BILL ANALYSIS
Senate Committee on Labor and Industrial Relations
Mark DeSaulnier, Chair
Date of Hearing: May 13, 2009 2009-2010 Regular
Session
Consultant: Rodger Dillon Fiscal:No
Urgency: No
Bill No: SB 404
Author: Benoit
Version: As amended April 14, 2009
SUBJECT
Employment: information for employees.
KEY ISSUES
Should Labor Code be clarified to specify that an employer's
obligation to provide an itemized statement of wages and hours
when paying an employee may be satisfied by putting the
information on a page separate from the check or other
instrument of payment?
Should Labor Code be clarified to specify that employers are
relieved of the obligation to list employees' total hours worked
on the information sheet required to be supplied to employees
along with their paychecks when said employees are classified as
exempt by a specified code section or are exempt from overtime
requirements by an Industrial Welfare Commission wage order?
Should employers be relieved of the obligation to provide a
notice of potential eligibility for the Earned Income Tax Credit
to employees earning a gross annual salary of more than $50,000?
PURPOSE
To relieve employers of certain allegedly minor, non-critical
reporting and advisory requirements.
ANALYSIS
Existing law , Labor Code 226, requires every employer,
semimonthly or at the time of each payment of wages, to give
each of his or her employees, either as a detachable part of the
check, draft, or voucher paying the employee's wages, or
separately when wages are paid by personal check or cash, an
accurate itemized statement in writing showing, among other
things:
a)Gross wages earned;
b)Total hours worked by the employee, except for any employee
whose compensation is solely based on a salary and who is
exempt from payment of overtime under subdivision (a) of
Section 515 or any applicable order of the Industrial Welfare
Commission.
Subdivision (a) of Section 515 of the Labor Code provides that
the Industrial Welfare Commission may establish exemptions
from the requirement that an overtime rate of compensation be
paid for executive, administrative, and professional
employees, provided that the employee is primarily engaged in
the duties that meet the test of the exemption, customarily
and regularly exercises discretion and independent judgment in
performing those duties, and earns a monthly salary equivalent
to no less than two times the state minimum wage for full-time
employment.
Existing law also requires employers - at the time they provide
an annual wage summary to employees - to notify all employees
that they may be eligible for the Earned Income Tax Credit
(EITC). [Revenue and Taxation Code 19853]. The EITC is a
refundable tax credit for which certain low income earners may
qualify.
This Bill:
1.Deletes language specifying that an employer, at the time
he/she pays an employee, may provide the attendant required
information on a page separate from the instrument of payment
only when wages are paid by personal check or cash.
Henceforth, an employer would be allowed, at the time of each
payment of wages, to provide the required information either
as a detachable part of the check in accordance with existing
law, or the employer would be allowed, at his/her option, to
Hearing Date: May 13, 2009 SB 404
Consultant: Rodger Dillon Page 2
Senate Committee on Labor and Industrial Relations
provide the required information to the employee on a separate
page.
2.Deletes language that exempts employers from the requirement
that they provide the information on total hours worked on the
statement accompanying paychecks for those employees whose
compensation is solely based on a salary and who are exempt
from the payment of overtime under subdivision (a) of L.C.
515 or any applicable order of the Industrial Welfare
Commission. The language remaining would specify that the
release from the requirement to provide information on total
hours worked would apply simply to any employee who is exempt
from the payment of overtime under subdivision (a) of L.C.
515 or any applicable order of the Industrial Welfare
Commission. Thus, the exemption would apply to any employee
covered by L.C. 515 or an IWC order, including those so
covered who are not salaried.
3.Provides that employers would have to give a notice of
potential eligibility for the Earned Income Tax Credit only to
those employees to whom they pay a gross annual salary of
$50,000 or less.
COMMENTS
1. Proponent Arguments :
With respect to Provision #1, immediately above, the author
and sponsor note that Labor Code 226(a) appears to limit most
employers to the sole option of "detachable" pay stubs when
providing earnings statements to employees. A plain reading
of Labor Code 226(a) seems to permit a separate, non-detached
pay stub only in situations where the employer utilizes either
a personal check or cash as the means of delivering the
employee's wages. Employers do not believe that this was the
intent of this section and are asking for the simple
clarification that employers have the option of providing a
separate pay itemization when providing wages in a legal
fashion. The way to solve this problem is to amend the current
law to ensure that employers are able to use either a
detachable or a separate page as an itemized pay stub.
Hearing Date: May 13, 2009 SB 404
Consultant: Rodger Dillon Page 3
Senate Committee on Labor and Industrial Relations
With respect to Provision #2, above, supporters note that
employers do not have to list total hours worked on most
exempt employee pay stubs. However, due to the awkward
fashion that Labor Code 226 is currently written, some
employers must supply the total hours worked for certain
exempt workers that are not salaried due to other Labor Code
requirements or IWC Wage Orders such as outside salespersons
or certain motor carrier safety exemptions. Because of this
confusion, employers have faced lawsuits and significant fines
for violating Labor Code 226. As a way to end the confusion
and avoid unnecessary fines or litigation, employers believe
that Labor Code 226 should be clarified to apply to all
exempt workers.
With respect to Provision #3, above, employers believe that
the EITC notice requirement is overbroad because, along with
the notices to lower paid employees, the notice must also be
sent to those at the CEO level. In order to conserve time and
paperwork, employers believe that companies should have the
option of providing the notice to those employees that may
qualify for the EITC based on annual earnings, rather than all
employees on the payroll.
2. Opponent Arguments :
Opponents of SB404 point out the overtime exemptions are
largely based on the time a worker spends doing certain tasks.
These tasks may vary from week to week, so that a worker is
at times eligible and at other times ineligible for overtime
pay. It is important to track those hours to ensure that a
worker is paid at the overtime rate for the hours during which
he or she is qualified for overtime. In addition, the
misclassification of workers as exempt is a commonplace way to
cheat workers out of basic labor protections. If hours are
not tracked, workers who are misclassified will have no way to
document the wages they are owed. As to the proposals
relating to EITC notification, those opposed to this bill
argue that this is a turbulent time in our economy; a worker
could be laid off mid-year after earning $50,000 and perhaps
be eligible for the EITC. The required notice to employees is
Hearing Date: May 13, 2009 SB 404
Consultant: Rodger Dillon Page 4
Senate Committee on Labor and Industrial Relations
a minor cost to employer, and it should be retained.
SUPPORT
California Employment Law Council (sponsor)
OPPOSITION
California Labor Federation
California Nurses Association/National Nurses Organizing
Committee
California Rural Legal Assistance Foundation
Hearing Date: May 13, 2009 SB 404
Consultant: Rodger Dillon Page 5
Senate Committee on Labor and Industrial Relations