BILL ANALYSIS Ó Senate Appropriations Committee Fiscal Summary Senator Christine Kehoe, Chair SB 459 (Corbett) Hearing Date: 5/9/2011 Amended: 3/23/2011 Consultant: Bob Franzoia Policy Vote: L&IR 5-2 Judiciary 3-1 _________________________________________________________________ ____ BILL SUMMARY: SB 459 would do the following: - Authorize the Labor and Workforce Development Agency to assess civil penalties on employers found to be engaging in the willful misclassification of an employee as an independent contractors or the charging of an employee who have been willfully misclassified a fee or making any deductions from compensation. - Require employers to provide to a person hired as an independent contractor, when that person is hired, a form that includes a notice that the person has been hired as an independent contractor, a statement explaining the impact that the person's status as an independent contractor has on tax obligations and eligibility for labor and employment protections, and a notice of the person's ability to seek advice from the Employment Development Department (EDD) or the Labor Commissioner as to whether the person is properly classified as an independent contractor. - Require the person employing labor in this state to maintain, for a period of no less than two years, records of the independent contractors hired by that person which include specified information concerning each independent contractor, and to make these records available for inspection. -Require EDD to develop a form that includes a notice to an independent contractor regarding the impact that status as an independent contractor has on the individual's tax obligations and eligibility for labor and employment protections, and a notice that the independent contractor may seek advice from EDD or Labor Commissioner as to whether the person is properly classified as an independent contractor. - Require EDD to process a request for advice by a person regarding whether that person is an independent contractor or employee, and to take all steps reasonably necessary to carry out the duties described in these provisions. - Male other changes relating to liability, records inspection and access. _________________________________________________________________ ____ Fiscal Impact (in thousands) Major Provisions 2011-12 2012-13 2013-14 Fund Increased enforcement $200-$1,000$400-$2,000 $400-$2,000 General costs EDD verification process Minor, absorbable costs SB 459 (Corbett) Page 3 ongoing Special* Inspection of records Minor, absorbable costs ongoing Special* * Labor Enforcement and Compliance Fund _________________________________________________________________ ____ STAFF COMMENTS: This bill meets the criteria for referral to the Suspense File. The provisions of this bill would likely be enforced by the Division of Labor Standard Enforcement within the Department of Industrial Relations. Staff is unaware of any data which would assist in estimating the frequency of violations where there is a willful misclassification or payment of employees. EDD would have enforcement responsibilities where there was nonpayment of unemployment insurance taxes. The Franchise Tax Board would have enforcement responsibilities where there was nonpayment of employment taxes. To provide the committee with some estimate of the fiscal impact of adding Labor Code 226.8, preliminary information indicates one deputy is able to investigate and hear approximately 25 cases involving labor standards violations. If the division, which has a backlog of approximately 1,000 cases, receives 100 to 500 additional complaints annually, the division would require 4 to 20 new deputies to pace with the workload. At an average of $100,000 per personnel year for salary and benefits, the bill would have a fiscal impact of $400,000 to $2,000,000 annually. Staff notes however, that willful, generally an intentional or voluntary violation of a known legal duty, is a higher test and may make it more difficult to find a violation, thereby constraining the number of enforcement actions.