BILL ANALYSIS
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
2570 (Ma)
Hearing Date: 8/2/2010 Amended: 7/1/2010
Consultant: Bob Franzoia Policy Vote: L&IR 5-0
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BILL SUMMARY: AB 2570 would, on and after January 1, 2012, for
purposes of all
unemployment insurance laws of this state, provide that a
professional employer organization (PEO), as defined, shall be
deemed to be an employing unit for covered employees under a
professional employer agreement, as defined. This bill would
require the Employment Development Department (EDD) to
administer the provisions of the bill, as specified. This bill
would impose various requirements on PEOs and clients, and would
also provide for an assessment, fines, and disciplinary actions.
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Fiscal Impact (in thousands)
Major Provisions 2010-11 2011-12 2012-13 Fund
EDD administration Up to $8,300 up to $20,000 up to
$20,000 General/ unknown, major
information technology Special*
upgrade costs; potentially offset by fees
* Unemployment Insurance Administration Fund, Disability Fund,
Employment Training Fund
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STAFF COMMENTS: This bill meets the criteria for referral to the
Suspense File.
Existing law defines leasing employers, also known as
professional employer organizations, as employing units that
supply workers to perform services for the client, as well as to
perform the following functions:
- Negotiate with clients or customers for such matters as time,
place, type of work, working conditions, quality, and price of
the services.
- Determine assignments or reassignments of workers, even though
workers retain the right to refuse specific assignments.
- Retain the authority to assign or reassign a worker to other
clients or customers when a worker is determined unacceptable by
a specific client or customer.
- Assign or reassign the worker to perform services for a client
or customer.
- Set the rate of pay of the worker, whether or not through
negotiation.
- Pay the worker from their own account or accounts.
- Retain the right to hire and terminate workers.
Existing law requires that when questions arise as to whether a
PEO is an employer, those questions must be determined under
common law rules applicable in determining the employer-employee
relationship unless the entity performs all of the above
functions. If the PEO does not perform all of the above
functions, the client is the employer.
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AB 2570 (Ma)
Unlike other states, California collects payroll tax and
disability insurance (DI) tax along with unemployment insurance
(UI) tax and EDD bills the appropriate fund based on the ratio
of funds collected. As a result of this bill, it is estimated
EDD will register 1,400 PEOs with an average of 19 clients each
for a total of approximately 26,700 clients. EDD would need to
establish and register PEO master accounts with subaccounts
(employers), which the EDD collection system is not designed to
handle, and transfer the client's reserve accounts and process
bonding requirements. Development and maintenance of this
account-subaccount processing and maintenance structure would
require manual processing estimated to cost $16.6 million in one
time costs and $20 million in annual costs for nearly 200
additional staff.
Creating subaccounts will require that every EDD application
program, file, and database to be changed in order to recognize
and process the new employer account-subaccount numbers
including all UI and DI databases. Since EDD is dedicating its
information technology resources to implementing UI and DI
benefits modifications and a UI Alternate Base Period,
implementation of an account-subaccount system would require EDD
to redirect resources away from one or all of these efforts and
impede EDD's primary function of administering the UI and DI
benefit programs.
EDD's activities are funded by both federal and state sources,
requiring EDD to use the Tax Sharing Ratio for the
implementation and ongoing costs. An approximation of how the
costs would be distributed via the workload based Tax Sharing
Ratio is as follows:
- 47.71 percent UI administration.
- 42.8 percent General Fund (personal income tax).
- 8.53 percent DI administration.
- 0.89 percent employment training tax.
While EDD would be authorized to charge fees, given the cost of
this program, the size of the fees would likely discourage PEO
participation, resulting in a revenue shortfall and additional
General Fund cost pressure.