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