PHCC of California's 2026 Contractor Compliance Roadmap: Essential Changes & Action Steps for Success

Several new California laws take effect January 1, 2026 (with select changes later in the year) that directly impact contractor licensing, wage enforcement, home improvement contracts, workers’ compensation, CSLB penalties, private works retention, and change order payments. 

Below is a comprehensive overview tailored for PHCC of California contractors, with practical steps to ensure compliance.

Assembly Bill 521 (Carrillo)

Topic: CSLB liability in cash deposit disputes

AB 521 clarifies that the Contractors State License Board (CSLB) is not liable for attorney’s fees in civil actions involving a contractor’s cash deposit filed in lieu of a license bond.

What this means for you:

• Disputes involving your cash deposit (instead of a bond) will remain between you and the claimant; you should not expect attorney’s fees from CSLB in these matters.

• Be sure your bond or cash deposit strategy is reviewed with your insurance/bonding professional and legal counsel so you understand your exposure.

Assembly Bill 1002 (Gabriel)

Topic: License discipline for wage violations

AB 1002 gives the Attorney General (AG) and CSLB joint authority to bring civil actions to suspend, revoke, or deny a contractor’s license if the contractor:

• Fails to pay workers; or

• Fails to comply with a wage judgment or court order.

The AG must notify CSLB before acting, and CSLB can choose to participate.

What this means for you:

• Wage and hour compliance is now explicitly tied to your license.

• Unpaid wage judgments or ignored court orders can now translate directly into license action.

• This is especially critical for contractors on public works and prevailing wage projects—ensure timely payment, accurate classifications, and prompt satisfaction of any judgments or awards.

Assembly Bill 1327 (Aguiar-Curry)

Topic: Home improvement contracts & cancellation rights

AB 1327 adds new requirements for home improvement contracts:

• You must include your email address in the contract.

• Buyers must be allowed to cancel via email.

• The contract must include a telephone number that helps the buyer locate and complete the “Notice of Cancellation.”

• If the Notice of Cancellation is missing or deficient, consumers may file a complaint with CSLB.

What this means for you:

• Update all home improvement contract templates before January 1, 2026 to:

  • Add your business email and clearly state that cancellation can be made by email; and

  • Clearly show a phone number and where the Notice of Cancellation can be found and completed.

• Train your office and sales staff (including HIS) on the new cancellation-by-email requirement and proper documentation of cancellations.

Senate Bill 291 (Grayson)

Topic: Workers’ compensation enforcement & penalties

SB 291 significantly increases penalties for workers’ compensation (WC) insurance violations and requires CSLB to:

• Develop a new process to verify eligibility for WC exemptions; and

• Submit WC enforcement and exemption findings to the Legislature;

• Provide annual reporting of WC enforcement data.

What this means for you:

• Verify that every worker who should be covered is actually covered under your WC policy.

• Review any officer/owner/exemption status carefully—improper exemptions may draw heightened scrutiny and increased penalties.

• Expect more enforcement attention on WC compliance and fewer “technical” excuses being accepted.

Senate Bill 440 (Ochoa Bogh) – Private Works Change Order Fair Payment Act (Civil Code §§ 8850–8851)

Topic: Change order claims and payments on private works

Effective January 1, 2026 (sunsets January 1, 2030 unless extended), SB 440 establishes a mandatory process for change order and time-extension claims on private works of improvement, modeled after public works rules. It applies to contracts entered after this date unless parties agree in writing to an alternative process. Key steps:

• Contractor/subcontractor submits written claim (registered/certified mail) for extra compensation, time extensions, or delay impacts.

• Owner has 30 days to meet/confer and 10 more days to confirm undisputed vs. disputed portions in writing (failure to respond = dispute).

• Undisputed amounts must be paid within 60 days or accrue 2% monthly interest (24% annually).

• Disputed items require non-binding mediation before litigation/arbitration.

