California’s AB.1387 bill and the increase of the price of carwash bonds

Published: Jan 8, 2014
In September last year, the State of California passed the AB.1387 bill, bringing changes to its Labor Code. One of the more important ones was a 10-fold increase in the carwash employment bond – from $15,000 to $150,000. It also became the main piece of legislation for the car washing industry, rendering the previous law obsolete. AB.1387 comes into effect as of January 1st 2014. Read on to find out how this will affect your business and learn more about carwash bonds.

ீ ๑ Adam / Foter / CC BY-NC-ND

Carwash bonds definition

Carwash bonds, also known as carwash employers’ bonds, are а commercial type of surety bonds required of all carwash owners operating in California. It’s set in place to make sure employers treat employees fairly and that they pay them their wages on time. For more details, read the amendments to the full text of the bill. / CC BY-SA

Similar to other commercial surety bonds, carwash bonds are a three-party agreement, between a principal (posting the bond), an obligee (requiring the bond) and a surety (underwriting the bond). In this particular case the principal is the carwash owner and the obligee is the California DLSE. When the surety underwrites the bond, they guarantee that the principal will stick to the agreement. In case of a breach, the surety and the principal are jointly responsible for compensating the employee financially.

That being said, not all carwash owners are required a carwash bond. Sometimes the conditions set out in Ab.1387 can be satisfied through a collective bargaining agreement. The agreement must meet certain criteria such as working conditions, working hours and a clearly defined process for resolving conflicts which may arise due to late payment.

Obtaining a carwash bond

The best way to obtain a carwash bond is by using an online surety bonds agency which works with a number of different underwriters. This will increase your chance of striking a good deal. The price you pay is a percentage of the total amount of the $150,000 bond and it is paid in annual premiums. / CC BY-SA

Your individual price is determined after an evaluation of your business and, more importantly, your personal credit score. A good credit score is the most important determinant of a lower price bond. Applicants with a credit score of around 700 can expect annual premiums of about 1% – 5% of the bond amount.

High-risk applicants might find it harder, but far from impossible, to obtain a carwash bond. People with a credit score of 650 or below, tax liens, bankruptcies and civil judgments are all considered high-risk. That’s because surety bonds companies always assume a 0% loss ratio and want to make sure they aren’t vouching for someone who is likely to trigger a claim. Annual premiums for high-risk applicants vary between 5% and 15% of the bond amount and can sometimes require posting a collateral. Applicants with late child support payments and open bankruptcies (closed ones are okay) are the only group of people who cannot get bonded.

The easiest way to determine where you fall is by applying for a free quote. If you still have questions, feel free to contact us.

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Victor Lance is the founder and president of Lance Surety Bond Associates, Inc. He began his career as an officer in the U.S. Marine Corps, serving two combat tours. As president of Lance Surety, he now focuses on educating and assisting small businesses throughout the country with various license and bond requirements. Victor graduated from Villanova University with a degree in Business Administration and holds a Masters in Business Administration (MBA) from the University of Michigan's Ross School of Business.

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