
• Failure to reimburse can result in wage claims

Memory trick: If the job needs it, the boss pays for it.

A company can be profitable on paper (accrual accounting) while still running short on cash due to timing differences between earning revenue and collecting payment.

• Accrual accounting records revenue when earned, not when paid
• Accounts receivable ties up cash until collected
• Cash flow problems are a leading cause of contractor business failure

Memory trick: Profit is on paper; cash is in the bank.

Homeowners must receive a fully completed copy of the home improvement contract at the time they sign it.

• Immediate delivery required
• No waiting for request or job completion
• Protects homeowner's record of agreed terms

Memory trick: Sign it, get it — same moment

A written change order that modifies an existing home improvement contract does not create a new three-day right to cancel; the cancellation right applies only to the original contract execution.

• Change orders become part of the original contract once signed
• No new Notice of Cancellation is required for standard change orders
• The original 3-day cancellation period is tied to the initial contract signing date

Memory trick: One contract, one clock — change orders don't reset the ticking three days.

Contractors must obtain a permit from Cal/OSHA under Labor Code §6500 before excavating a trench 5 feet or deeper.

• Applies to trenches/excavations of 5 feet or more
• Permit obtained annually, valid for a specified period
• Required regardless of trench duration or backfill timing

Memory trick: Five feet down, get the permit found

A qualifying individual may only qualify more than one license if the entities have at least 20% common ownership.

• Default rule: one qualifier per license
• 20% common ownership creates an exception
• Prevents 'qualifier for hire' abuse across unrelated companies

Memory trick: '20% ties the qualifier's hands together.'

When a sole proprietor licensee dies, the license terminates, but the estate's personal representative may seek CSLB authorization to complete pending contracts.

• Individual license does not survive the owner's death automatically
• Personal representative can request limited continuation authority
• A qualifying individual is still needed to complete work

Memory trick: 'Death ends the license, but not unfinished jobs.'

On worksites with multiple employers, the general contractor must ensure that hazard information about chemicals is communicated to all exposed employees, not just those of the employer who introduced the hazard.

• Applies when different subcontractors' employees may be exposed to shared hazards
• GC must coordinate SDS access and hazard information sharing
• Failure to coordinate can result in Cal/OSHA citations against the GC

Memory trick: General contractor is the safety hub for all subs

Service and repair contracts must contain a description of work, itemized materials/parts, and total price to protect consumers.

• Applies to repair-focused contracts
• Must itemize materials and labor
• No blank spaces allowed

Memory trick: Itemize it, don't guess it

When a workday is split by an unpaid, non-working interval, the employer must pay one additional hour at minimum wage if the day's earnings don't exceed minimum wage for hours worked plus one hour.

• Applies when a non-meal gap interrupts the shift
• Premium is one hour at minimum wage, not overtime rate
• No premium owed if wages already exceed the threshold

Memory trick: Split the day, add an hour's pay if wages don't clear the bar.

Excavations deeper than 20 feet require a protective system designed by a registered professional engineer under Cal/OSHA standards.

• 20-foot threshold triggers engineer design requirement
• Standard tabulated data no longer sufficient beyond 20 feet
• Reflects increased cave-in and structural risk at depth

Memory trick: Past twenty feet, call the engineer's seat

Excavated soil and materials must be set back at least 2 feet from the edge of a trench to prevent collapse and falling hazards.

• Applies to soil piles, tools, and equipment
• Prevents surcharge loading on trench walls
• Part of general Cal/OSHA excavation safety requirements

Memory trick: Two feet back keeps the spoil off your back

Excavations 5 feet or deeper require a protective system (shoring, sloping, or shielding) under Cal/OSHA rules, unless made entirely in stable rock.

• 5-foot depth triggers protection requirement
• Options include sloping, benching, shoring, shielding
• Applies regardless of trench length

Memory trick: Five feet down, protection's the crown

A license classification for contractors whose principal business involves projects requiring at least two unrelated building trades or crafts.

• Distinct from Class A (engineering/fixed works)
• Distinct from Class C (single specialty trades)
• Common for general contractors building or remodeling structures

Memory trick: 'B is for Building Both trades' — two or more crafts needed.

The statutory down payment cap is based on the original contract price at signing and is not increased by later change orders.

