BILL ANALYSIS Ó
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 27, 2012 2011-2012 Regular
Session
Consultant: Martha Gutierrez Fiscal:Yes
Urgency: No
Bill No: AB 1794
Author: Williams
As Introduced/Amended: June 21, 2012
SUBJECT
Unemployment Insurance: use of employer reports: reporting and
payroll: enforcement
KEY ISSUE
Should the Employment Development Department, the Contractors'
State License Board, and the State Compensation Insurance Fund
share information in order to verify whether employees are
covered by workers' compensation insurance?
PURPOSE
To authorize a memorandum of understanding between the
Employment Development Department, the Contractors' State
License Board, and the State Compensation Insurance Fund to
share information about contractors to ensure the employer is
paying adequate workers compensation insurance for their
employees.
ANALYSIS
Existing law provides for the licensing and regulation of
contractors by the Contractor's State Licensing Board (CSLB).
Also, it provides for the payment of unemployment compensation
benefits to eligible unemployed individuals, and requires the
Employment Development Department (EDD) to implement and
administer the unemployment insurance system in the state.
(Unemployment Insurance Code § 1088.5)
Existing law requires each contractor to file with the CSLB
proof of compliance with the requirement of maintaining workers'
compensation coverage, or, unless the contractor is a roofing
contractor, file a declaration certifying that the contractor
has no employees. (Unemployment Insurance Code § 1088.5)
Existing law requires roofing contractors to additionally file
proof of maintain compliance with workers' compensation coverage
requirements even if the contractor has no employees.
Existing law requires workers' compensation insurers that insure
roofing contractors to conduct an annual payroll audit of the
contractor. (Unemployment Insurance Code 1088.5)
This bill would, authorize the Employment Development Department
to provide the specific new employee information to the Joint
Enforcement strike Force on the Underground Economy, the
Contractors' State License Board, and the State Compensation
Insurance Fund.
This bill would permit the Employment Development Department,
the Contractors' State License Board, and the State Compensation
Insurance Fund to share the new hire information for the
purposes of auditing, investigating, and prosecuting violations
of tax and cash-pay reporting laws.
This bill extends the sunset date, to January 1, 2019, of the
expanded contractor payroll audit provision.
This bill directs that the above requirements under the
memorandum of understanding regarding the administration and
enforcement of the reporting and payroll duties relating to
contractors are to be executed on or before July 1, 2013
COMMENTS
Hearing Date: June 27, 2012 AB 1794
Consultant: Martha Gutierrez Page 2
Senate Committee on Labor and Industrial Relations
1. Need for this bill?
Existing law requires private employers to secure the payment
of workers compensation by obtaining and maintaining workers'
compensation (WC) insurance or to self-insure as an individual
employer or as one employer in a group of employers.
Contractors' license law requires every licensed contractor to
have on file at all times with the Contractors State License
Board a current and valid certificate of workers' compensation
insurance or certification of self-insurance, or a statement
certifying that he or she has no employees and is not required
to obtain or maintain workers compensation insurance.
While current law requires contractors to have workers
compensation insurance coverage for their as a condition of
obtaining and maintaining a license, a study by the
Contractors' State Licensing Board has revealed that
approximately half of licensed contractors either claim an
exemption based on having no employees or maintain a minimum
policy under which no employees are reported to their
insurance carrier. When a contractor under reports employees
to obtain a workers' compensation premium, this puts law
abiding contractors who do report their employees correctly at
a disadvantage. This results in a law abiding contractor to
pay up to five times more in workers' compensation insurance
premiums.
AB 1794 will authorize the Employment Development Department
to provide the specific new employee information to the Joint
Enforcement strike Force on the Underground Economy, the
Contractors' State License Board, and the State Compensation
Insurance Fund. This will allow efficient sharing of
information in order to ensure that employers are paying
adequate workers' compensation insurance for their employees.
2. Proponent Arguments :
According to the author, this bill is intended to curb abuses
by unscrupulous contractors who intentionally under-report or
fail to report payroll, thereby defrauding workers'
compensation insurers, placing injured workers at risk , and
gaining an unfair competitive advantage over honest
Hearing Date: June 27, 2012 AB 1794
Consultant: Martha Gutierrez Page 3
Senate Committee on Labor and Industrial Relations
contractors. This bill will expand the rules that already
apply to roofing contractors by applying the same standards to
all contractors.
According to the sponsor, California State Council of Laborers
(CSCL) AB 1794 addresses the problem with regard to
unscrupulous contractors who intentionally underreport and/or
fail to report employees as a means to curtail paying adequate
workers' compensation premiums. This growing problem of"
premium insurance fraud" has led to workers' compensation
premium rates skyrocketing through the state, and has forced
many law-abiding construction employers to pay 2-3 times more
in workers' compensation premiums to cover "high risk"
workers.
Proponents argue that this bill will also, create a more
competitive bid environment by requiring all contractors to
play by the same rules and incur the same costs when bidding
on a project. By requiring all contractors to report new
employees, AB 1794 will also help capture a portion of the
billions of dollars lost in underreported annual payroll taxes
at a time the state needs it most.
3. Opponent Arguments :
None on file.
4. Prior Legislation :
None.
SUPPORT
California State Council of Laborers (Sponsor)
California Association of Specialty Contractors
California Chapters of the National Electrical Contractors
Association
California Labor Federation
California Landscape Contractors Association
California Legislative Conference of Plumbing, Heating and
Piping Industry
Hearing Date: June 27, 2012 AB 1794
Consultant: Martha Gutierrez Page 4
Senate Committee on Labor and Industrial Relations
California State Association of Electrical Workers
California State Pipe Trades Council
Construction Industry Legislative Council
Contractors State License Board
Union Roofing Contractors Association
Western States Council of Sheet Metal Workers
OPPOSITION
None received.
Hearing Date: June 27, 2012 AB 1794
Consultant: Martha Gutierrez Page 5
Senate Committee on Labor and Industrial Relations