File No. 344

Senate, March 31, 2015

The Committee on Human Services reported through SEN. MOORE, M. of the 22nd Dist., Chairperson of the Committee on the part of the Senate, that the substitute bill ought to pass.

AN ACT CONCERNING THE RECOUPMENT OF STATE COSTS ATTRIBUTABLE TO LOW WAGE EMPLOYERS.

Be it enacted by the Senate and House of Representatives in General Assembly convened:

Section 1. (NEW) (Effective from passage) (a) As used in this section and sections 2 to 4, inclusive, of this act:

(1) "Person" has the same meaning as provided in section 42-133e of the general statutes, except "person" shall not include the state or any department, agency or political subdivision thereof;

(2) "Franchise" has the same meaning as provided in section 42-133e of the general statutes;

(3) "Franchisor" has the same meaning as provided in section 42-133e of the general statutes;

(4) "Franchisee" has the same meaning as provided in section 42-133e of the general statutes;

(5) "Employee" means any individual employed or permitted to work by an employer, but does not include any individual employed in any park, camp or resort that is open not more than six months of the year;

(6) "Covered employer" means:

(A) Any person, firm, business, educational institution, corporation, limited liability company or other entity that directly employs five hundred or more employees in the state in any one quarter in the previous year, which shall be determined annually on January first, based upon the wage information submitted to the Labor Commissioner pursuant to subsection (j) of section 31-225a of the general statutes; or

(B) Any franchisor whose franchisees collectively employ five hundred or more employees in the state in any one quarter in the previous year, which shall be determined annually on January fifteenth, based upon the information submitted to the Labor Commissioner pursuant to section 4 of this act;

(C) "Covered employer" does not include any private nonprofit entity, the state or any instrumentality or political subdivision thereof;

(7) "Low wage" means hourly pay of not more than fifteen dollars;

(8) "Low wage employer fee" means any fee assessed pursuant to subsection (b) of this section and paid to the state in accordance with this section; and

(9) "Wage" means compensation due to an employee by reason of his or her employment.

(b) Any covered employer that employs, or whose franchisee employs, any employee (1) who was listed on such covered employer's or such franchisee's payroll for at least ninety calendar days prior to the completion of the most recent calendar quarter, and (2) whose hourly wage paid by such covered employer, or such covered employer's franchisee, during such quarter were less than or equal to fifteen dollars, shall pay a fee to the Labor Commissioner for each such employee. Such fee shall be assessed quarterly and shall be equal to one dollar for each hour such employee worked for such covered employer during the previous quarter. The Labor Commissioner shall collect such fees from each covered employer not later than sixty days after the completion of the quarter in which such fees were assessed. Such fee shall not accrue until January 1, 2016.

(c) There is established an account to be known as the "human services support account", which shall be a separate, nonlapsing account within the General Fund. The account shall contain any moneys collected pursuant to subsection (b) of this section.

(d) The Labor Commissioner shall deposit moneys collected pursuant to subsection (b) of this section with the State Treasurer, who shall deposit such moneys into the human services support account established pursuant to subsection (c) of this section. Such moneys shall be allocated to (1) the Departments of Social Services and Developmental Services to support and improve the quality of state-supported consumer-directed services for elderly and disabled persons, and (2) the Office of Early Childhood to increase access to, support and improve the quality of (A) school readiness programs, (B) the child-care subsidy program authorized pursuant to section 17b-749 of the general statutes, (C) child development centers, (D) Head Start, (E) Early Head Start, or (F) other programs overseen by said office to provide child care and early learning opportunities for the children of low wage workers. For the purposes of improving quality of services pursuant to subdivisions (1) and (2) of this subsection, revenue may be used to recruit, retain and offer professional development to a qualified workforce.

(e) Notwithstanding the provisions of subsection (d) of this section, moneys received by the Labor Commissioner, pursuant to subsection (b) of this section, may be used for the purpose of administering and enforcing the provisions of subsection (b) of this section.

(f) On and after October 1, 2015, the Labor Commissioner shall adopt regulations for the determination of and collection of fees pursuant to subsection (b) of this section, including the establishment of reasonable penalties or other remedies for failure to file timely reports and for delinquent or unpaid fees assessed pursuant to this section.

Sec. 2. (NEW) (Effective from passage) (a) There is established the Connecticut Low Wage Employer Advisory Board that shall advise the Labor Commissioner, the Departments of Social Services and Developmental Services and the Office of Early Childhood generally on matters related to the implementation of the low wage employer fee, public assistance usage among working residents of the state, improvement of the quality of public assistance programs affecting such residents, wages and working conditions for the workforce delivering services to low wage working families and reliance of large businesses on state-funded public assistance programs. The board shall:

(1) Advise the Labor Department and other agencies as needed on matters related to the implementation of sections 1 to 4, inclusive, of this act;

(2) Engage in further study and monitoring of the causes and effects of large businesses paying low wages to residents of the state, including the impact of such labor practices on workers' need for public assistance, the benefits received by employers from the provision of public assistance to the state workforce and solutions to associated problems;

(3) Consider, suggest and review legislative and agency proposals and actions;

(4) Foster communication between working residents of the state who provide or receive public assistance and employers and state agencies for the purpose of improving the quality of state public assistance programs serving lower-income residents; and

(5) Advise the Labor Commissioner, and other interested state agencies or officials, on policies and procedures related to public assistance usage among lower-income working residents and the impact of public assistance programs on workforce quality and stability.

