BILL ANALYSIS �
Senate Appropriations Committee Fiscal Summary
Senator Christine Kehoe, Chair
AB 2677 (Swanson) - Public works: wages: fringe benefits.
Amended: August 6, 2012 Policy Vote: L&IR 5-1
Urgency: No Mandate: No
Hearing Date: August 16, 2012 Consultant:
Bob Franzoia
SUSPENSE FILE.
Bill Summary: AB 2677 would provide that an increased employer
payment 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
employer payment 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: $150,000 annually from the Labor Enforcement and
Compliance Fund annually.
The Labor Enforcement and Compliance Fund sunsets July 1,
2013.
Background: As noted in the policy committee analysis
employment payment contributions 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 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 employer 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 has expressed its opinion
that an increased employer 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 whether
contributions to a health care reserve account could be used as
AB 2677 (Swanson)
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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 employer payments 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 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 employer payments 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
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
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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 employer
payment 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 employer payment is made pursuant to criteria
set forth in a collective bargaining agreement.
(2) The basic hourly rate and increased employer payment are no
less than the general prevailing rate of per diem wages and the
general prevailing rate for holiday and overtime work in the
director's general prevailing wage determination.
(3) The employer payment contribution is irrevocable unless made
in error.