If you’re planning on becoming a professional contractor or handyman, and then starting a business, it’s important to understand which licensing laws apply in your city and state. One violation and your business could be fined or shut down.
Handyman vs. contractor business licensing
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The challenge is that laws may not be clear-cut about handyman and contractor licensing requirements, and they can vary significantly from state to state.
Here are some of the things you need to know about finding the necessary license and permit requirements before starting your business.
What’s the difference between a handyman and a contractor?
Before you start researching the license and permits you need to operate, you’ll need to know whether the law classifies you as a handyman or a contractor.
Starting a handyman business is an appealing prospect for someone with diverse trade skills. But how is a handyman defined? Typically, handyman work involves small jobs, quick repairs, or work valued under a certain dollar amount, but the laws and definitions vary by state.
Contractors differ from handymen in that they are involved in major work such as commercial or residential contracting, which usually involves a bidding process. (In many cases, a state may require that a contractor first obtain all necessary licenses before submitting a bid.) Contractors also work in specialized areas such as plumbing, electrical, HVAC, solar, gas, or asbestos/hazardous waste remediation. Contractors may be subcontractors to other companies and demonstrate the ability to self-manage a project.
What are the licensing rules and requirements for handyman work?
As a rule, most states have what’s called a “Minor work exemption” or “Handyman exemption”. This exemption defines the maximum dollar amount that a handyman can charge for a job before needing a license. It may also specify the kind of work you can do without a license.
It's important to be aware that each state has different licensing laws and criteria. In California, for example, a handyman must have a state-issued contractors license for any job over $500. In Arizona, you can generally qualify for a “handyman exemption" with the state licensing board as long as labor and materials do not exceed $1,000 or a permit is not required (regardless of labor and materials). In Texas, there are state licensing requirements for specialty areas such as air conditioning and refrigeration or electrical work. In addition, contractors and handymen may also need to obtain a special permit at the local level, as well as fulfilling other business requirements.
Below are other considerations:
- Maximum labor and material dollar amount – If you’re working on a job that exceeds a certain amount, including labor and materials, a license may be required.
- Liability coverage – Some states require you to have liability insurance to protect your business against lawsuits or other financial repercussions as a result of accidents or damage to a customer’s property.
- Limits to the type of work you can perform – In addition to dollar limits, your state may allow you to operate as a handyman without a license if the work meets certain criteria.
Once you’ve found out what you need, pay attention to any regulations about how you advertise your business. If you’re unlicensed, some states require you to include this fact in your marketing or forbid advertising altogether.
Furthermore, if a client asks you to do something outside the handyman scope set by your state (usually specialized work like plumbing, electrical, or HVAC), you must turn that work down.
What’s involved in obtaining a contractor’s license?
If you fall into the contractor category as defined by your state’s contractors board and licensing requirements, you’ll need to prove that you are competent in your trade and pass a general contractor exam (usually on business law and your trade). Your state’s licensing board will also want to know how many years of experience you have, your competency in running the everyday activities of a construction or skilled trade company, whether you have a criminal background, and your financial status.
If you’re seeking a license for skilled trades such as electrical, plumbing, and mechanical, find out about your state’s unique licensing and examination requirements as these differ from those of a general contractor.
Once your license is granted it’s time to obtain worker’s compensation insurance, liability insurance, and a contractor’s license bond.
Don’t forget to check into local laws. Licensing requirements at the county and city level should also be on your radar.
What is the difference between a contractor’s license and a business license?
A contractor’s license is a type of occupational license that allows you to legally engage in specific types of contracting work within a jurisdiction. It is generally issued by a state licensing authority, although there are some states where contractor licensing is handled at the county or city level, or at both state and local levels. The licensing process may involve meeting an experience requirement, taking a trade exam, and providing proof of liability and workers' compensation insurance, in addition to paying a fee.
A general business license is often required by a city or county for the privilege of doing business in that jurisdiction. (This license can go by other names, such as business privilege license or business tax registration.) This license applies to all types of businesses, not just contracting and handyman businesses.
Will you incorporate or form an LLC?
If you plan on forming a corporation or limited liability company for your business, make sure that your corporation or LLC completes all necessary licensing and registration requirements that pertain to the company. If you plan on using a DBA assumed name (whether you are a formal business entity or sole proprietor), make sure you register that name if required by state law.
Risks of violating state licensing laws
Don’t ignore this important aspect of starting and managing your handyman or contracting business. State enforcement staff take licensing violations very seriously and conduct routine sweeps or stings of hundreds of job sites looking for misconduct or noncompliance.
They are also known to scour Craigslist ads for illegal advertising by unlicensed contractors. And if your corporation or LLC does contracting work without a license, you could be held personally liable for damages arising out of a contracting job.
To ensure you understand the licensing requirements in your state, county, and town, reach out to other handymen, consult an attorney, or contact CT Corporation to find the exact licenses or permits you’ll need.