Although a home-owner can pull a building permit in his/her name as an owner-builder, City staff recommends that California licensed contractor is hired to obtain the permit and perform the work. Hiring a California Licensed Contractor means you do not personally perform any of the construction work, the permit is not taken out in your name, you are not personally responsible for the construction and you are not an Owner-Builder. Instead, you become a “Customer” and California law provides you the benefit of protection from poor workmanship, failure to finish the job, and financial risk due to worker injury.
Benefit/Risk: Highest Benefits and the least amount of risk.
The term “Owner-Builder” can mean three different things. Understand each has Benefits or Risks, and it is possible to combine them!
1. “Owner as Worker”
Owner-as-Worker is a type of Owner-Builder where you personally perform the construction work, the permit is taken out in your name and you are personally responsible for the construction management, knowledge, workmanship, and completion of the job. You benefit by not paying others to perform this work for you and your risks depend on your own ability to complete the job successfully.
Benefit/Risk: Possible Benefits with Low Financial Risk
2. “Owner as Contractor”
Owner-as-Contractor is a type of Owner-Builder where you personally act as your own General Contractor, the permit is taken out in your name and you hire California licensed sub-contractors to perform portions of the construction work. WARNING: The benefit of protection provided by law when you hire only California licensed sub-contractors can turn to serious financial risk if you hire unlicensed contractors to perform any of the work.
Benefit/Risk: Possible Benefit and Significant Financial Risk
3. “Owner as Employer”
Owner-as-Employer is a type of Owner-Builder where you pay any unlicensed individual to perform any construction work valued at more than $500.00, the permit is taken out in your name and you are personally responsible for their employment requirements, supervision, performance, safety, and welfare while on your property. WARNING: Cost savings benefits can turn into serious financial risk if you fail to deduct payroll taxes or provide workers' compensation insurance for each worker.
Benefit/Risk: Possible Benefit and Significant Financial Risk
Considering Becoming an Owner-Builder?
(Health and Safety Code Section 19827) The California Legislature declares an “urgent and statewide public interest in assuring” that contractors comply with Contractors’ License Law, Business and Professions Code, and Workers’ Compensation Insurance requirements to ensure property owners are informed about and protected from the following when improving their property as Owner-Builders:
⮚ Fraudulent representations
⮚ Liability for Worker’s injuries
⮚ Liability for material and labor costs
⮚ Unpaid by contractors
⮚ Licensing requirements
⮚ Employers’ tax liabilities
Did you know?
- Unlicensed persons frequently have the property owner obtain an “Owner-Builder” building permit which erroneously implies that the property owner is providing his or her own labor and material personally.
- Your homeowner’s insurance may not provide coverage for injuries sustained on your property by an unlicensed contractor and his/her employees.
- If you are considered an “employer” under state and federal law, you must register with the state and federal government, withhold payroll taxes, provide workers’ compensation and disability insurance and contribute to unemployment compensation for each “employee”?
- If you fail to abide by these laws you may be subjected to serious financial risk.
OWNERS BEWARE AND CONSIDER THE RISK BEFORE ACCEPTING FULL RESPONSIBILITY FOR YOUR CONSTRUCTION PERMIT
Over 20,000 consumer complaints are filed each year. Many complaints relate to owner/builder projects and include workmanship and workers’ compensation issues Homeowners suffer financial harm due to defective workmanship and injured employees.
Following are some examples of what has occurred with Owner-Builder permits:
Example 1: The homeowner received insurance money to rebuild a burned-down home.
Owner/Builder permit pulled to rebuild the structure.
The unlicensed contractor built a substandard structure—that must be torn down and replaced.
The estimated financial injury is $225,000.
Additional financial injury—IRS threatened to tax insurance payout if the house was not completed by the end of the year.
Example 2: Brother-in-law had an active license but filed an exemption from Workers’ Compensation.
Owner-Builder hires brother-in-law to install a new roof.
Employee falls and sustains multiple spinal and extremity fractures as well as head injury and remains in a coma to this day.
The Owner-Builder, who has sold the home, is now a defendant in a lawsuit for reimbursement for benefits paid to the injured worker.
Example 3: Employee of a contractor without Workers’ Compensation is hired by Owner-Builder to install a Septic system and suffers an injury that results in permanent disability.
The Owner-Builder did not have a homeowner’s insurance policy on the house against which to submit a claim.
The Owner-Builder is now a defendant in a lawsuit for reimbursement for benefits paid to the injured worker.