BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  SB 390
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          Date of Hearing:   June 12, 2013

                     ASSEMBLY COMMITTEE ON LABOR AND EMPLOYMENT
                               Roger Hernández, Chair
                 SB 390 (Wright) - As Introduced:  February 20, 2013

           SENATE VOTE  :   27-6
           
          SUBJECT  :   Employee wage withholdings: failure to remit.

           SUMMARY  :    Makes it a crime under the Labor Code for an  
          employer who willfully or with intent to defraud, fails to remit  
          to the proper agency any withholdings made from a worker's wages  
          pursuant to local, state or federal law.

           EXISTING FEDERAL LAW  :

          1)Provides that any person who willfully fails to collect or  
            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 for a  
            period of not more than one year, by a fine of not more than  
            $1,000, or both.









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          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  
            (UI) 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 who  
            fails to transmit the same to the appropriate 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 remit any  
            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.

           FISCAL EFFECT  :   According to the Senate Appropriations  
          Committee analysis the Department of Industrial Relations (DIR)  
          estimates that it would need two partial year ongoing positions  
          totaling $130,000 (special funds) to implement the provisions of  
          this bill.

           COMMENTS  :  The author states, "Unscrupulous employers operating  
          in the underground economy, and particularly labor contractors,  
          have been implicated in a whole host of illegal wage-related  
          practices in many industries in the last several decades.
           
          Although California law requires employers to disclose all  
          deductions made from pay on their workers' itemized wage  
          statements, workers often do not learn that their employers has  
          pocketed their tax contributions for Social Security or Medicare  
          until they have some reason to contact those agencies.  Then,  
          unfortunately, their remedies are quite limited.

          Finally, the author argues, employers generally are required to  
          withhold applicable local, state and federal taxes from their  
          employees' paychecks and are also required to remit withholding  
          amounts to the proper agency.  There are varying state and  
          federal civil and criminal penalties for violations of these  








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          differing requirements, but we are unaware of any specific  
          California law which targets underground economy actors with  
          criminal penalties for pocketing the Social Security or Medicare  
          taxes they withhold from their employees' paychecks."

           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  
          penalties, including both jail and civil penalties.  

           Related Legislation :
          
          AB 469 (Swanson) Chapter 655, Statutes of 2011, also known as  
          the Wage Theft Prevention Act of 2011, made a number of changes  
          related to "theft" of wages, employee wage claims and related  
          provisions. 

           ARGUMENTS IN SUPPORT  :

          According to the sponsor of this bill, the California Rural  
          Legal Assistance Foundation (CRLAF) and other low wage worker  
          advocates have always had cases where a particularly  
          unscrupulous employer's wage theft conduct extends beyond just  
          stealing wages but also extends to pocketing taxes or worker  
          contributions instead of remitting them to the appropriate  
          agency.
           
          With the exception of farm workers employed by a farm labor  
          contractor, (FLC), who can seek to have the FLC's license  
          suspended or revoked if he fails to pay required taxes into the  
          UI benefit system, there has never been a remedy in the Labor  
          Code for this broader kind of criminal conduct.
           
          Low-wage worker advocates are now seeing what seems to be an  
          uptick in these kinds of cases, and existing civil and criminal  
          remedies under state or federal tax laws seem to us to be  








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          inadequate.  CRLAF argues that bringing the Labor Commissioner's  
          office into these types of egregious misconduct, this bill has  
          the potential to expand workers' protections.

           REGISTERED SUPPORT / OPPOSITION  :

           Support 

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

           Opposition 
           
          None on file.

           Analysis Prepared by  :    Lorie Alvarez / L. & E. / (916)  
          319-2091