BILL ANALYSIS Ó SB 390 Page 1 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. SB 390 Page 2 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 SB 390 Page 3 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 SB 390 Page 4 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