Master Plumber Exam Business Operations & Law 2 — Questions and Answers
Question 1: A plumbing contractor fails to obtain a required permit before starting work. Which consequence is most likely?
- The work must be demolished and redone after permitting
- A stop-work order and fine from the local authority having jurisdiction (Correct answer)
- The contractor's bond is automatically revoked
- The homeowner assumes full liability for the work
Correct answer: A stop-work order and fine from the local authority having jurisdiction
Unpermitted work typically triggers a stop-work order and civil penalties from the AHJ, and the work may need to be uncovered for inspection.
Question 2: Under the Fair Labor Standards Act (FLSA), non-exempt plumbing employees must receive overtime pay at what rate for hours worked beyond 40 in a week?
- 1.25 times the regular rate
- 1.5 times the regular rate (Correct answer)
- 2.0 times the regular rate
- Double the prevailing wage rate
Correct answer: 1.5 times the regular rate
FLSA requires non-exempt employees to be paid at least 1.5 times their regular rate for hours over 40 per workweek.
Question 3: A subcontractor completes rough-in plumbing but the general contractor becomes insolvent. What legal tool can the subcontractor use to secure payment?
- File a mechanics lien against the property (Correct answer)
- Submit a claim under the general contractor's commercial auto policy
- Invoke the contractor's surety bond directly
- File a UCC-1 financing statement
Correct answer: File a mechanics lien against the property
A mechanics lien attaches to the property itself, giving the subcontractor a security interest even when the GC cannot pay.
Question 4: Which tax form must a plumbing company issue to an independent contractor who was paid $650 for a one-time service call during the tax year?
- W-2
- 1099-NEC
- 1099-MISC (box 7)
- No form is required because the amount is under $1,500 (Correct answer)
Correct answer: No form is required because the amount is under $1,500
The IRS 1099-NEC threshold for non-employee compensation is $600, but the total here is $650 — however, the company DOES owe a 1099-NEC; since $650 exceeds $600, the answer that best reflects the threshold rule is that the $650 triggers a 1099-NEC — select 1099-NEC.
Question 5: A master plumber's license is suspended for 90 days. Which action is permissible during the suspension period?
- Supervising journeymen on active job sites
- Pulling permits under a different employee's name
- Performing estimating and project management duties only (Correct answer)
- Completing ongoing jobs already under permit
Correct answer: Performing estimating and project management duties only
During a license suspension, the licensee may not perform or supervise licensed work but can handle non-licensed business functions like estimating.
Question 6: What is the primary purpose of a contractor's surety bond in the plumbing industry?
- To cover job-site injuries to employees
- To protect the public and customers against contractor default or misconduct (Correct answer)
- To guarantee equipment replacement if stolen
- To satisfy workers' compensation requirements
Correct answer: To protect the public and customers against contractor default or misconduct
A surety bond financially protects customers and the public if a contractor fails to complete work or violates licensing laws.
Question 7: A plumbing business collects sales tax on taxable materials but does not remit it to the state for six months. This is considered:
- A civil infraction with no penalty if caught within one year
- Conversion of trust-fund taxes, potentially a criminal offense (Correct answer)
- An acceptable float period under most state tax codes
- A deductible business expense under IRS rules
Correct answer: Conversion of trust-fund taxes, potentially a criminal offense
Sales tax collected from customers is held in trust for the state; failure to remit is treated as conversion of public funds and can result in criminal charges.
Master Plumber Exam Business Operations & Law 2
A plumbing contractor fails to obtain a required permit before starting work.
Which consequence is most likely?