California Contractor Law and Business Exam Practice Exam
Free Practice Exam
Test your knowledge with 10 questions from our pool of 20 free questions.
- 10 questions per attempt
- 30 minute time limit
- Unlimited attempts
- A new mix each time
- Instant results
Full Practice Exam
Complete exam simulation matching the real PSI test format.
- 115 questions
- 210 minute time limit
- 7 topic areas covered
- 505 questions in pool
- Detailed explanations
Texts preferred · 9am–9pm Central
California Contractor Law and Business Practice Exam Guide
What's on the exam
Questions per topic, out of 115This practice exam follows the official content outline for the California Contractor Law and Business exam: Business Organization and Licensing, Business Finances, Employment Requirements, Insurance and Liens, Contract Requirements and Execution, Public Works, Safety.
- Free practice exam: 10 questions per attempt, retake as often as you like.
- Full practice exam: 115 questions on a 210 minutes clock, a new draw from our bank every attempt.
Business Organization and Licensing — about 13% of the exam
Our study plan for this topic: Company organization; Licensing requirements; Advertising and subcontracting; Qualifying individual roles and responsibilities; Bond requirements and types; License renewal, inactivation, and reactivation; Disciplinary actions, citations, and civil penalties; License exemptions and unlicensed contracting penalties.
Business Finances — about 15% of the exam
Our study plan for this topic: Cash management; Budget and planning; Taxes; Financial reporting; Financial ratios and analysis (current ratio, quick ratio, debt ratio, profitability ratio); Bookkeeping and the accounting cycle; Contract accounting methods (completed contract, percentage of completion, cost comparison); California state payroll taxes (UI, ETT, SDI, PIT) — rates, taxable wages, and who pays.
Employment Requirements — about 20% of the exam
Our study plan for this topic: Hiring employees; Supervising and training employees; Evaluation and record-keeping; Payroll; Employee vs. independent contractor classification (ABC test and Borello test); New hire and independent contractor reporting requirements (DE 34 and DE 542); Required workplace postings and employee notices (DE 1857A, DE 2320, DE 2511, DE 2515); Anti-discrimination laws and equal employment opportunity requirements (ADA, Title VII, ADEA, INA).
Insurance and Liens — about 12% of the exam
Our study plan for this topic: Workers' compensation insurance; Business insurance; Liens and other remedies; Surety bond types (bid, performance, payment, maintenance, lien); Qualifying for a surety bond and bond claims process; Blanket performance and payment bond approval and maintenance; Mechanics lien procedures and deadlines (preliminary notice, claim of lien, foreclosure action); Stop notices and bonded stop notices.
Contract Requirements and Execution — about 21% of the exam
Our study plan for this topic: Bidding; Cost control; Project organization; Contracts; Payments; Home improvement contract mandatory elements and disclosures; Downpayment and progress payment limits and schedules; Buyer's right to cancel (3-day, 5-day, 7-day notices).
Public Works — about 5% of the exam
Our study plan for this topic: Prevailing wage requirements; Bonding requirements; Insurance requirements; Definition of public works and coverage under California law; Public works contractor registration requirements (SB 854/SB 96); Certified payroll records maintenance and electronic submission (eCPRs); Apprenticeship requirements and ratio compliance on public works; Penalties and enforcement actions (Civil Wage and Penalty Assessments, debarment).
Safety — about 14% of the exam
Our study plan for this topic: Training and reporting requirements; General safety; Hazardous/unknown materials; Fall protection systems and guardrails; Ladder safety requirements and use; Scaffold design, construction, and use; Personal protective equipment (PPE) selection and use; Excavation and trenching safety.
Sample 1 — Contract Requirements and Execution
Question: You send a drywall subcontractor a written subcontract offer of $42,000 that states acceptance must occur within 10 days. Within the 10 days, the subcontractor returns the document signed, but with the price lined out and changed to $46,500. What is the status of the agreement?
- A. A counteroffer, so no contract exists yet
- B. A binding subcontract at the revised $46,500
- C. A binding subcontract at the original $42,000
- D. A binding subcontract once the sub starts work
Correct Answer: A
Acceptance means agreeing to the offer as made. A change in terms is a counteroffer, which is not acceptance; a contract exists only when both parties agree to the same terms. Signing with altered terms therefore creates no binding subcontract at either price.
Reference: NASCLA Contractors Guide (14th ed.), Chapter 7: Contract Management – Offer and Acceptance; Subcontracting
Sample 2 — Employment Requirements
Question: You are unsure whether the installers working for your contracting firm are employees or independent contractors, and you want EDD to issue a written ruling on their work status for California payroll tax purposes. Which action obtains that ruling?
- A. Submit a completed Determination of Employment Work Status (DE 1870) to EDD
- B. Complete the Employment Determination Guide (DE 38) and retain it in your files
- C. Request the Information Sheet: Employment (DE 231) from the Taxpayer Assistance Center
- D. File a Report of Independent Contractor(s) (DE 542) for each installer engaged
Correct Answer: A
The DE 1870 asks questions about your worker relationships; you complete it and return it to EDD for a written determination of whether the workers are employees or independent contractors. The DE 38 is a self-assessment guide, the DE 542 is a reporting form, and the DE 231 is informational only.
Reference: California Employer's Guide (DE 44), 2026, Classifying Employees – Additional Information on This Topic
Sample 3 — Business Finances
Question: You carried forward $140 of undeposited FUTA tax from the third quarter because that quarter's liability was under the deposit threshold. Your fourth-quarter FUTA liability is $420. How must the FUTA tax be handled?
- A. Pay $560 with Form 940 by February 10
- B. No deposit required; pay the $560 with Form 940
- C. Deposit $420 by January 31; pay $140 with Form 940
- D. Deposit the entire $560 by January 31
Correct Answer: D
FUTA liability is figured quarterly, and amounts of $500 or less may be carried forward. Adding the carried-forward $140 to the fourth-quarter $420 gives $560, which exceeds $500, so the entire amount must be deposited by the due date of Form 940 — January 31.
Reference: IRS Publication 15 (Circular E), 2026, Section 14 – Depositing FUTA tax / When to deposit
- Your results break the score down by outline topic.
- Keep practicing until you pass consistently, not just once.
- Answer what you know first and bookmark the rest. Our practice exams let you bookmark and come back.
- Work your bookmarks on the second pass.
- After each attempt, look up every miss in your book.
| Questions | Not published by the board |
| Time limit | 210 minutes |
| Passing score | Not published by the board |
| Books in the exam room | Closed book (no books in the room) |
| Exam fee | $51.43 |
- You receive a printed score report at the check-in location immediately after the examination, and scores are not given over the telephone.
- You must wait 21 calendar days after each attempt before testing again, and you may test as many times as needed within the 18-month eligibility period.
Source: Contractors State License Board Licensing Examination Information Guide — Law and Business. Check the bulletin before test day: fees and rules can change.