CA Plumbing PrepC-36 License Exam Prep
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Law & Business · Module 1

Employment and Labor Law for Contractors

Lesson 6 of 7~20 minFree previewCurrent as of September 2026Leer en español

The California employment rules a plumbing contractor needs when hiring a crew. You will learn how the ABC test and the construction subcontractor rule decide who is an employee, the penalties for willful misclassification, the 2026 minimum wage, daily and weekly overtime, meal and rest periods under the construction wage order, final paycheck deadlines and waiting time penalties, wage statements and record keeping, workers' compensation, new hire reporting, and the anti-discrimination and anti-retaliation rules.

Key Takeaways

  • A worker is presumed to be an employee unless the hiring entity proves all three parts of the ABC test (Labor Code 2775).
  • A subcontractor in construction can be treated under the older rules only if the Labor Code 2781 conditions are met, including a written subcontract and a CSLB license covering the work; anyone doing licensed work must hold a contractor's license to be an independent contractor (Labor Code 2750.5).
  • Willful misclassification carries civil penalties of $5,000 to $15,000 per violation, or $10,000 to $25,000 for a pattern, and orders against licensees are sent to CSLB (Labor Code 226.8).
  • The statewide minimum wage is $16.90 an hour starting January 1, 2026, unless a higher local or industry rate applies (DIR).
  • Overtime is 1.5 times the regular rate over 8 hours in a day, over 40 in a week, and the first 8 hours on the seventh day; double time over 12 in a day and over 8 on the seventh day (Labor Code 510).
  • Meal period: 30 minutes for a work period of more than 5 hours, a second one after more than 10. Rest period: 10 minutes net for every 4 hours or major fraction. Each missed type costs one extra hour of pay per workday (Labor Code 512, 226.7; Wage Order 16).
  • A fired employee is paid immediately; one who quits without notice is paid within 72 hours; willful late payment adds up to 30 days of wages as a penalty (Labor Code 201 to 203).
  • Keep payroll records and wage statement copies at least three years (Labor Code 1174, 226), and report new hires to EDD within 20 calendar days.
  • Every employer must carry workers' compensation (Labor Code 3700); a lapse automatically suspends a contractor's license (B&P 7125.2).

Why This Matters

CSLB's Law and Business study guide lists "Employment Requirements" as a major exam section, covering hiring, supervising, record keeping and payroll. On the job, these rules decide what you owe each worker every payday, and some mistakes (like misclassifying a helper) can also reach your license.

Employee or Independent Contractor?

The ABC test. Under Labor Code 2775(b)(1), a person providing labor or services for pay is an employee unless the hiring entity proves all three:

  • (A) The person is free from the control and direction of the hiring entity in performing the work, both under the contract and in fact.
  • (B) The person performs work that is outside the usual course of the hiring entity's business.
  • (C) The person is customarily engaged in an independently established trade, occupation or business of the same nature as the work performed.

A plumbing helper working on your jobs fails part B right away, because plumbing is your usual business.

The construction subcontractor rule. Labor Code 2781 says the ABC test does not govern a contractor's relationship with an individual working under a subcontract in the construction industry if the contractor shows all of these:

  • The subcontract is in writing.
  • The subcontractor is licensed by CSLB and the work is within the scope of that license.
  • The subcontractor has any required local business license or business tax registration.
  • The subcontractor keeps a business location separate from the contractor's.
  • The subcontractor has authority to hire and fire people to help with the work.
  • The subcontractor assumes financial responsibility for errors or omissions, shown by insurance, indemnity, performance bonds or warranties.
  • The subcontractor is customarily engaged in an independently established business of the same nature.

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