A California LLC Employee/Worker Bond is a $100,000 surety bond mandated by the California Contractors State License Board (CSLB) for contractors operating as Limited Liability Companies (LLCs). This bond ensures that employees and workers receive due compensation, including wages, interest on wages, fringe benefits, and other related contributions, in cases where the LLC fails to fulfill its payment obligations.
The cost of obtaining a California LLC Employee/Worker Bond varies based on several factors, primarily the personal credit of the LLC's members. Premiums typically range from 1% to 10% of the total bond amount. Applicants with excellent credit may secure rates as low as 1%, equating to an annual premium of approximately $1,000. Conversely, those with lower credit scores might face higher premiums, potentially up to $5,000 annually.
The State of California requires LLC contractors to obtain this bond to protect employees from financial harm due to non-payment of wages or benefits. This requirement stems from concerns that LLCs might be more prone to failing in compensating their workers appropriately. By mandating the bond, the CSLB ensures a financial safety net for employees, promoting fair labor practices within the construction industry.
All contractors in California operating their businesses as Limited Liability Companies (LLCs) are required to obtain this bond in addition to the standard contractor license bond.
No, the LLC Employee/Worker Bond is separate and in addition to the $25,000 Contractor License Bond required for all contractors. The LLC Employee/Worker Bond specifically protects employees and workers, while the Contractor License Bond serves to protect consumers and the public.
The primary factors include the personal credit scores of the LLC's members, the financial history of the business, and, in some cases, real estate ownership. Better credit and financial stability typically result in lower premium rates.
If a valid claim is made, the surety company will compensate the claimant up to the bond's limit. However, the LLC is then responsible for reimbursing the surety for the amount paid out, as the bond functions as a guarantee rather than traditional insurance.
The bond is typically issued for a one-year term and must be renewed annually to remain in compliance with CSLB requirements. Continuous coverage is essential to maintain an active contractor's license as an LLC in California.
