If you are confused about hiring a contractor to do work around your home you are not alone. The terminology is a bit confusing, laws in each state are different and regulations are constantly changing which makes the whole process of hiring contractors to perform work on your home is difficult. Licensing within different trades be it electricians, plumbers, construction or heating and cooling are very specific as well. Below we attempt to define the terminology used throughout the industry and how it relates to specific contractors within different industries.
Licensed Contractors: A license is granted to contractors throughout different trades as authorized by local and state laws. This ensures that the contractor has passed tests regarding their business practices, trade skills and ability to pay for the fees associated with the required license and bonds.
Registered Contractors: Contractors that have been registered are only required to prove they are offer insurance and can pay the required fees. These requirements are often less stringent than what is required for a contractor to become licensed. To be a registered contractor you rarely have to pass any trade related competency tests or to be bonded. Licensing and registration terms are often used interchangeably.
Bonded Contractors: Contractors that are bonded have obtained an agreement with a third party, a private company that offers surety bonds, to ensure that the consumer is protected against any misdoings by the contractor. If contractors fail to perform work as contracted, fail to pay for materials or their subcontractors or what not, their customer can petition the surety company for reimbursement for the failure of the contractor to perform as stated within the signed contract.
Insured Contractors: Contractors should all be insured. They should hold two types of insurance: liability insurance and workers compensation. Liability insurance protects the homeowner against damage done to their property. Workers compensation protects workers hired by the contractor from coming after the homeowner if injured or killed while working on your home.
Before choosing a contractor to complete work around your home verify you are protected from wrongdoing. Ask contractors for all certificates that state they are registered, licensed, bonded and insured. If the status of any of these certifications is questionable don’t feel pressured into hiring this individual contractor. All certificates should be current and cover all aspects of the project that is to be completed. Once you have confirmed and verified a contractor be sure to file copies of all paperwork, certifications and such in a place that is easily accessible. This will ensure if proof of you will have it at your finger tips.
When hiring a contractor there is a big difference between contractors that are insured, a contractor that is bonded or one that is both insured and bonded. Exactly what are those differences and how do they affect you as a homeowner?
When a contractor is bonded and insured it offers an incentive for homeowners to hire them over a contractor that is not. Reputable home improvement specialists purchase bonds and insurance to protect consumers they work for while offering recourse in case something should go wrong.
A contractor’s bond offers protection to consumers against contractors failure to complete the job as the contract states, doesn’t pay for the proper permits or other financial obligations and such. In order for a contractor to become bonded they must pay a premium to a surety bonding company. Once the premium is paid by the contractor they are given a bond number and certification that confirms the surety company has agreed to provide protection to the consumer against several different issues that can arise from contractor error.
If you as a consumer feel that the work completed by the contractor is subpar or if materials and subcontractors aren’t paid they can contact the surety company direct to submit a claim. The state and municipality where you reside will determine the bonding requirements contractors must meet to ensure they have the proper contractor bond. Be sure to research these requirements before you hire a contractor to do work within your home or business.
A contractor that states they are licensed to perform work is different than those that are bonded. Two types of insurance commonly associated with contractors in the construction industry: liability insurance and workers compensation.
Liability insurance protects against property damage that occurs because of work that is performed by the contractor. It does not however cover issues related to poor quality workmanship. Those issues are covered under a contractor’s bond. This is why hiring a contractor that is both insured and bonded is important to protecting you as a consumer.
Workers compensation insurance is purchased by contractors to project against workers lost wages and medical services when they are hurt on the job. The families of the worker are also compensation benefits through workers comp insurance in the event of a death that occurs while at work. This is important insurance to look for as a homeowner when hiring a contractor to avoid being financially responsible for injuries that occur on your property while contracted work is being done.
To protect against any wrong doing on the part of the contractor be it intentional or unintentional it is important for homeowners to require contractors working for them to be both insured and bonded.