If you are getting a California contractor license, you will take the Law and Business exam. Every qualifying individual takes it: the qualifier on the license, whether that is you or someone else. There is no way around it, and no classification is exempt from it. This post explains what the exam covers, how it works, and how to walk in prepared.
What this exam actually tests
This is not a trade skills test. Nobody is asking you to bend conduit or frame a wall. The exam tests whether you know the business and legal side of running a contracting company in California: licensing rules, business finances, employment law, insurance and liens, contracts, public works, and safety.
The exam is divided into seven sections, with official approximate weights published by the CSLB in its study guide (13E-LAW, revised 03-2026):
Business Organization and Licensing (13%). Who needs a license, the license classifications, qualifier rules, bonds, and what happens when you contract without a license. The minor-work exemption lives here: less than $1,000 aggregate (labor and materials combined), effective January 1, 2025.
Business Finances (15%). Payroll taxes, state and federal, with all their different wage bases, rates, deposit schedules, and filing deadlines. This section rewards people who can keep the EDD system and the IRS system separate in their heads.
Employment Requirements (20%). The second-heaviest section. California wage and hour law: minimum wage, daily overtime, meal and rest periods, paid sick leave, final-pay deadlines, the ABC test for independent contractors, and misclassification penalties.
Insurance and Liens (12%). Workers compensation, the contractor bond, LLC bonds and insurance, and the mechanics lien chain: preliminary notice, recording deadlines, and enforcement.
Contract Requirements and Execution (21%). The heaviest section, and it is almost entirely one statute: the home improvement contract law in Business and Professions Code 7159. Down payment caps, cancellation rights, change orders, and the exact contents a contract must carry.
Public Works (5%). The smallest section. Prevailing wage, certified payroll, apprenticeship ratios, DIR registration, and retention rules. Pure numbers, so it is cheap points if you memorize them.
Safety (14%). Cal/OSHA: the Injury and Illness Prevention Program, serious injury reporting, heat illness, fall protection, excavation, and penalties.
How the exam works
The exam is computer-based at PSI test centers. It is multiple choice with four options and one best answer per question. And it is closed book: no reference materials are allowed. This is a memorization exam. There is no tabbing strategy and no open-book lookup. Drill the numbers until they are automatic.
The time limit is 3.5 hours (210 minutes) per exam. PSI provides a calculator; do not bring your own. There is no penalty for guessing, so never leave a question blank.
Two things the CSLB does not publish: the passing percentage and the question count. CSLB says the passing score varies by exam. Industry sources report about 115 questions, which is useful for pacing practice sessions (roughly 1.8 minutes per question), but that figure is not official. Do not do math like "I need X correct to pass." Aim for mastery well above 80% on practice material and the score takes care of itself.
If you fail, the retake wait is 21 calendar days after each attempt. Your eligibility window is 18 months from the day your application is accepted, and exam results are good for five years. So if you pass Law and Business but fail the trade exam, you only retake the trade exam within five years.
Practical details: each exam registration costs $51.43, paid to PSI, and it is nonrefundable and nontransferable. Arrive 30 minutes early with valid government-issued photo ID. You get your results on a printed report at the test center. A Spanish version of the Law and Business exam is available, and law exams can be taken at PSI centers outside California (trade exams are California or Oregon only).
What trips people up
Trade veterans fail this exam regularly when they assume field experience is enough. It is not. The exam tests statutes, not craft. The questions that separate passers from failers are the number questions: is the down payment cap $1,000 or 10%, whichever is less, or is it the other way around? Is the preliminary lien notice due in 20 days or 30? Is the minor-work exemption $500 or $1,000? (Less than $1,000 aggregate, and do not confuse it with the $500 written-contract threshold. Two different statutes.)
The other trap is mixing up similar-sounding rules. The qualifier disassociation notice and the replacement window are both 90 days, but the change-of-address rule is also 90 days, while a completely different set of deadlines governs home improvement cancellation (3 business days, 5 for seniors, 7 for disaster repair). The exam loves clusters of same-sounding numbers. Learn the statute behind each one.
The numbers worth drilling first
If you only memorize ten figures before exam day, make them these:
- $1,000 or 10%, whichever is less. Maximum home improvement down payment. The single most tested contract number.
- Less than $1,000 aggregate. The minor-work licensing exemption, effective 1/1/2025. Labor plus materials plus everything, with no-permit, no-advertising, no-employee, and no-splitting conditions.
- Exceeds $500. A home improvement contract must be in writing above this price. Exactly $500 does not trigger it.
- $25,000. The contractor license bond and the qualifier bond, both since 1/1/2023. The old $15,000 figure is obsolete.
- 90 days. Qualifier disassociation notice and replacement window, and change-of-information reporting.
- 20 days. Preliminary lien notice after first furnishing work. Also 20 calendar days to report new hires and independent contractors to EDD.
- 7 days / 2% per month / 150%. Pay each subcontractor within 7 days after receiving a progress payment; wrongful withholding costs 2% per month; on a good-faith dispute you may withhold no more than 150% of the disputed amount.
- 8 hours. Cal/OSHA serious injury reporting deadline. Minimum $5,000 penalty for missing it.
- $16.90. California's 2026 minimum wage. Overtime is 1.5x past 8 hours a day or 40 a week, double past 12 hours a day.
- 3 / 5 / 7 business days. Home improvement cancellation: 3 normally, 5 for senior citizens, 7 only for declared-disaster repair.
Try the free practice quiz
Reading about the exam is one thing. Sitting with exam-style questions is another. Take the free 12-question California Law and Business practice quiz to see where you stand, with explanations for every answer.
(PixelSunset is an independent study aid and is not affiliated with the Contractors State License Board or PSI.)