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 ----------------------------------------------------------------- |Author: |Cooley | |-----------+-----------------------------------------------------| |Version: |May 11, 2015 | ----------------------------------------------------------------- ----------------------------------------------------------------- |Urgency: |No |Fiscal: |Yes | ----------------------------------------------------------------- ----------------------------------------------------------------- |Consultant:|Alma Perez-Schwab | | | | ----------------------------------------------------------------- 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. AB 1245 (Cooley) Page 2 of ? 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, AB 1245 (Cooley) Page 3 of ? 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 AB 1245 (Cooley) Page 4 of ? 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 AB 1245 (Cooley) Page 5 of ? 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 AB 1245 (Cooley) Page 6 of ? OPPOSITION None received -- END --