BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 2677 (Swanson) - Public works: wages: fringe benefits.
Amended: March 29, 2012 Policy Vote: L&IR 5-1
Urgency: No Mandate: No
Hearing Date: June 25, 2012 Consultant:
Bob Franzoia
This bill meets the criteria for referral to the Suspense File.
Bill Summary: AB 2677 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 determination so long as specified
conditions are met. This bill would provide that an increased
fringe benefit contribution that results in a lower taxable wage
is not a violation of the applicable prevailing wage
determination if specified conditions are met.
Fiscal Impact: Estimated costs of $230,000 from the Labor
Enforcement and Compliance Fund annually.
Potentially General Fund costs beginning July 1, 2013 when
authorization for the Labor Enforcement and Compliance Fund
sunsets.
Background: As noted in the policy committee analysis 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 and personal use of a company owned
vehicle.
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. The Department of Industrial Relations
(department) has 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
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provide a determination as to whether contributions to a health
care reserve account could be used as a credit for employer
payments against the obligation to pay prevailing wage due to
unspecified outstanding "legal issues."
This bill proposes 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 the department as
they arise.
The Division of Labor Standards Enforcement (division)
determines if the total hourly prevailing wage rate has been
paid and whether employer payments (allowed fringe benefit
contributions) as provided in the prevailing rate determinations
issued by the department and posted by the division were
irrevocably made. The division does not consider whether a
contractor is paying in accordance with a collective bargaining
agreement since it only enforces the prevailing wage rates
(basic hourly and allowed fringe benefits posted by the
division). If fringe benefits reduce the basic hourly rate
posted by the division, the division would consider such
practice an underpayment of the prevailing wage and assess the
reduced amount for recovery. For the credit proposed by this
bill to apply, a division investigator would be required to
obtain a copy of the collective bargaining agreement and
determine its application at the time of the work on the
specific project and confirm trust fund payments to the union or
trust fund to determine the contractor's eligibility for the
credit. Alternatively, the division investigator would still
have to verify the credit payments even if this information were
contained in the determinations.
Implementation would involve adding a footnote to the
determinations and adding a new category of contract provisions
from the collective bargaining agreements which would have to be
identified, scanned and posted in the provisions section of the
prevailing wage determinations for each craft in each locality
that has a variable benefits package. The majority of
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collective bargaining agreements contain some form of a variable
benefits package. The department anticipates that the remaining
collective bargaining agreements would incorporate similar
language in the future if this bill becomes law. As of March
2012, the division had 1,274 pending prevailing wage cases and
104 Compliance Monitoring Unit pending cases, for a total of
1,378 cases potentially impacted by this bill.
Proposed Law: This bill proposes that an increased fringe
benefit contribution that results in a lower hourly straight
time or overtime wage shall not be considered a violation of the
applicable prevailing wage determination so long as all of 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.
Staff Comments: As part of the state government trailer bill
Chapter 12 /2009 (AB 12x4, Evans), the department was authorized
to levy a separate surcharge upon all employers, as defined, for
the purposes of deposit in the newly created Labor Enforcement
and Compliance Fund. The surcharge levied could not exceed
$37,000,000 in 2008-09 and is adjusted each year thereafter by
no more than the state-local government deflator. With this cap,
the division could be forced to begin prioritizing enforcement
activities if enforcement duties and costs exceed the cap as
adjusted by the deflator. This fund sunsets on July 1, 2013.
If the sunset is not extended the activities of the division,
including the enforcement of the provisions of this bill, likely
will be a General Fund obligation.