BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | AB 1245| |Office of Senate Floor Analyses | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- THIRD READING Bill No: AB 1245 Author: Cooley (D) Amended: 5/11/15 in Assembly Vote: 21 SENATE LABOR & IND. REL. COMMITTEE: 5-0, 6/10/15 AYES: Mendoza, Stone, Jackson, Leno, Mitchell SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8 ASSEMBLY FLOOR: 76-1, 5/18/15 - See last page for vote SUBJECT: Unemployment insurance: electronic reporting and funds transfers SOURCE: Small Business California DIGEST: This bill, beginning on January 1, 2017, requires an employer with 10 or more employees to file all reports and returns, and remit all contributions for unemployment insurance premiums to the Employment Development Department electronically, as specified. Beginning on January 1, 2018, this bill extends the application of these electronic filing requirements to all employers. This bill authorizes the granting of a waiver from these requirements for severe hardship, as specified. In addition to any other penalties imposed under existing law for failure to timely and properly submit their reports, this bill imposes a $50 penalty on employers who fail to file without good cause, as specified. ANALYSIS: AB 1245 Page 2 Existing law: 1)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. 2)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. 3)Requires each employer to file their contributions and reports with the director of EDD within the time frame specified in statute. 4)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. 5)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: 1)Requires 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)Authorizes an employer to seek, and the Director of the 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, there is a current federal exemption from electronic filing, or if there is some other good cause to waive the requirement. AB 1245 Page 3 3)Imposes, in addition to any other penalties imposed under existing law for failure to timely and properly submit their reports, a $50 penalty on employers who fail to file without good cause, and until January 1, 2019, exempts certain employers' timely nonelectronic filings from that penalty. Background 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 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 AB 1245 Page 4 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. 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 phases in over a two-year period the required use of electronic filing for all California employers to submit returns and remit payments to EDD. 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 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. FISCAL EFFECT: Appropriation: No Fiscal AB 1245 Page 5 Com.:YesLocal: No SUPPORT: (Verified6/10/15) Small Business California (source) Employment Development Department National Association of Women Business Owners OPPOSITION: (Verified6/10/15) None received ARGUMENTS IN SUPPORT: 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. ASSEMBLY FLOOR: 76-1, 5/18/15 AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chávez, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, AB 1245 Page 6 Daly, Dodd, Eggman, Frazier, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Grove, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mayes, McCarty, Medina, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins NOES: Beth Gaines NO VOTE RECORDED: Kim, Mathis, Melendez Prepared by:Alma Perez / L. & I.R. / (916) 651-1556 6/24/15 16:13:26 **** END ****