Fillable Printable Information Sheet: Construction Industry (De 231G)

Information Sheet: Construction Industry (De 231G)

CONSTRUCTION INDUSTRY

Under California law, a contractor, licensed or unlicensed,

who engages the services of unlicensed subcontractors or

construction workers is, by speciﬁc statute, the employer

of those unlicensed subcontractors or workers, even if the

subcontractors or workers are independent contractors under

the usual common law rules.

Section 7026 of the

Business and Professions Code defines a

contr

actor as an

y person who constructs, alters, repairs, adds

to, subtracts from, improves, moves, wrecks, or demolishes

any building, highway, road, parking facility, railroad,

excavation or other structure, project, development or

improvement, or does any part thereof, including the erection

of scaffolding or other structures or works or the cleaning

of grounds or structures in connection therewith. The term

“contractor” includes subcontractor and specialty contractor.

WHO IS A STATUTORY EMPLOYEE IN THE

CONSTRUCTION INDUSTRY?

Sections 621.5 and 13004.5 of the California

Unemployment Insurance Code (CUIC) were written in

identical language and state:

“(a) ‘Employee’ also means any individual who is an

employee, pursuant to Section 2750.5 of the Labor

Code, of a person who holds a valid state contractor’s

license pursuant to Chapter 9 (commencing with

Section 7000) of Division 3 of the Business and

Professions Code.

(b) When subdivision (a) does not apply, ‘employee’ shall

also mean any individual who is an employee, pursuant

to Section 2750.5 of the Labor Code, of a person who is

required to obtain a valid state contractor’s license

pursuant to Chapter 9 (commencing with Section 7000)

of Division 3 of the Business and Professions Code.”

Section 2750.5 of the Labor Code states in pertinent part:

“There is a rebuttable presumption affecting the burden

of proof that a worker performing services for which a

license is required pursuant to Chapter 9 (commencing with

Section 7000) of Division 3 of the Business and Professions

Code, or who is performing such services for a person who is

required to obtain such a license is an employee rather than

an independent contractor...” Section 2750.5 of the Labor

Code states that the following factors support anindependent

contractor status:

(a) The individual directs and controls how the services

contracted for are accomplished.

(b) The individual is customarily engaged in an

independently established business.

ﬁde and not a subterfuge to avoid employee status.

In addition to the above factors, the individual must have a

valid contractor’s license to perform the work.

In summary, without a valid contractor’s license, a person

performing services in the construction trade is an employee

of the contractor who either holds a license or is required to

be licensed.

The term “valid license” means the license was issued to

the correct individual or entity, the license was for the type

of service being provided, and the license was current and

active for the entire period of the job.

The Contractors State License Board (CSLB) determines who

must be licensed to perform services in the construction

industry within California. A contractor or a worker should

contact the CSLB to determine if the services performed

require a license. The contractor or worker should request

a written determination and/or should document the

CSLB determination. The documentation may include the

following:

1)The date of the contact and name of the person making

the inquiry.

2)The name of the CSLB representative who made the

determination, if contacted by phone.

3)The information provided during the contact to

determine whether a contractor’s license is required,

such as:

a)If a license is not required, why?

b)How do the services performed not qualify under

the General Contractor (Class A or B) or Specialty

Contractor (Class C) license classiﬁcations?

Caution: Possession of a valid contractor’s license does not

automatically make the worker an independent contr

actor.

The worker must also be performing services under

conditions and circumstances which would support an

independent contractor relationship under Section 2750.5

of the Labor Code.

If the subcontractor or worker is found to be a statutory

employee as defined by Sections 621.5 and 13004.5 of the

CUIC

, the employer is responsible for reporting the wages

paid to the emplo

ee and paying Unemployment Insurance

and Employment Training Tax on those wages. Additionally,

the employer is required to withhold and remit State Disability

Insurance* and California Personal IncomeTax due on the

wages paid.

