What Is the Penalty for Hiring an Unlicensed Contractor?

When hiring out for your construction project, it’s tempting to go with the drastically lower bid. Still, you’re often looking at a contractor without a license, which might end up costing you down the road. To avoid costly repairs, unfinished jobs, and even being liable for injuries, always verify qualifications before you hire.

What Happens If You Hire a Contractor Without a License?

As a homeowner, it’s important to do your due diligence and avoid hiring a contractor without a license. 

There are serious risks of hiring unlicensed contractors. These include (but are not limited to):

• Fire and electric shock hazards created by an unlicensed electrician’s work

• Damages and injuries caused by collapses

• Mold and mildew issues from leaks caused by shoddy plumbing work

• Employee injuries

• Unpaid damages to your property during the job

There’s also the matter of construction projects not meeting building code regulations. If you are selling your home and it’s not up-to-code because of an unlicensed contractor’s work, you may have some expensive repairs on your hands. Unfortunately, since you’re the one who chose to hire them, you won’t be able to pass the buck.

Do All States Require a Contractor’s License?

Licensing rules vary from state to state. Most states require a license for at least a few home-improvement trades. These include:

• Commercial and residential contractors

• HVAC technicians

• Electricians

• Plumbers

Certain states and municipalities strictly enforce their licensing laws. However, many of them don’t. In other words, an individual could bid on your bathroom remodel without any real professional skills. They might even take your money and run before starting the project. Whatever happens, the financial burden would be on the person who hired them.

How to Verify Contractor’s License and Bonding

A reputable contractor will happily provide proof of bonding, liability, and worker’s comp insurance. Even so, it’s still up to you to ask for it. 

You can verify licensure by checking the license number on your state licensing board’s website.

Bonding—which protects homeowners if the contractor performs shoddy work or doesn't finish the job—is verifiable by requesting the bond information. This should give you a bond number as well as the name of the company that issued the bond. You can find the bond issuer’s contact information through their website and get in touch with them directly to verify the contractor or company’s bond number.

The Importance of Worker’s Comp and Liability Insurance

Contractors must demonstrate proof of insurance as part of obtaining a trade license or registering in a majority of states. Unless a contractor has insurance, you could end up paying out of pocket if your homeowner's policy can’t cover the bills. Even in the best-case scenario of a homeowner’s insurance payout, you’ll likely deal with heightened rates as a result.

Liability insurance covers property damage and bodily injury caused by that contractor's work. Your contractor should also have worker’s compensation insurance, which covers employee injuries on the job. 

If your contractor is without a license and these insurance policies, the homeowner could be liable for any accidents that occur. For example, if an employee falls off a ladder, or gets hurt while lifting a heavy object, they can turn around and sue you for damages. Even though the contractor is the one who cut corners, the financial responsibility still falls on you, as they were in your home when it happened.

Homeowners Pay for Shoddy and Unlicensed Contractors

Not everyone—homeowners or contractors—knows the rules. And not everyone plays by the rules. Reputable contractors pay a hefty sum to maintain licensing, which makes it hard for them to compete against those who don't. 

Unfortunately, homeowners may pay the price when they fail to verify a contractor’s license. For example, if the contractor neglects to pull a permit, you would be responsible for the resulting fines. Or, if you’re left with shoddy or unfinished work from an unlicensed contractor, you would be the one paying for the repairs.

While there are ways to fight a bad contractor, the best strategy is to never hire them in the first place. Check out these tips to avoid hiring bad contractors. Reputable contractors have nothing to hide.

Finding a Reputable Contractor for Your Construction Project

Unlicensed contractors can operate without the overhead costs of getting employees licensed. This gives them the ability to offer lower general contractor hourly rates that the real pros can’t compete with. It’s important to check with the state board to make sure your contractors are properly licensed, bonded, and insured. Even if it means a higher number on your bill.

While it’s tempting to save some cash, hiring a trustworthy and responsible contractor is always worth the extra cost. You can negotiate lower contractor costs in many cases, so there’s still room to be frugal. Build your A-team contractor list now, so you always have a list of reputable contractors on standby. 

Cost to Hire a Contractor

Most contractors charge $300 to $500 per day, or around 10% to 20% of the overall project cost. The average cost to hire a general contractor works out to $4,000. If the project requires additional laborers, you’ll pay anywhere from $150 to $250 per day for each subcontractor. These prices cover labor and any overhead expenses accrued during the project. In rare cases, the quote will even include materials. For small jobs, count on paying an hourly rate of $50 to $150 per hour for the contractor and $40 to $50 per hour for subcontractors.  

DIY vs. Hiring a Pro 

Whether you can DIY depends on the size and scope of the project. If it’s a complicated process requiring experience in multiple fields, like electricity and plumbing, hire a pro. General contractors cost a fair bit of money, but the price pales in comparison to the kinds of mistakes an inexperienced hand can bring to the project. Contractors are well-versed in local building codes and licensing requirements, so they’ll take that responsibility off your hands as well.