BILL ANALYSIS Ó
AB 1794
Page 1
Date of Hearing: May 9, 2012
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 1794 (Williams) - As Amended: April 9, 2012
Policy Committee: InsuranceVote:10
- 2
Business and Professions 8 - 0
Urgency: No State Mandated Local Program:
Yes Reimbursable: No
SUMMARY
This bill makes it a misdemeanor punishable by a fine of up to
$1,000 and/or up to six months in county jail, and a cause for
disciplinary action when an employer fails to notify his or her
worker's compensation insurance carrier within 20 days of hiring
a new employee. Specifically, this bill:
1)Provides that it is a misdemeanor and cause for disciplinary
action by the Contractor's State License Board (CSLB) for a
contractor to fail to notify its workers' compensation insurer
within 20 days of hiring a new employee.
2)Requires an insurer that issues a workers' compensation policy
to a contractor to require the contractor/policyholder to
notify the insurer of the hiring of a new employee within 20
days.
3)Requires a workers' compensation insurer that insures any
contractor to annually conduct a payroll audit of the
contractor, and authorizes the imposition of a surcharge on
the policyholder to pay for the audit.
4)Extends the sunset date, to January 1, 2015, of the expanded
contractor payroll audit provision.
FISCAL EFFECT
1)A significant portion of the 300,000 licensed contractors in
the state are insured by the State Compensation Insurance Fund
(SCIF). Currently a portion of those contractors are audited
AB 1794
Page 2
by SCIF each year. Requiring SCIF auditors to conduct annual
audits on all of these contractors would likely cause a
significant increase in the number of audits required. Every
10,000 audits could cost SCIF approximately $1 million per
year. The bill provides the insurers, including SCIF, with the
authority to charge fees to recoup their costs.
2)Given the author's belief that there is widespread
underreporting by contractors to workers' compensation
insurers, this legislation could lead to a significant number
of misdemeanor filings. Every 500 new misdemeanor filings
would cost the courts approximately $250,000.
3)Minor and absorbable costs for the CSLB.
4)Potential minor nonreimbursable costs to counties for
prosecution and incarceration related to violations of the
bill's provisions, offset to some extent by fine revenues.
COMMENTS
1)Purpose . This bill makes it a misdemeanor for a licensed
contractor to fail to report a new hire to their workers'
compensation insurance carrier within 20 days of hiring the
individual. The author and the CSLB believe that
underreporting of employees for workers compensation purposes
is a serious problem across all license classifications.
In addition to creating a new misdemeanor, this bill requires
workers' compensation insurance companies to conduct annual
payroll audits on all 300,000 licensed contractors in the
state.
The author contends that unlike automobile or health insurance
policies that require immediate notification to the insurance
carrier when adding a vehicle or seeking to add a family
member to insurance policies, workers' compensation carriers
only require periodic reporting of payroll and an annual
reconciliation. Workers' compensation carriers do not
currently require notification by an employer when a worker is
hired. "Subsequently, many employers have minimum policies and
only add an injured worker after the injury occurs, thus
increasing the cost for premium paying contractors who
legitimately report employees."
AB 1794
Page 3
2)State Compensation Insurance Fund (SCIF) . California employers
must provide workers' compensation benefits to their employees
under state labor law. Employers must purchase workers'
compensation insurance from either a licensed insurance
company, or through SCIF, or employers may choose to
self-insure, which means they use a pay-as-you go model,
paying benefits to and on behalf of workers as the costs are
incurred. SCIF, created by the Legislature in 1914, is the
insurer of last resort in California's private insurance
market and is now the largest workers' compensation insurer in
the country.
While SCIF was created by the Legislature, it is not part of
state government. It is a quasi-state agency with a board of
directors appointed by the governor and the Legislature (11
members, nine appointed by the governor and two appointed by
the Legislature). SCIF is a non-profit, independent
organization funded by premiums paid by businesses purchasing
workers compensation insurance policies.
3)Background . The CSLB licenses and regulates California's
construction industry. Anyone performing construction work in
California that totals $500 dollars or more in labor and
materials must be licensed by CSLB. There are about 300,000
licensed contractors in the state, in 43 different licensing
classifications.
Every licensed contractor must report, in writing, the name and
address of the insurer carrying workers' compensation on his
or her employees within 90 days after any policy of insurance
is issued. The contractor must send a copy of this report to
the insurer. If a contractor does not have employees, he or
she can fill out an exemption from workers' compensation.
4)Is county jail an appropriate penalty, or is a fine
sufficient? Given the pressures on local jails as a result of
realignment it may be appropriate to limit the penalties
proposed by this bill to fines.
5)Chaptering Problem . Both AB 2219 (Knight) and AB 1794
(Williams) seek to amend Insurance Code section 11665. Unless
chaptering language is included in these bills, one of them
will be chaptered out if both bills are eventually signed by
the governor.
AB 1794
Page 4
6)Related Legislation . Currently, AB 2219 (Knight) eliminates
the January 1, 2013, sunset date on existing law requiring
roofing contractors who hold a C-39 classification to maintain
workers' compensation insurance, whether or not they have
employees. That bill is currently pending before this
committee.
Analysis Prepared by : Julie Salley-Gray / APPR. / (916)
319-2081