DE 231G Rev. 14 (9-17) (INTERNET)Page 1 of 2CU

EXAMPLES OF EMPLOYMENT IN THE CONSTRUCTION

INDUSTRY

A general contractor who holds a valid California

contr

actor’s license hires an out-of-state subcontractor

to perform services for which a license is required.

The subcontractor has a license issued by another

state but is not licensed in California. In this

instance, the subcontractor and all of his workers are

statutory employees of the general contractor under

Sections 621.5 and 13004.5 of the CUIC becausethe

subcontractor does not hold a valid California

contractor’s license.

A roo

ﬁ

ng contractor (licensed or unlicensed) hires a

subcontractor who is determined to be an independent

contractor under factors (a), (b), and (c) of Section 2750.5

of the Labor Code; however, that subcontractor does not

hold a valid contractor’s license. The subcontractor and

his/her workers are statutory employees of the rooﬁng

contractor under Sections 621.5 and 13004.5 of the

CUIC because he/she does not hold a valid contractor’s

license.

A general contractor who holds a valid contractor’s

license hires a subcontractor that is a partnership,

to install carpets. One of the partners holds a valid

contractor’s license; however, the partnership is

unlicensed.

All workers including the partners and

their employees are statutory employees of the general

contractor under Sections 621.5 and 13004.5 of the

CUIC because the partnership does not hold a valid

contractor’s license. The CSLB must have issued a

separate license for the partnership in order for the

license to be considered valid. This concept also applies

to corporations and joint ventures as the entities must be

separately licensed.

An owner of commercial or residential rental property,

or a property manager acting as the owner’s agent, hires

unlicensed construction workers to perform construction

work on his/her own buildings. Such owners are not

typically required to be licensed, so the workers may not

be statutory employees under Section 621.5 and

13004.5of the CUIC. The common law tests would be

applied to

determine if they are employees under

Section 621(b)of the CUIC. Refer to Information Sheet:

Employment,

DE 231.

5)A general contractor, either licensed or unlicensed,

subcontracts work out to an individual who has a

valid contractor’s license. The individual is told by the

general contractor how to accomplish his/her work and

is paid by the hour. The individual has no investment

in the business and does not provide his/her own tools.

The individual is not engaged in an independently

established business. The general contractor controls the

time and place the work is performed and can sever the

relationship at will.

The individual would not be an independent contractor

simply because he or she holds a valid contractor’s

license. In this case, the individual would be a common

law employee because he/she does not meet the (a),

(b), and (c) tests set forth in Section 2750.5 of the

Labor

Code.

OWNER-BUILDER RESPONSIBILITIES

An owner-builder is a person who owns the property and acts

as their own general contractor on the job, and either does

the work themselves or has employees (or subcontractors)

working on their principal place of residence that they have

occupied for 12 months prior to completion of the work.

When one signs a building permit application as an

owner-builder, one assumes full responsibility for all

phases of the project and its integrity. An owner-builder

also is responsible for supervising, scheduling, and paying

subcontractors. If one uses anyone other than a licensed

subcontractor for work, the owner-builder may be considered

a subject employer if certain conditions are not met under

Section 640 of the

CUIC.

ADDITIONAL INFORMATION

For further assistance, please contact the Taxpayer Assistance

Center at 888-745-3886 or visit the nearest Employment Tax

Office listed in the

California Employer’s Guide,DE 44, or

access the Employment Development Department (EDD)

website at www.edd.ca.gov/Office_Locator/.

The EDD is an equal opportunity employer/program.

Auxiliary aids and services are available upon request to

individuals with disabilities. Requests for services, aids, and/

or alternate formats need to be made by calling

888-745-3886 (voice), or TTY 800-547-9565.

This information sheet is provided as a public service and is intended to provide nontechnical assistance. Every attempt has been made

to provide information that is consistent with the appropriate statutes, rules and administrative and court decisions. Any information that

is inconsistent with the law, regulations, and administrative and court decisions is not binding on either the Employment Development

Department or the taxpayer. Any information provided is not intended to be legal, accounting, tax, investment, or other professional

advice.

* Includes Paid Family Leave (PFL)

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