BILL ANALYSIS Ó
SENATE COMMITTEE ON LABOR AND INDUSTRIAL RELATIONS
Senator Tony Mendoza, Chair
2015 - 2016 Regular
Bill No: AB 1245 Hearing Date: June 10,
2015
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|Author: |Cooley |
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|Version: |May 11, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Alma Perez-Schwab |
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Subject: Unemployment insurance: electronic reporting and
funds transfers
KEY ISSUES
Should the Legislature require that all employers file their
required unemployment insurance contributions and wage data to
the Employment Development Department electronically?
Should this requirement be phased in over a two-year period to
allow small businesses to prepare and ensure compliance with
this new obligation?
Should existing penalties and an additional $50 penalty be
imposed on employers who fail to report their contributions and
reports electronically in a timely manner, as specified?
ANALYSIS
Existing law establishes the Unemployment Insurance (UI)
program, a joint federal-state program administered by the
Employment Development Department (EDD), designed to provide
unemployment insurance benefits to employees who lose their jobs
through no fault of their own.
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The UI program is financed by employers who pay unemployment
taxes on up to $7,000 in wages paid to each worker.
Among other things, regarding tax contributions and wage data,
existing law :
(Unemployment Insurance Code §1088-1114)
Requires an employer to file a report of contributions,
a quarterly return, a report of wages paid, and an annual
reconciliation return, as specified, with the director of
the EDD and to make contributions for unemployment
insurance premiums.
Requires each employer to file their contributions and
reports with the director of EDD within the time frame
specified in statute.
Allows "hard copy" filing and paper check tax
remittance. However, depending on the taxes and data,
existing law authorizes electronic filing of contributions
and data.
Imposes a 15% penalty on an employer who fails to timely
pay the contributions and imposes a $20 penalty for each
unreported wage item.
This Bill would require, with some exceptions, all employers to
submit their unemployment insurance contributions and data to
the Employment Development Department electronically.
Specifically, this bill would:
1) Require employers to file their UI contributions and
withholdings, report of contributions, quarterly return,
and report of wages electronically as follows:
a. Effective January 1, 2017 - employers with 10 or
more employees;
b. Effective January 1, 2018 - all employers (capturing
those with less than 10 employees).
2) Authorize an employer to seek, and the Director of the
Employment Development Department (EDD) to grant, a waiver
of the requirement to file electronically if the employer
establishes it has a lack of automation to comply with
electronic filing, there is a severe economic hardship,
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there is a current federal exemption from electronic
filing, or if there is some other good cause to waive the
requirement.
3) In addition to any other penalties imposed under
existing law for failure to timely and properly submit
their reports, the bill would impose a $50 penalty on
employers who fail to file without good cause, and would
until January 1, 2019, exempt certain employers' timely
nonelectronic filings from that penalty.
COMMENTS
1. Background on the Unemployment Insurance Program and EDD
Modernization:
The UI program is a state/federal insurance program that
provides unemployment insurance benefits to employees who lose
their jobs through no fault of their own. For years the EDD
operated on an almost 30 year old antiquated IT system that
was inadequate to handle the heavy UI claims volume that
resulted from the Great Recession. The EDD has replaced its
major IT systems and continues to make upgrades to its various
programs. Most recently, EDD implemented a new UI Online web
portal for UI customers to access their UI claim online 24
hours a day, seven days a week. The UI Online is a web-based
system that has automated the core business functions that
support the continued claims and reopening of existing claims.
This project has allowed EDD to redirect staff resources to
other business functions within the UI Program. Additionally,
the improvements will also help by reducing paper handling and
associated costs and creating greater efficiencies within the
system.
The realities of technology and the movement towards more
electronic operations create opportunities for efficiencies to
be implemented in other areas. For example, in the UI Program,
benefits are calculated using a "standard base period" of
earnings. The current standard base period is the first four
of the last five completed calendar quarters prior to the
beginning date of the UI claim. In the calculation of the
earnings, the most recent quarter of earnings is discounted in
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favor of the 4 prior quarters. Because data has historically
been filed in hard copy format, it was impossible to use the
most recent, relevant, data. In this respect, federally
mandated "UI Modernization" requirements have been established
that incentivized states (to the tune of nearly $850,000,000
of federal money for California) to find ways to look at the
most recent quarter of earnings - using what is referred to as
the "alternative base period" calculation. The Alternate Base
Period (ABP) program was implemented in 2012 to allow EDD to
use the four most recently completed calendar quarters of
earnings when establishing a claim. The ABP law does not
change employers' current statutory wage reporting
requirements. However, employers may receive requests for wage
information before their customary wage reports are due. EDD
will mail a request for wages to the employer, who must then
respond in accordance with the instructions provided on the
form. Employers will have 10 days to respond to the EDD's
request for wages.
2. Need for the bill?
Since January 2011, EDD has offered employers online payment
and reporting capabilities through its e-Services for Business
web site. With e-Services for Business, employers and their
representatives can register their businesses, submit tax
returns, make tax payments, and manage their accounts online.
According to EDD, approximately 35% of employers currently use
e-Services for Businesses for some form of interaction with
EDD. For employers, using electronic filing for both data and
tax remittances is cheaper and more efficient. Moving forward
to reflect the realities of modern electronic advances makes
sense from both a governmental and private sector efficiency
perspective.
This bill would phase in over a two-year period the required
use of electronic filing for all California employers to
submit returns and remit payments to the Employment
Development Department. Because EDD has an already
established e-services system for employer use, this
requirement would not result in employers being forced to
purchase specialized software. All that would be necessary
for the employer to fulfill this requirement is to have
internet access to submit their payments and documents through
EDD's current online service. According to the EDD, this bill
would bring efficiencies both to EDD and the employer
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community - saving time, paper, and postage while reducing
common errors associated with paper forms. The two-year,
phased-in approach will allow for a robust education and
outreach campaign. Additionally, EDD has a technical
assistance team in place to assist employers with the online
system.
3. Proponent Arguments :
The author states that processing paper documents and payments
costs California nearly eight times as much as processing the
same information electronically. According to the author and
sponsors, EDD's existing e-Services for Business is secure,
easy to use, and would help businesses to: 1) avoid errors
that are common with paper forms; 2) save time by saving basic
account information for future transactions; 3) protect data
through encryption that is safer and more secure than paper
forms; 4) allow employers to easily update account
information; 5) provide an automated receipt so employers
immediately know their payment was received; and 6) complement
and upcoming feature that will allow employers to also handle
their Unemployment Insurance forms online.
Overall, proponents argue that this legislation would result
in many millions in savings to the state in paper, postage and
staff time, while requiring no upfront costs or additional
infrastructure. The sponsors note that currently three states
require all employers to use electronic filing, while many
others require certain employers (based on size or industry
type) to do so. Lastly, the author and the sponsors note that
EDD has a technical assistance team in place to support
employers in making the transition to its online system.
4. Opponent Arguments :
None received.
SUPPORT
Small Business California (Sponsor)
Employment Development Department
National Association of Women Business Owners
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OPPOSITION
None received
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