BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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          |SENATE RULES COMMITTEE            |                        SB 390|
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                                    THIRD READING


          Bill No:  SB 390
          Author:   Wright (D)
          Amended:  As introduced
          Vote:     21

           
          SENATE LABOR & INDUSTRIAL RELATIONS COMMITTEE  :  5-0, 4/10/13
          AYES:  Lieu, Wyland, Leno, Padilla, Yee

           SENATE APPROPRIATIONS COMMITTEE  :  5-2, 5/6/13
          AYES:  De León, Hill, Lara, Padilla, Steinberg
          NOES:  Walters, Gaines


           SUBJECT  :    Employee wage withholdings:  failure to remit

           SOURCE  :     California Rural Legal Assistance Foundation


           DIGEST  :    This bill provides that it is illegal for an employer  
          to willfully or with the intent to defraud fail to remit  
          withholdings from an employees wages pursuant to local, state or  
          federal law to the proper agency, and also provides that if an  
          employer fails to remit $500 or more in wage withholdings, the  
          employer's violation is a misdemeanor and shall be punishable by  
          imprisonment in a county jail for a period of not more than one  
          year, by a fine of not more than $1,000, or both.

           ANALYSIS  :    

          Existing federal law:

          1. Provides that any person who willfully fails to collect or  
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             truthfully account for and pay over taxes shall, in addition  
             to other penalties provided by law, be guilty of a felony  
             and, upon conviction thereof, shall be fined not more than  
             $10,000, or imprisoned not more than five years, or both,  
             together with the costs of prosecution.

          2. Provides that any person who willfully fails to collect such  
             tax, or truthfully account for and pay over such tax, or  
             willfully attempts in any manner to evade or defeat any such  
             tax or the payment thereof, shall, in addition to other  
             penalties provided by law, be liable to a penalty equal to  
             the total amount of the tax evaded, or not collected, or not  
             accounted for and paid over.

          Existing state law:

          1. Provides that it is illegal for an employer to willfully or  
             with the intent to defraud fail to remit payments to a health  
             or welfare fund, pension fund or vacation plan, or other  
             similar plan for the benefit of the employees.

          2. Provides that if an employer fails to remit $500 or more in  
             payments to an above-described fund, the employer's violation  
             is a misdemeanor and shall be punishable by imprisonment in a  
             county jail for a period of not more than one year, by a fine  
             of not more than 1,000, or both.

          3. Provides that it is a violation of the law for any employer  
             or employing unit to willfully fail or refuse to make any  
             contributions which are due under the Unemployment Insurance  
             or Disability Insurance programs.

          4. Provides that, after an employer has been appropriately  
             notified, any employer or person failing to withhold the  
             personal income tax (PIT) amount due from any taxpayer and to  
             transmit the same to the department is liable for such  
             amounts. 

          5. Requires any employer or person required to withhold and  
             transmit shall comply with the requirement without resort to  
             any legal or equitable action in a court of law or equity.

          6. Provides that any person or employer who, with or without  
             intent to evade, fails to withhold or fails to pay over any  

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             personal income tax withheld, is guilty of a misdemeanor and,  
             upon conviction, shall be fined an amount not to exceed  
             $1,000, or imprisoned for not more than one year, or both the  
             fine and imprisonment, at the discretion of the court.

          7. Provides that any person required to collect, account for,  
             and pay over any personal income tax or amount required to be  
             withheld who willfully fails to collect or truthfully account  
             for and pay over the tax or amount shall, in addition to  
             other penalties provided by law, be guilty of a felony and,  
             upon conviction thereof, shall be fined an amount not more  
             than $20,000, or imprisoned 16 months to three years, or both  
             the fine and imprisonment, at the discretion of the court.  

          This bill creates a criminal provision in the Labor Code,  
          thereby allowing the Labor Commissioner to pursue a criminal  
          misdemeanor prosecution against employers who do not remit  
          payroll taxes.  Specifically, this bill:

          1. Provides that it is illegal for an employer to willfully or  
             with the intent to defraud fail to remit withholding's from  
             an employee's wages pursuant to local, state or federal law  
             to the proper agency.

          2. Provides that if an employer fails to remit $500 or more in  
             wage withholdings, the employer's violation is a misdemeanor  
             and shall be punishable by imprisonment in a county jail for  
             a period of not more than one year, by a fine of not more  
             than $1,000, or both.

           Comments
           
           Failure to Remit Taxes and Criminal Penalties  .  Both federal and  
          California law require certain taxes to be withheld from an  
          employee's wages.  These include state disability insurance,  
          PIT, and Federal Insurance Contribution Act (FICA) taxes, which  
          fund Social Security and Medicare.  These taxes are then  
          remitted to the appropriate authority, which then deposits those  
          funds into the appropriate trust fund.  It is these payroll  
          taxes and wage remittances that allow these programs to  
          function.

          Noting the importance of these programs to workers, both  
          California law and federal law provide significant criminal  

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          penalties, including both jail and civil penalties.  For  
          example, the federal government has held the owners of a  
          business personally liable for unpaid FICA taxes since 1978 (see  
          Slodov v. United States, 436 U.S. 238 (1978)).  This liability  
          can also extend to members of a board of directors (see Verret  
          v. United States, 542 F.Supp.2d 526 (2008)).  In one recent  
          case, an operator of a temporary healthcare provider which  
          provided nurses to hospitals was found guilty of tax fraud and  
          sentenced to 37 months in jail and nearly $2.2 million in  
          restitution.

           Prior legislation  


          AB 469 (Swanson, Statutes of 2011, Chapter 655), also known as  
          the Wage Theft Prevention Act of 2011, requires the provision of  
          a notice at the time of hiring that lists the relevant details  
          of a worker's employment.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  Yes    
          Local:  Yes

          According to the Senate Appropriations Committee, the Department  
          of Industrial Relations estimates that it will need two  
          partial-year, ongoing positions totaling $130,000 (special  
          funds) to implement the provisions of the bill. 

           SUPPORT  :   (Verified  5/7/13)

          California Rural Legal Assistance Foundation (source)
          California Employment Lawyers Association
          Construction Employers' Association
          United Farm Workers


           ARGUMENTS IN SUPPORT  :    Proponents note that they are seeing a  
          significant number of cases where workers are having their  
          payroll taxes removed from their wages but then employers simply  
          pocket the withholdings.  Proponents also note that employees  
          find out about it after they receive their W-2 Forms which show  
          much lower wages than they actually received or when they  
          receive a 1099 Form, illegally classifying them as independent  
          contractors.  Proponents argue that it is difficult for to  
          pursue these cases, as the employers generally do not have any  

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          assets, leaving the employers unpunished and not penalized for  
          their illegal conduct.  Proponents believe that SB 390 is  
          necessary because it will create a criminal provision in the  
          Labor Code, allowing the Labor Commissioner to pursue a criminal  
          misdemeanor prosecution.


          PQ:d  5/7/13   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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