BILL ANALYSIS                                                                                                                                                                                                    Ó






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          |SENATE RULES COMMITTEE            |                       AB 1245|
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                                   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: 









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          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.







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          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  







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          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  







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          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,  







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            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


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