• If owner ignores timelines, contractors can issue stop-work notice (30-day wait + 10-day notice) and suspend without penalty.

• Direct contractors must present/handle subcontractor claims upon request (cannot settle without sub’s consent). 

What this means for you:

• Update all private works contracts to include SB 440 notice language and claim procedures (or opt-out clause if negotiating alternatives).

• Train project managers on timely claim submission, documentation standards, and the meet/confer process.

• For primes: Implement subcontractor claim pass-through protocols.

• This levels the playing field—use it to accelerate undisputed payments and protect cash flow.

Senate Bill 456 (Ashby)

Topic: Muralist exemption from contractor licensing

SB 456 creates a new licensure exemption for muralists who:

• Paint or restore murals under agreement with a legally authorized party;

• Create a unique work of fine art painted by hand directly on a wall or ceiling; and

• Have the work protected by copyright or similar rights.

This exemption does not apply to painted wall signs.

What this means for you:

• On projects involving both trades work and artistic murals, the mural component may not require a contractor’s license, but all construction/trade work absolutely still does.

• Be clear in your scopes and subcontracts about what is “art” and what is “construction” to avoid unlicensed activity issues.

Senate Bill 517 (Niello)

Topic: Subcontractor disclosure in home improvement projects

SB 517 requires that prime contractors on home improvement jobs must disclose subcontractor information upon request, including:

• Subcontractor’s name;

• Contact information;

• License number; and

• License classification.

While the prime contractor remains responsible for the overall project, CSLB may also discipline subcontractors and home improvement salespersons for violations.

What this means for you:

• Implement a standard process to promptly provide requested sub information to homeowners.

• Strengthen your subcontractor selection and vetting—license status, classification, and insurance should be checked and documented.

• Make sure your HIS and office team understand what must be disclosed and how to respond to homeowner requests.

Senate Bill 61 – Retention Cap on Private Works (Civil Code § 8811)

Topic: Maximum retention on private construction projects

Effective January 1, 2026, SB 61 caps retention (retainage) at 5% across all tiers (owner to prime, prime to sub, sub to sub-sub, etc.) on most private works of improvement.

• Applies to direct contracts and subcontracts for private construction projects (excludes certain residential and small projects—check specifics).

• Retention is the portion withheld until substantial completion, project closeout, or lien release.

• Owners/developers cannot require higher retention in contracts. 

What this means for you:

• Negotiate contracts to confirm 5% maximum retention—no more “10% industry standard” clauses.

• Update bidding, estimating, and cash flow models to reflect faster payment timing.

• For subs: Push back against any upstream attempts to impose higher retention.

• Track retainage release timelines meticulously to avoid disputes.

Senate Bill 779 (Archuleta)

Topic: Increased CSLB civil penalties (effective July 1, 2026)

Starting July 1, 2026, CSLB will increase minimum civil penalties for specified violations:

• Unlicensed activity: minimum civil penalty of $1,500.

• Other specified violations: minimum civil penalties of $500 or $1,500, depending on the offense.

• These minimums will be adjusted every five years based on the Consumer Price Index.

What this means for you:

• The financial risk of noncompliance is going up. Maintain strict controls on:

  • License renewals and classifications;

  • Use and oversight of subcontractors;

  • Advertising and contract requirements; and

  • WC, wage, and home improvement rules outlined above.

• Confirm that all individuals and entities performing work under your banner are properly licensed and covered.

Next Steps for PHCC of California Members

• Immediately review and update contracts (home improvement, private works, change order provisions, retention clauses), policies, and procedures.

• Consult HR, legal counsel, insurance/bonding partners, and payroll providers for wage/WC/licensing compliance.

• Monitor CSLB guidance at www.cslb.ca.gov and construction law resources.

• Attend upcoming PHCC of California trainings, webinars, and compliance checklists on these changes.

PHCC of California is your voice for fairness—contact us at contactus@caphcc.org with questions, comments, or to see how you can get more involved in the decisions that shape our industry!!