BILL ANALYSIS �
AB 975
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Date of Hearing: May 4, 2011
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Felipe Fuentes, Chair
AB 975 (Ma) - As Introduced: February 18, 2011
Policy Committee: Education
Vote:5-0
Urgency: No State Mandated Local Program:
No Reimbursable: No
SUMMARY
This bill requires professional employment organizations (PEOs)
to register with the Employment Development Department (EDD) and
requires the director of EDD to prescribe rules for PEOs to
report quarterly wages and unemployment contributions for its
employees. Specifically, this bill:
1)Requires the rules to recognize PEOs as the employing unit of
its worksite employees for the purpose of reporting and
determining the unemployment experience rating.
2)Allows the rules to require each employee of a single client
be reported under a separate subaccount of the PEO to reflect
the experience of the workplace employees of the client.
3)Requires the rules to permit PEO's to transmit the reporting
and payment data collectively as a single electronic filing.
FISCAL EFFECT
1)According to EDD, there would be one-time costs of
approximately $5.2 million to implement this bill, including
37 one-time staff positions. Of this cost, approximately $2
million is GF, with the remainder paid from special funds.
These costs are attributed to office space, hiring temporary
staff, and purchasing equipment/furniture.
2)EDD also indicates there would be on-going costs of
approximately 10 million to maintain 98 permanent staff
positions and an office to implement this measure.
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3)This bill authorizes a subaccount to be created to reflect the
experience of the workplace employees of the client. EDD
indicates the establishment of subaccounts would necessitate
the modification of its current technology systems. This cost
is likely to be in the hundreds of thousands to low millions.
COMMENTS
1)Background . PEOs are companies that provide ongoing human
resources, employee benefits, and health insurance related
services to small businesses. PEOs typically enter into
contracts with small businesses to assume responsibility for
such things as payroll, payment of payroll-related taxes,
workers' compensation, unemployment insurance, healthcare
coverage, and similar employment benefits. Employees of PEO's
often provide these services at the worksite of the contacting
employer. According to EDD, there are approximately 878 PEOs
currently operating in the state that serve 70,000 clients and
978,000 employees.
Existing law defines a "temporary services employer," also known
as PEOs, as an employing unit that contracts with clients or
customers to supply workers and performs all of the following:
a) Negotiate with clients or customers for such matters as
time, place, type of work, working conditions, quality, and
price of the services.
b) Determine assignments or reassignments of workers, even
though workers retain the right to refuse specific
assignments.
c) 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.
d) Assign or reassign the worker to perform services for a
client or customer.
e) Set the rate of pay of the worker, whether or not
through negotiation.
f) Pay the worker from their own account or accounts.
g) Retain the right to hire and terminate workers.
Over the years, questions have arisen as to whether or not a
PEO is the employer. These questions have generally been
addressed by determining if the PEO performs all of the duties
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of a "temporary service employer," as specified under current
law. If the PEO does not perform all of the duties listed
above then it is generally not determined to be the employer;
instead, the PEO's client is the employer.
2)Rationale . The PEO industry contends the service they provide
is valuable to small business because it allows the business
to focus on providing its service or selling its product
without having to manage human resource issues. Likewise, the
industry argues that it is able to provide employees with more
attractive benefit packages, such as 401 (k) plans, insurance,
than a small business due to economies of scale.
According to the author, "AB 975 is a response to the growing
number of small businesses that use PEOs and the need to
create a licensing and registration process with EDD. The bill
will help EDD ensure that PEOs are remitting the taxes that
are owed by their clients and that any abuse in reporting can
easily be remedied with strengthened enforcement."
3)Previous legislation . AB 2570 (Ma), on or after January 1,
2012, deemed a PEO (for purposes of all unemployment insurance
laws of this state) an employing unit for covered employees
under a professional employer agreement and required EDD to
administer these provisions, as specified. This bill was held
on the Senate Appropriations Committee's suspense file in
August 2010.
Analysis Prepared by : Kimberly Rodriguez / APPR. / (916)
319-2081