BILL ANALYSIS �
Senate Committee on Labor and Industrial Relations
Ted W. Lieu, Chair
Date of Hearing: June 13, 2012 2011-2012 Regular
Session
Consultant: Andrew Chen Fiscal:Yes
Urgency: No
Bill No: AB 2677
Author: Swanson
As Introduced/Amended: March 29, 2012
SUBJECT
Public works: wages: fringe benefit contributions.
KEY ISSUE
Should the State of California exempt increased fringe benefit
contributions, under certain conditions, from being considered
violations of the applicable prevailing wage determinations?
PURPOSE
To provide that employers meeting specified conditions which
increase fringe benefit contributions for their employees are
not in violation of the payment of prevailing wage under certain
circumstances.
ANALYSIS
Existing law requires that, except as specified, not less than
the general prevailing rate of per diem wages be paid to workers
employed on public works projects costing $1,000 or more. (Labor
Code � 1771)
Existing law also stipulates that per diem wages include
specified employer payments for health and welfare, pension,
vacation, travel, subsistence, and apprenticeships, among
others, and provides that such payments are a credit against the
obligation to pay the general prevailing rate of per diem wages.
(Labor Code � 1773.1)
Existing law , however, also provides that these credits for
employer payments do not reduce the employer's obligation to pay
the hourly straight time or overtime wages found to be
prevailing. (Labor Code � 1773.1(c))
This Bill would provide that an increased fringe benefit
contribution that results in a lower hourly straight time or
overtime wage is not considered to be a violation of the
applicable prevailing wage as long as the following conditions
are met:
1. The increased fringe benefit is made pursuant
to criteria set forth in a collective bargaining
agreement.
2. The increased fringe benefit and hourly
straight time and overtime wage combined are no less
than the general prevailing rate of per diem wages.
3. The fringe benefit contribution is irrevocable
unless made in error.
COMMENTS
1. Need for this bill?
Fringe benefits encompass a collection of benefits provided by
an employer to employees, which are exempt from taxation as
long as certain conditions are met. Examples of fringe
benefits include health insurance, group term life coverage,
education reimbursement, childcare and assistance
reimbursement, cafeteria plans, employee discounts, personal
use of a company owned vehicle, and other similar benefits.
Increasing these fringe benefit payments may result in a lower
hourly wage. Current law provides that specified types of
payments can be used as credits against the total prevailing
wage burden. In a January 13, 2012 letter, the Department of
Industrial Relations (DIR) expressed its opinion that an
increased fringe benefit payment towards a supplemental
pension plan was a valid contribution from the basic hourly
rate. However, this opinion was specific to the supplemental
pension plan. It did not provide a determination as to
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Senate Committee on Labor and Industrial Relations
whether contributions to a health care reserve account, or
"HRA," could be used as a credit for employer payments against
the obligation to pay prevailing wage due to unspecified
outstanding "legal issues."
AB 2677 seeks to address these legal issues by creating a
broad definition of "increased fringe benefit contributions"
that includes payments that meet certain protective criteria.
These payments as a whole would not be considered violations
of the applicable prevailing wage determination if they meet
these criteria. This mechanism would facilitate a
contractor's ability to create such contribution systems in
negotiation with their employees, as new types of programs,
funds, etc. would not need to be vetted on a case-by-case
basis with DIR as they arise.
2. Proponent Arguments :
Proponents of the bill note that many collective bargaining
agreements allow members to elect to have a percentage or a
set amount deducted from their paycheck and deposited in a
supplemental pension account or a health care reserve at their
discretion. The Department of Industrial Relations has issued
several letters expressing the Department's opinion that the
increased fringe benefit contributions do not constitute a
violation of the prevailing wage, so long as the total hourly
package equal the correct prevailing wage rule.
Nevertheless, according to the bill's proponents, several
local and state agencies have misinterpreted the law and begun
enforcement proceedings against contractors that have
negotiated these increased fringe benefit contributions. As
such, AB 2677 seeks to codify the DIR opinion letters in order
to avoid future misapplication of the statutes.
3. Opponent Arguments :
According to opponents, AB 2677 would unfairly discriminate
against contractors who are not signatories to a collective
bargaining agreement by effectively prohibiting them from
being able to utilize this flexibility to fund benefit plans.
Opponents believe that this change represents a deviance from
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Senate Committee on Labor and Industrial Relations
a historically neutral aspect of prevailing wage law between
union and non-union contractors. Opponents also believe that
the specific statutory remedy offered in AB 2677 is not
entirely consistent with the intent of the DIR letters. They
note that the DIR letter explicitly says that employee
contributions to the individual's account in a supplemental
benefit should not be commingled with funds for defined
benefit plans, and express concern that AB 2677 may lack this
safeguard in its current form.
4. Prior Legislation :
SB 868 (Dunn, Statutes of 2003): Chaptered
This bill expanded the definition of per diem wages to
include worker protection and assistance programs or
committees, and industry advancement and collective
bargaining agreements administrative fees.
AB 807 (Leno, Statutes of 2003): Chaptered
This bill allowed an employer to take a credit for employer
payments towards prevailing wage determination even if
contributions are not made, or costs are not paid, so long as
the employer regularly makes the contributions, or regularly
pays the costs on no less than a quarterly basis.
SB 16 (Burton, Statutes of 1999): Chaptered
This bill expanded the definition of employer payments for
per diem wages to include apprenticeship or other training
programs authorized by an existing provision of law, so long
as the cost of training is reasonably related to the amount
of the contributions.
SUPPORT
American Federation of State, County, and Municipal Employees,
AFL-CIO
California Chapters of the National Electrical Contractors
Association
California Legislative Conference of the Plumbing, Heating and
Piping Industry
California State Association of Electrical Workers
California State Pipe Trades Council
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Senate Committee on Labor and Industrial Relations
Construction Employers' Association
Western States Council of Sheet Metal Workers
OPPOSITION
Western Electrical Contractors' Association
Air Conditioning Trade Association
Plumbing-Heating-Cooling Contractors Association of California
Associated Builders and Contractors of California
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Senate Committee on Labor and Industrial Relations