• Down payment cap set at signing
• Change orders increase total price but not the down payment cap
• Additional work is funded via progress/final payments

Memory trick: Once the deposit is capped, change orders can't reopen the vault.

A licensed sole proprietor with no employees must file a Certificate of Exemption from workers' compensation with CSLB rather than carrying a policy.

• Filing is required even though coverage is not needed.
• If the proprietor later hires employees, a workers' comp policy must be obtained immediately.
• False exemption filings can result in license suspension and penalties.

Memory trick: No employees? File the exemption, don't just assume it.

The total cost of materials consumed during a period, calculated by adjusting purchases for changes in inventory.

• Formula: Beginning Inventory + Purchases − Ending Inventory
• Reflects actual material cost, not just purchases
• Used to calculate accurate job costing and gross profit

Memory trick: Start with what you had, add what you bought, subtract what's left.

A certificate of insurance is proof a policy exists but grants no rights; an additional insured endorsement is required to actually extend coverage to a third party.

• Certificates are informational, not contractual
• Endorsements amend the policy to add covered parties
• Owners seeking real protection should require endorsements, not just certificates

Memory trick: A certificate just tells you it exists — the endorsement is what insists on coverage.

California requires overtime pay for any work performed on the seventh consecutive day in a single workweek: 1.5x for the first 8 hours and 2x for hours beyond 8.

• Applies only when all seven days fall within the same workweek.
• Triggered by consecutive days worked, not total hours.
• Separate from the standard 40-hour weekly overtime rule.

Memory trick: Seven days straight? Sweeten the pay rate.

The percentage added to cost to determine selling price, calculated as (Price − Cost) ÷ Cost.

• Markup is based on cost
• Margin is based on selling price
• Same dollar profit produces different markup and margin percentages

Memory trick: Markup grows from Cost; Margin comes from Sale price.

A formula used to convert a desired gross profit margin (based on price) into the equivalent markup percentage (based on cost).

• Markup = Margin ÷ (1 − Margin)
• Margin = Markup ÷ (1 + Markup)
• Markup % is always greater than margin % for the same dollar profit

Memory trick: Margin looks at price, markup looks at cost — flip the fraction to convert.

Public works apprenticeship standards require a set ratio (generally 1:5) of apprentice hours to journeyman hours in the same craft.

• Governed by Labor Code §1777.5
• Contractors must contribute to apprenticeship training funds
• Ratios and requirements can vary slightly by approved apprenticeship program

Memory trick: Five journeymen train one apprentice.

An accounting method that records revenue when it is earned and expenses when they are incurred, regardless of when cash is exchanged.

• Contrasts with cash-basis accounting
• Revenue recorded at time of invoicing/completion
• Gives a more accurate picture of financial performance over time

Memory trick: Accrual = Earned, not Received.

California requires all C-39 roofing contractors to carry workers' compensation insurance at all times, even sole owners with no employees.

• Applies specifically to C-39 roofing classification
• No exemption for no-employee sole owners
• Enacted due to high injury rates in roofing work

Memory trick: Roofers always need coverage, rain or shine, employees or none.

A homeowner may waive the three-day cancellation right only by furnishing a personally handwritten, dated statement describing the bona fide emergency and expressly waiving the right.

• Waiver must be in the homeowner's own handwriting
• Must be dated and describe the emergency
• Contractor cannot draft or dictate the waiver for the homeowner

Memory trick: In an emergency, the homeowner's own pen must speak.

California requires overtime pay (1.5x) for all hours worked beyond 40 in a single workweek, even if no daily overtime is triggered.

• Weekly OT applies at 40+ hours regardless of daily distribution.
• Daily OT (over 8 hrs/day) and weekly OT (over 40 hrs/week) are separate triggers.
• Employers must pay whichever overtime rule yields more pay to the employee.

Memory trick: Forty is the fence — anything past it earns time-and-a-half.

A $12,500 bond required when an RME/RMO owns less than 10% of the licensed business, to protect against the qualifier's misconduct.

• Triggered by ownership under 10%
• Amount is $12,500
• Separate from the standard $25,000 license bond

Memory trick: 'Under ten, bond again.'

A mechanics lien's priority relates back to the date visible construction work commenced on the project, giving it priority over later-recorded encumbrances even though the lien is recorded much later.

