BILL ANALYSIS
AB 2570
Page 1
ASSEMBLY THIRD READING
AB 2570 (Ma)
As Introduced February 19, 2010
Majority vote
LABOR & EMPLOYMENT 7-0 APPROPRIATIONS 12-5
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|Ayes:|Swanson, Bill Berryhill, |Ayes:|Fuentes, Ammiano, |
| |Furutani, Gaines, | |Bradford, |
| |Monning, Yamada, Ma | |Charles Calderon, Coto, |
| | | |Davis, Monning, Ruskin, |
| | | |Skinner, Solorio, |
| | | |Torlakson, Torrico |
| | | | |
|-----+--------------------------+-----+--------------------------|
| | |Nays:|Conway, Harkey, Miller, |
| | | |Nielsen, Norby |
| | | | |
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SUMMARY : Establishes specified regulatory requirements for
professional employer organizations (PEOs). Specifically, this
bill :
1 Provides that a person or entity shall not provide, advertise
or otherwise hold itself out as providing professional
employer services unless that entity or person is registered
as a PEO with the Employment Development Department (EDD).
2)Requires the Director of EDD to prescribe rules establishing
the method for PEOs to report quarterly wages and
contributions for worksite employees and states the following:
a) The rules shall recognize the PEO as the employing unit
of its worksite employees for reporting purposes but may
require that each worksite employee of a single client by
reported under a separate and unique EDD subaccount of the
PEO to reflect the experience f the worksite employees for
a client;
b) Any EDD subaccount shall be used solely to determine
experience rates for that individual subaccount on an
annual basis; and,
AB 2570
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c) Any rule promulgated shall also include administrative
requirements that permit a PEO to transmit the reporting
and payment date required collectively as a single
electronic filing with EDD.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, EDD indicates that the bill will result in one time
costs $6.7 million and annual ongoing administrative costs of
$4.5 million (special funds) for manual processing necessary to
comply with this bill. Costs would be partly offset by fees.
COMMENTS : This bill represents the latest in a series of bills
sponsored by the PEO industry seeking to amend California law to
adequately reflect and regulate the PEO industry.
According to the industry, PEOs are companies that allow their
small business clients to cost-effectively outsource the
management of human resources, employee benefits and health
insurance. In a PEO arrangement, the employer's (or client's)
responsibilities for its worksite employees are expressly
allocated or shared pursuant to a written agreement between the
client and the PEO. In such arrangements, the PEO typically
assumes responsibility for such things as payroll, payment of
payroll-related taxes, workers' compensation, unemployment
insurance, healthcare coverage and similar employment benefits.
However, for several years the industry has argued that a
regulatory vacuum exists in California law with respect to PEOs.
According to the industry, PEOs have historically been
recognized by EDD as a "leasing employer" as defined under
Unemployment Insurance Code section 606.5. However, they
contend that both the PEO industry and EDD have recognized for
some time that the statutory definition of a PEO as a leasing
employer does not accurately reflect the business model of the
industry or the exposure to the state under the Unemployment
Insurance Code. The industry states that it has been working
with EDD for several years to discuss ways to better clarify
PEOs under the current unemployment insurance statutory model to
address both of these issues. These discussions have focused on
ensuring that the code evolves in a positive way to adequately
protect workers in the state and strengthen the integrity and
solvency of the unemployment insurance system.
In recent years, the industry has also discussed these issues
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with representatives of organized labor, who have expressed a
number of concerns about the business model. However, those
discussions have not yet resulted in a legislative agreement.
Most recently, the industry has approached EDD and had
discussions about developing a process for PEOs to report
unemployment insurance contributions on a subaccount level. The
industry contends that this approach would address concerns
raised in the past about employers entering PEO arrangements in
order to reduce or "wash" their unemployment insurance
experience rating.
The industry indicates that they would like for this bill to
move forward as those discussions continue with EDD and as they
engage in further discussions with other interested
stakeholders, including organized labor.
Analysis Prepared by : Ben Ebbink / L. & E. / (916) 319-2091
FN: 0004545