BILL ANALYSIS Ó ------------------------------------------------------------ |SENATE RULES COMMITTEE | SB 691| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ------------------------------------------------------------ THIRD READING Bill No: SB 691 Author: Lieu (D) Amended: 1/4/12 Vote: 21 SENATE LABOR & INDUSTRIAL RELATIONS COMM. : 5-0, 1/11/12 AYES: Lieu, DeSaulnier, Leno, Padilla, Yee NO VOTE RECORDED: Wyland, Runner SENATE APPROPRIATIONS COMMITTEE : Senate Rule 28.8 SUBJECT : Unemployment insurance: compensation SOURCE : Author DIGEST : This bill adds the Contractors State License Board to the list of authorized governmental entities that the Employment Development Department may share information with for the purposes of aiding any specific workers' compensation fraud investigation. ANALYSIS : Existing law establishes a workers' compensation system that provides benefits to an employee who suffers from an injury or illness that arises out of and in the course of employment, irrespective of fault. This system requires all employers to secure payment of benefits by either securing the consent of the Department of Industrial Relations (DIR) to self-insure or by securing insurance against liability from an insurance company duly authorized by the state. CONTINUED SB 691 Page 2 Existing law vests the Employment Development Department (EDD) with the responsibility of ensuring employers remit appropriate Unemployment Insurance (UI) contributions and to collect the employee wage deductions to the Disability Fund. EDD uses these funds to finance the Unemployment Insurance and Disability Insurance (DI) Programs. Existing law also authorizes EDD to collect personal income taxes required to be withheld by employers. Existing law requires that EDD collect appropriate data in order to carry out the responsibilities listed above. This information includes the employer's name and address, the number and contact information of employees employed by an employer, the wages paid to those employees, and any independent contractors that have performed services for an employer. Existing law requires that, unless specifically provided, the information obtained in the administration of the UI Program and DI program are confidential and must be used for the exclusive use and information of the Director of EDD in discharge of his/her duties. Any person violating the confidentiality of this information is guilty of a misdemeanor. Existing law specifically provides that EDD may share information to the district attorney of any county, the office of the Attorney General, the DIR, and the Department of Insurance if that information is relevant to any specific workers' compensation fraud investigation. Information cannot be shared if doing so would violate federal law or regulations. This bill adds the Contractors State License Board (CSLB) to the list of authorized governmental entities that EDD may share information with for the purposes of aiding any specific workers' compensation fraud investigation. Comments The State of California faces significant challenges from the underground economy, which is defined by the EDD as CONTINUED SB 691 Page 3 individuals and businesses that deal in cash and/or use other schemes to conceal their activities and their true tax liability from government licensing, regulatory, and taxing agencies. In short, it is an entire universe of illegal activities that can include such diverse activities as tax fraud, cigarette smuggling, and failure to provide employees the minimum wage. A 2005 Legislative Analyst's Office study on the underground economy estimated that California loses $6.5 billion in annual income tax revenues. One of the most egregious activities by employers who participate in the underground economy is workers' compensation fraud. This can include failure by the employer to report all of his or her employees to the insurance company when creating a policy, misreporting the type of work done by employees, or even failing to secure any workers' compensation coverage for all employees. In testimony before the Senate Select Committee on Small Business and the Underground Economy in 2011, Professor Frank Neuhauser of the University of California, Berkeley testified that, on average, $15 to $68 billion of annual payroll in California went unreported, or 4-12 percent of the total payroll in California. These figures did not include wages or employees that were misreported into a lower premium class. Particularly in high risk occupations, this lack of reporting increased workers' compensation premiums by more than 300 percent, pressuring law-abiding employers to either go underground or go out of business. As the licensee of California's contractors, the CSLB has frequent contact with occupations that are on the frontline of the fight against the underground economy. Contractors such as roofers and electricians face some of the highest workers' compensation premiums due to injuries, but also suffer from some of the most significant rate distortion due to misreporting and underreporting. While the CSLB must ensure that licensed contractors appropriately maintain workers' compensation coverage, they do not currently have statutorily guaranteed access to EDD's databases to investigate possible workers' compensation fraud. CONTINUED SB 691 Page 4 This bill seeks to address this by permitting the EDD to share employment data and information with the CSLB for the purposes of investigating any specific workers' compensation fraud investigation. Prior Legislation AB 878 (Berryhill), Chapter 686, Statutes of 2011, requires workers' compensation insurers to notify the CSLB if a licensee is found to have misled the insurer on his/her workers' compensation coverage. AB 2305 (Knight), Chapter 423, Statutes of 2010, requires roofing contractors to maintain workers' compensation coverage. AB 2433 (Ruskin), Chapter 139, Statutes of 2010, authorizes the Board of Equalization to access EDD data to assist in the administration of tax programs. FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes Local: No SUPPORT : (Verified 1/18/12) American Federation of State, County and Municipal Employees Contractors State License Board Spa & Pool Industry Education Council PQ:mw 1/18/12 Senate Floor Analyses SUPPORT/OPPOSITION: SEE ABOVE **** END **** CONTINUED