BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 8, 2011 20011-2012 Regular
Session
Consultant: Alma Perez Fiscal:No
Urgency: No
Bill No: AB 766
Author: Monning
Version: As amended April 26, 2011
SUBJECT
Public works: payroll records
KEY ISSUE
Should enforcement agencies that are a part of the Joint
Enforcement Strike Force on the Underground Economy (JESF) and
other specified agencies have access to unmarked or
unobliterated copies of certified payroll records on public
works projects?
PURPOSE
To allow specified agencies access to employee payroll records
that includes individually identifiable information.
ANALYSIS
Under existing law, workers employed by contractors or
subcontractors in the execution of public works contracts over
$1000 must be paid the state-determined prevailing wage. The
Division of Labor Standards Enforcement (DLSE) within the
Department of Industrial Relations is the government agency
primarily responsible for the enforcement of prevailing wage
requirements on California public works projects.
Existing law requires each contractor and subcontractor
performing work on a public works project to keep accurate
payroll record showing the name, address, social security
number, work classification, straight time and overtime hours
worked each day and week, and the actual per diem wages paid to
each journeyman, apprentice, worker, or other employee. Among
other things, existing law regarding payroll records does the
following:
1)Authorizes various individuals and entities, including
representatives from the Division of Labor Standards
Enforcement and the Division of Apprenticeship Standards of
the Department of Industrial Relations, to inspect certified
copies of such records under certain conditions.
2)Requires that any copy of such records made available to the
public or a public agency must be marked or obliterated to
prevent disclosure of an individual's name, address and social
security number. The name and address of the contractor
awarded the contract or the subcontractor performing the
contract shall not be marked or obliterated.
This Bill would require that the payroll records that each
contractor and subcontractor makes available for inspection to
specified entities be exempt from the requirement that certain
personal identification information be removed.
Specifically, this bill would require that payroll records
provided to the following agencies not be marked or obliterated
to prevent disclosure of an individual's name, address, and
social security number:
An agency of the Joint Enforcement Strike
Force on the Underground Economy;
A law enforcement agency investigating a
violation of law by the awarding body;
The Division of Apprenticeship Standard; and
The Division of Labor Standards Enforcement.
COMMENTS
1. Background on the Joint Enforcement Strike Force on the
Hearing Date: June 8, 2011 AB 766
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Senate Committee on Labor and Industrial Relations
Underground Economy:
In October 1993, Executive Order W-66-93 was issued
establishing the Joint Enforcement Strike Force on the
Underground Economy (JESF) to combat the underground economy
through coordinating enforcement activities among various
entities. The Legislature subsequently added JESF to state
law.
The JESF is a partnership with representatives from the
Employment Development Department (EDD), the Department of
Consumer Affairs, the Department of Industrial Relations, the
Department of Insurance and the Office of Criminal Justice
Planning. Other agencies that are not part of the
administration, but are also participants in the JESF are the
Franchise Tax Board, the Board of Equalization, and the U.S.
Department of Justice.
The focus of the JESF has been to target, among other
industries, auto body repair, bars and restaurants,
construction, garment manufacturing, public works, and
janitorial services. JESF is authorized to form joint
enforcement teams. Since the formation of JESF three joint
enforcement efforts have been implemented: the Employment
Enforcement Task Force (EETF), the Construction Enforcement
Project, and the Janitorial Enforcement Project.
The Director of EDD is the chairperson of the strike force and
EDD is designated as the lead agency of the JESF. The program
is administered through the EDD's Underground Economy
Operations program. Any employee of the agencies that
participate in JESF are authorized to issue Labor Code
citations and penalty assessment orders to employers found in
violation of the law.
2. Need for the bill?
The Employment Development Department (EDD) is charged with
investigating businesses that avoid paying payroll taxes, many
of which are part of the underground economy. EDD defines the
"underground economy" as a term that refers to those
individuals and businesses that deal in cash and/or use other
Hearing Date: June 8, 2011 AB 766
Consultant: Alma Perez Page 3
Senate Committee on Labor and Industrial Relations
schemes to conceal their activities and their true tax
liability from government licensing, regulatory, and taxing
agencies. The underground economy allows some employers to
gain an unfair competitive advantage over businesses that do
comply with the law and forces the law abiding businesses to
pay higher taxes and expenses.