• Priority date = commencement of work, not lien recording date
• Can give lien priority over a construction loan deed of trust recorded after work began
• Encourages lenders to verify no work has started before funding

Memory trick: Priority freezes at the first shovel in the dirt.

A financial statement showing a company's assets, liabilities, and net worth (equity) at a single point in time.

• Formula: Assets = Liabilities + Equity
• Snapshot, not a period report
• Used to assess company solvency and net worth

Memory trick: Balance sheet = a photo; income statement = a movie.

Payments self-employed individuals make four times per year to cover income and self-employment tax obligations, avoiding IRS underpayment penalties.

• Required if expected tax owed is $1,000 or more
• Paid via IRS Form 1040-ES
• Due dates roughly mid-April, June, September, and January

Memory trick: No boss withholding? Pay the IRS quarterly yourself.

California requires employers to provide itemized wage statements showing gross wages, hours worked, deductions, net wages, and other specified information each pay period.

• Must show hours worked and gross/net wages
• Must itemize all deductions
• Full SSNs are prohibited on the statement
• Violations can trigger penalties per pay period

Memory trick: Every paystub tells the whole wage story.

Additional work beyond the original contract scope generally requires a written, signed change order before the work begins, except in genuine emergencies.

• Must be in writing and signed by both parties
• Applies even to time-and-materials pricing
• Emergency situations are a limited exception

Memory trick: No paper, no extra work — sign before you swing the hammer.

Contractors must wait until the 3-business-day cancellation period expires before starting work, unless validly waived.

• Protects homeowner's cancellation right
• Waiver allowed only for genuine emergencies
• Starting early risks violating consumer protection law

Memory trick: Wait three days before the first nail

Employers must record qualifying workplace injuries and illnesses on the OSHA 300 log within 7 calendar days of learning about them.

• 7-day deadline applies to standard recordable injuries
• Distinct from the 8-hour serious injury phone report rule
• Applies to employers with more than 10 employees generally

Memory trick: Seven days to log it, eight hours to call it in if serious.

Workplace containers of hazardous chemicals must be labeled with a product identifier and general hazard information, even if transferred from the original container.

• Required by 8 CCR §5194 HazCom Standard
• Applies to secondary/transfer containers used beyond immediate shift
• Full GHS labels aren't always required if used same shift by same employee

Memory trick: Name it and warn it

Prong A of California's ABC test asks whether the worker is free from the hiring entity's control and direction, both by contract and in actual practice.

• Looks at scheduling, supervision, tools, and methods of work.
• Failing any prong (A, B, or C) means the worker is an employee.
• Prong A is the first and often most heavily litigated prong.

Memory trick: A is for Autonomy — who really calls the shots?

Employers must post the OSHA 300A annual summary of injuries and illnesses from February 1 to April 30 each year.

• Applies to employers required to keep OSHA injury logs
• Must be posted in a conspicuous, employee-accessible location
• Executive must certify the accuracy of the summary

Memory trick: Feb through April, post the tally.

California's SUI tax applies only to the first $7,000 of wages paid to each employee per calendar year, regardless of total annual earnings.

• Wage base is $7,000 per employee per year
• Applies once per employee per calendar year, resets annually
• Wages above $7,000 are exempt from SUI, not from other payroll taxes

Memory trick: SUI stops counting at seven grand.

A statutory release form signed after actually receiving full final payment, unconditionally waiving all lien and claim rights on the project.

• Used only after payment has actually been received
• Waives all lien rights with no conditions
• Contrasts with conditional releases used before payment clears

Memory trick: Unconditional = cash in hand, no strings attached.

A bond, usually 125% of the lien amount, that can be recorded to remove a mechanics lien from real property title while substituting the bond as security for the claim.

• Bond amount is typically 125% of the lien claim
• Transfers claimant's security interest from property to bond
• Allows property to be sold or refinanced despite a disputed lien

Memory trick: Swap the land for a bond, and the lien cloud is gone.

California requires a 30-minute unpaid meal break for shifts over 5 hours; failure to provide it entitles the employee to one hour of premium pay at their regular rate.

• Meal break must generally start before the end of the 5th hour worked.
• Premium pay is one hour per missed meal break (not multiplied).
• A second meal break is required for shifts over 10 hours.

Memory trick: Miss the meal, owe an hour — no exceptions.

