BILL ANALYSIS �
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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 Le�n, 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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