According to EDD, a February 2005 report, California's Tax
Gap, prepared by California's Legislative Analyst's Office,
estimates California's income tax gap to be $6.5 billion.
Reports on the underground economy indicate it imposes
significant burdens on: (1) the State of California, (2)
businesses that comply with the law, and (3) workers who lose
benefits and other protections provided by state law when the
businesses they work for operate in the underground economy.
According to the author, the State Controller's office
estimates that 11% of taxes owed in California go uncollected,
and another 3% are collected only through state enforcement.
Although there are different entities conducting enforcement
efforts, the state does not currently have a coordinated
system of enforcing its tax and labor laws. Thus, despite the
clear nexus between employers that violate both sets of laws,
there is no formal process to ensure that the enforcement
efforts of one department are reflected in the work of
another. This lack of coordination is worsened by the limited
enforcement resources available in California. For example,
the past several decades, labor law enforcement has been on
the decline. Between 1980 and 2000, California's workforce
grew 48 percent, but the Division of Labor Standards
Enforcement (DLSE) staffing levels went down 7.6%.
This bill would give enforcement agencies that are a part of
the Joint Enforcement Strike Force on the Underground Economy
(JESF), and other specified agencies, access to unmarked or
unobliterated copies of certified payroll records on public
works projects in order to target the underground economy.
3. Proponent Arguments :
According to the author, California's underground economy is
thriving. Because business in the underground economy is
Hearing Date: June 8, 2011 AB 766
Consultant: Alma Perez Page 4
Senate Committee on Labor and Industrial Relations
conducted outside the bounds of state law, businesses
operating there are able to gain an unfair advantage over
their law-abiding competitors by flouting labor laws and
ignoring their tax obligations to state and local governments.
The author argues that violations of labor and tax laws often
go hand in hand. Every time an employer fails to pay a worker
minimum wage, ignores overtime pay requirements, or simply
pays in cash under the table, the state loses revenues from
income and payroll taxes that fund the unemployment insurance
system, paid family leave, disability insurance and vital
state general fund programs.
According to the author, Employment Development Department
analysis of IRS data has found that California's underground
economy is worth between $60 and 140 billion a year.
As the state faces a multi-billion dollar budget deficit,
increased collection of already-owed taxes should be a top
budget priority. The author argues that, unfortunately, the
state does not currently have a coordinated system of
enforcing its tax and labor laws. Thus, despite the clear
nexus between employers that violate both sets of laws, there
is no formal process to ensure that the enforcement efforts of
one department are reflected in the work of another.
This bill would provide a tool to help state agencies involved
in enforcement of underground economy activity to coordinate
their limited financial resources for increased enforcement
results without having to individually reconstruct a case for
prosecution. The author believes that the anticipated result
will be significantly greater compliance by business owners
doing business in California, as well as increased monies
collected for the California's General Fund.
4. Concern :
The California Landscape Contractors Association has offered a
conditional support for this bill. CLCA believes that the bill
helps assure that all contractors bidding on public contracts
don't receive an unfair cost advantage by under-reporting
payrolls, falsifying workers' compensation coverage, or
otherwise violating state labor laws. However, CLCA would
like to see language added to the bill to make it explicit
Hearing Date: June 8, 2011 AB 766
Consultant: Alma Perez Page 5
Senate Committee on Labor and Industrial Relations
that any employee personal information shared with a law
enforcement agency must remain confidential. In addition,
CLCA would like assurance that an employer who provides
personal information to a law enforcement agency would not be
liable if an employee was economically harmed by the agency's
intentional or accidental release of personal information
provided by an employer.
SUPPORT
None received
SUPPORT IF AMENDED
California Landscape Contractors Association
OPPOSITION
None received
Hearing Date: June 8, 2011 AB 766
Consultant: Alma Perez Page 6
Senate Committee on Labor and Industrial Relations