BILL ANALYSIS �
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|SENATE RULES COMMITTEE | AB 2677|
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THIRD READING
Bill No: AB 2677
Author: Swanson (D)
Amended: 8/6/12 in Senate
Vote: 21
SENATE LABOR & INDUSTRIAL RELATIONS COMM. : 5-1, 6/13/12
AYES: Lieu, DeSaulnier, Leno, Padilla, Yee
NOES: Wyland
NO VOTE RECORDED: Runner
SENATE APPROPRIATIONS COMMITTEE : 5-2, 8/16/12
AYES: Kehoe, Alquist, Lieu, Price, Steinberg
NOES: Walters, Dutton
ASSEMBLY FLOOR : 49-25, 5/7/12 - See last page for vote
SUBJECT : Public works: wages: employer payment
contributions
SOURCE : California State Association of Electrical
Workers
California State Pipe Trades Council
DIGEST : This bill provides 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
provides that an increased employer payment contribution
that results in a lower taxable wage is not a violation of
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the applicable prevailing wage determination if specified
conditions are met.
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.
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.
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.
This bill provides 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 provides 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.
Background
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
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Relations (DIR) 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 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 DIR 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 DIR 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
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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. DIR 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.
FISCAL EFFECT : Appropriation: No Fiscal Com.: Yes
Local: No
According to the Senate Appropriations Committee:
$150,000 annually from the Labor Enforcement and
Compliance Fund annually.
The Labor Enforcement and Compliance Fund sunsets July 1,
2013.
SUPPORT : (Verified 8/20/12)
California State Association of Electrical Workers
(co-source)
California State Pipe Trades Council (co-source)
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
Construction Employers' Association
National Electrical Contractors Association
Western States Council of Sheet Metal Workers
OPPOSITION : (Verified 8/20/12)
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Air Conditioning Trade Association
Associated Builders and Contractors of California
Plumbing-Heating-Cooling Contractors Association of
California
Western Electrical Contractors' Association
ARGUMENTS IN SUPPORT : According to the author's office,
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. DIR
has issued several opinion letters finding that this does
not constitute a violation of the prevailing wage as long
as the total hourly package equals the correct prevailing
wage rule. This bill seeks to codify DIR's opinion letters
in order to avoid future misapplication of the statues.
ARGUMENTS IN OPPOSITION : According to opponents, this
bill unfairly discriminates 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 a historically
neutral aspect of prevailing wage law between union and
non-union contractors. Opponents also believe that the
specific statutory remedy offered in this bill 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 this bill may lack
this safeguard in its current form.
ASSEMBLY FLOOR : 49-25, 05/07/12
AYES: Alejo, Allen, Ammiano, Atkins, Beall, Block,
Blumenfield, Bonilla, Bradford, Buchanan, Butler, Charles
Calderon, Campos, Carter, Cedillo, Chesbro, Davis,
Dickinson, Eng, Feuer, Fong, Fuentes, Galgiani, Gatto,
Gordon, Gorell, Hayashi, Roger Hern�ndez, Hill, Huber,
Hueso, Huffman, Lara, Bonnie Lowenthal, Ma, Mendoza,
Mitchell, Monning, Pan, Perea, V. Manuel P�rez, Skinner,
Solorio, Swanson, Torres, Wieckowski, Williams, Yamada,
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John A. P�rez
NOES: Achadjian, Bill Berryhill, Conway, Donnelly, Beth
Gaines, Garrick, Grove, Hagman, Halderman, Harkey,
Jeffries, Jones, Knight, Logue, Mansoor, Miller, Morrell,
Nestande, Nielsen, Norby, Olsen, Silva, Smyth, Valadao,
Wagner
NO VOTE RECORDED: Brownley, Cook, Fletcher, Furutani,
Hall, Portantino
PQ:n 8/20/12 Senate Floor Analyses
SUPPORT/OPPOSITION: SEE ABOVE
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