Excavations deeper than 4 feet where a hazardous atmosphere may exist require testing for oxygen content and toxic or flammable gases before entry.

• Applies near sewers, landfills, or gas lines
• Testing must continue as conditions change
• Ventilation or respiratory protection required if hazards are detected

Memory trick: Four feet down, test the air around

A statutory release that only becomes effective once the specific progress payment it covers is actually received and honored, such as a check clearing.

• Protects the claimant if the payment check bounces
• Only covers the specific payment referenced, not future work
• Contrasts with unconditional release, which is effective immediately upon signing

Memory trick: Conditional release waits for the check to actually clear.

A liquidity ratio calculated by dividing current assets by current liabilities, showing a company's ability to pay short-term obligations.

• Formula: Current Assets ÷ Current Liabilities
• A ratio above 1.0 generally indicates good short-term liquidity
• Used by lenders and bonding companies to assess financial stability

Memory trick: Current ratio = 'Can I pay my bills right now?'

Under Cal/OSHA's IIPP regulations, employee training must be provided whenever new hazards, equipment, or processes are introduced, in addition to initial and periodic training.

• Training required for new employees, new hazards, and new equipment
• Must occur before employee exposure to the hazard
• Supervisors must also be trained to recognize hazards

Memory trick: New tool, new rule—train before they touch the tool

Employers with 10 or fewer employees at all times during the prior calendar year are generally exempt from maintaining routine OSHA 300 injury and illness logs.

• Exemption is based on employee headcount, not industry type
• Serious injury/fatality reporting duties still apply regardless of exemption
• Cal/OSHA may still require records upon request in some cases

Memory trick: Ten or fewer, skip the ledger

Labor Code 226.2 requires piece-rate employees to be paid separately for rest and recovery periods based on their average hourly rate for the workweek, excluding overtime premiums.

• Average hourly rate = piece-rate earnings ÷ hours actually producing
• Rest/recovery time must be paid separately from piece-rate earnings
• Applies specifically to piece-rate compensation systems
• Failure to pay separately can result in wage claims and penalties

Memory trick: Rest time rides on the average rate, not the piece rate.

A recorded mechanics lien must be enforced by filing a foreclosure lawsuit within 90 days of recording, or it becomes void.

• 90-day foreclosure deadline runs from lien recording date
• Extensions are possible only via a written payment agreement recorded before the deadline
• Failure to sue in time voids the lien completely

Memory trick: Ninety days to sue, or the lien turns to dust.

California law allows certain genuine business-to-business contracting relationships meeting specific statutory criteria to be evaluated under the Borello test instead of the strict ABC test.

• Requires the contractor to operate as a separate, genuine business
• Contractor must have own business license, tools, and set own rates
• Falls back to the multi-factor Borello test if criteria are met
• Codified under Labor Code Section 2775 et seq. (AB 5)

Memory trick: Two real businesses dealing together can skip the strict ABC test.

Insurance that protects a contractor against claims from third parties for bodily injury or property damage caused by the contractor's work or operations.

• Covers third-party claims, not the contractor's own losses
• Does not cover employee injuries (that's workers' comp)
• Often required by clients, lenders, or for bonding purposes

Memory trick: GL guards the guy next door, not the crew or your own gear.

When two or more licensed parties combine to contract in a joint venture's own name, CSLB requires the joint venture itself to obtain a separate license.

• Applies even if all members are individually licensed
• Joint venture is treated as a distinct legal entity by CSLB
• Requires its own qualifying individual and bond

Memory trick: 'New name, new license' — a joint venture contracting under its own name needs its own license.

Employers must retain Form 300 logs, 300A summaries, and 301 incident reports for 5 years following the end of the calendar year the records cover.

• Retention period is 5 years, separate from the Form 300A posting period (Feb 1–Apr 30).
• Applies to employers required to keep OSHA injury/illness records.
• Records must be made available to employees, former employees, and their representatives upon request.

Memory trick: Five years locked in the file cabinet after the year ends.

California employers must report new or rehired employees to the EDD within 20 days of their start-of-work date.

• Reported using Form DE 34 or electronic equivalent
• Supports child support enforcement and unemployment fraud detection
• Applies to both full-time and part-time employees

Memory trick: Twenty days to report the new employee's stay.