If you’re confused about when and if a contractor you hire needs to hold a license, or if it really matters, you’re not alone. Each state has its own set of licensing rules and regulations. The majority of states regulate at least a few home-repair related trades, but some don’t regulate any. Additionally, some cities, counties and other municipalities require their own licenses for trades, but many don’t.
In general terms, a contractor’s license generally involves a registration with the license-issuing agency and includes proving the contractor holds the minimum insurance and/or bonding as required by the municipality. Often, a license is required as a preliminary requirement for a contractor to be able to pull a permit at the local building department.
Know the terminology
Licensed: Contractors have been granted a trade license as mandated by state and local laws. It generally requires passing competency tests about business practices and trade skills, paying a fee and proving insurance and/or bonding.
Registered: Typically less stringent than licensing, it often requires contractors to prove insurance and pay a fee, only sometimes requires bonding and rarely tests competency. A few places use licensing and registration interchangeably.
Bonded: Contractors have an arrangement with a third party (a private bond issuer or a recovery fund held by the licensing municipality). Homeowners may petition for reimbursement through that third party if contractors harm them financially because of shoddy work or failure to pay subcontractors as promised.
Insured: All contractors you hire should be insured. Ask to see a Certificate of Insurance, then call to verify the policy is current and has enough coverage for your project.
In some states and municipalities, the minimum threshold for requiring a license is based on the dollar value of the work. For instance, in New York City, any home improvement work that costs more than $200 is required to be performed by a city-licensed home improvement professional.
Using a licensed contractor means that they’ve met the most minimal requirements for that line of work as required by the jurisdiction. Most states require that contractors demonstrate proof of insurance as part of obtaining a trade license or registering.
Licensing or registration protects the homeowner by helping ensure that contractors meet the minimum insurance requirements. Using an unlicensed contractor can cost you in a number of ways.
If your project requires a building permit but the contractor failed to obtain one due to being unlicensed, if found, a building inspector may stop the work until he or she is satisfied a licensed contractor has obtained the proper permits.
Homeowners who use unlicensed contractors may also find little recourse if a problem develops after the work is completed. In several states, Arizona for example, registered contractors contribute to a compensation fund that seeks to make wronged consumers whole if a problem develops with a registered or a licensed contractor.
Licensing for trades
A homeowner's nightmare
Things can go wrong even when a contractor is licensed. Read how one contractor's costly mistake cost an Angie's List member $15,000.
Trade-specific licenses, such as those for electricians, plumbers or HVAC technicians, require much more specific knowledge and experience than basic contractor licenses.
Obtaining a trade-specific license generally means that a tradesmen has a completed a minimum number of hours of working experience as an apprentice in the trade, that they’ve passed a standardized written test based on their trade and often that they will complete continuing education courses to renew their license.
However, each state and municipality handles trade licensing in a different way. For example, almost every state in the United States licenses plumbers, with the exception of Kansas, Missouri, Nebraska, New York, Pennsylvania and Wyoming. These states may have individual cities require plumber’s licenses at a local level. These differences underscore the importance of checking your local regulations for trade licensing before you interview potential contractors or trades.