MHIC Business and Labor Practices 5 — Questions and Answers
Question 1: Under Maryland's Home Improvement Law, what must happen if a contractor wants to make a material change to the scope of work after the contract is signed?
- The contractor may proceed if work is already underway
- A written change order signed by both parties is required (Correct answer)
- A verbal agreement with the homeowner is sufficient
- The contractor must void the original contract and write a new one
Correct answer: A written change order signed by both parties is required
Maryland law requires that any material changes to the original scope of work be documented in a signed written change order.
Question 2: Which of the following workers is typically classified as an independent contractor rather than an employee for Maryland payroll tax purposes?
- A worker who is given a set schedule and uses the company's tools exclusively
- A skilled plumber who sets their own hours and provides their own equipment (Correct answer)
- A laborer who has worked for the same contractor for 10 consecutive years
- A worker paid an hourly wage and supervised on-site daily
Correct answer: A skilled plumber who sets their own hours and provides their own equipment
A worker who controls their own schedule and supplies their own tools generally meets the criteria for independent contractor status.
Question 3: What is the primary purpose of Maryland's Guaranty Fund administered by the MHIC?
- To pay contractors when homeowners default on payments
- To compensate homeowners harmed by licensed contractors who cannot pay judgments (Correct answer)
- To fund MHIC investigations of unlicensed contractors
- To provide low-interest loans for small home improvement businesses
Correct answer: To compensate homeowners harmed by licensed contractors who cannot pay judgments
The MHIC Guaranty Fund compensates eligible homeowners when a licensed contractor fails to honor a court judgment against them.
Question 4: How soon after starting business must a new MHIC licensee notify the Commission of their business address?
- Within 10 days
- Within 30 days (Correct answer)
- Within 60 days
- At the next annual renewal
Correct answer: Within 30 days
Licensees must notify MHIC of their current business address within 30 days of any change.
Question 5: A Maryland contractor employs three full-time workers. Under Maryland law, which insurance coverage is mandatory?
- Professional liability insurance
- Workers' compensation insurance (Correct answer)
- Commercial umbrella insurance
- Errors and omissions insurance
Correct answer: Workers' compensation insurance
Maryland requires employers with one or more employees to carry workers' compensation insurance.
Question 6: Which of the following contract provisions is PROHIBITED under Maryland's Home Improvement Law?
- A clause specifying the start and estimated completion date
- A clause that waives the homeowner's right to cancel within the rescission period (Correct answer)
- A clause requiring written notice before filing a complaint
- A clause specifying payment milestones tied to project phases
Correct answer: A clause that waives the homeowner's right to cancel within the rescission period
Maryland law grants homeowners a right of rescission, and any contract clause waiving that right is prohibited and unenforceable.
Question 7: A contractor operating under a trade name in Maryland must ensure which of the following is true?
- The trade name must include the contractor's last name
- The trade name must be registered and the MHIC license must be obtained in the trade name or cross-referenced (Correct answer)
- Trade names are not permitted for sole proprietors
- The trade name must be approved by the Maryland Secretary of State before bidding on jobs
Correct answer: The trade name must be registered and the MHIC license must be obtained in the trade name or cross-referenced
Contractors using a trade (DBA) name must register it and ensure their MHIC license properly reflects or cross-references that name.
MHIC Business and Labor Practices 5
Under Maryland's Home Improvement Law, what must happen if a contractor wants to make a material change to the scope of work after the contract is signed?