(b) The board may form working groups, as necessary, to solicit feedback from stakeholders to enable the board to fulfill the duties and responsibilities set forth in subsection (a) of this section.

(c) On December first of each calendar year, the board shall report its findings and recommendations in accordance with the provisions of section 11-4a of the general statutes to the Labor Commissioner, Commissioner of Social Services and Commissioner of Early Childhood. The report shall be made available to the public and to the joint standing committees of the General Assembly having cognizance of matters relating to labor, human services and education.

(d) Notwithstanding the provisions of section 4-9a of the general statutes, the board shall consist of the following members, each of whom shall serve an initial term of four years following the date of appointment:

(1) Five appointed by the Governor: (A) One of whom shall be an expert on the issues facing low wage workers, (B) one of whom shall be an expert on the labor force needs of the large business community, (C) one of whom shall be an expert on the labor force needs of the small business community, (D) one of whom shall be a recipient of consumer-directed Medicaid services, and (E) one of whom shall be a person enrolled in a state child care program;

(2) One appointed by the president pro tempore of the Senate, who shall represent an organization whose principal purpose is advocacy for services funded by consumer-directed Medicaid programs;

(3) One appointed by the speaker of the House of Representatives, who shall represent an organization whose principal purpose is advocacy for services funded by state child care programs;

(4) One appointed by the majority leader of the Senate, who shall be an organized labor representative who represents workers who provide services funded by consumer-directed Medicaid programs;

(5) One appointed by the majority leader of the House of Representatives, who shall be an organized labor representative who represents workers who provide child care services funded by state child care programs;

(6) One appointed by the minority leader of the Senate, who shall be a person with experience in the labor force needs of the large business community;

(7) One appointed by the minority leader of the House of Representatives, who shall be a person with experience in the labor force needs of the small business community;

(8) The Labor Commissioner, or the commissioner's designee; and

(9) The Secretary of the Office of Policy and Management, or the secretary's designee.

(e) All appointments to the board shall be made not later than July 31, 2015. Following the expiration of their initial terms, subsequent members appointed by the Governor and members of the General Assembly shall serve three-year terms. Any vacancy shall be filled by the appointing authority not later than thirty calendar days after the office becomes vacant. Any member previously appointed to the board may be reappointed.

(f) The members of the board shall elect two chairpersons of the board at the first meeting of the board, which shall be held not later than forty calendar days after the effective date of this section. The board shall meet at least quarterly.

(g) Each member shall serve without compensation but shall, within available appropriations, be reimbursed in accordance with standard travel reimbursement for state employees for all necessary expenses they may incur through service on the board.

(h) Each member shall, not later than ten calendar days after appointment, take an oath of office to diligently and honestly administer the affairs of the board, and not knowingly violate or willingly permit to be violated any of the provisions of law applicable to their service on the board. The oath shall be administered by a chairperson of the board.

(i) Each member shall be entitled to one vote on the board. A majority of the members who have been appointed to the board shall constitute a quorum for the transaction of any business, the exercise of any power or the performance of any duty authorized or imposed by law.

(j) The board shall be within the Labor Department for administrative purposes only.

Sec. 3. (NEW) (Effective from passage) (a) Any covered employer aggrieved by the Labor Commissioner's determination of fees, pursuant to subsection (b) of section 1 of this act, may file a complaint with the commissioner. Upon receipt of the complaint, the commissioner shall investigate such complaint and may conduct a hearing in accordance with the provisions of chapter 54 of the general statutes.

(b) The Labor Commissioner may request the Attorney General to investigate any violation of subsection (b) of section 1 of this act. Any information obtained pursuant to such investigation shall be exempt from disclosure under section 1-210 of the general statutes. If the Attorney General finds that a covered employer has violated or is violating any provision of section 1, 2 or 4 of this act, the Attorney General may bring a civil action in the superior court for the judicial district of Hartford in the name of the state against such covered employer.

(c) Nothing in this section shall be construed to require a fee based on the hourly pay of any employee whose pay was established by a collective bargaining agreement executed prior to the effective date of this section for the term of such agreement.

Sec. 4. (NEW) (Effective from passage) Not later than January 1, 2016, and annually thereafter, each employer that submits wage information to the Labor Commissioner, pursuant to subsection (j) of section 31-225a of the general statutes, shall inform the commissioner if such employer is a franchisee. If such employer is a franchisee, such employer shall provide to the commissioner the name and address of the franchisor that granted the franchise to such employer and any other information the commissioner may require.

Statement of Legislative Commissioners:

In Section 1(b)(2), "whose wages paid by such covered employer, or such covered employer's franchisee, during such quarter were less than or equal to fifteen dollars per hour" was changed to "whose hourly wage paid by such covered employer, or such covered employer's franchisee, during such quarter were less than or equal to fifteen dollars" for clarity. In Section 1(d)(2), subparagraph designators (A) to (F), inclusive, were added for clarity. In Section 2(h), "and will not knowingly violate" was changed to "and not knowingly violate" for conciseness. In Section 3(a), "Sections 4-176 to 4-181a, inclusive" was changed to "chapter 54" for accuracy.

The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.


OFA Fiscal Note

State Impact:

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill establishes a quarterly fee on certain employers at the rate of $1.00 per work hour for each employee paid $15 per hour or less. This results in a potential revenue gain of up to $152.6 million in FY 16 and up to $305.1 million annually thereafter. This also results in a cost of approximately $14.4 million in FY 16 and approximately $19.2 million annually thereafter to the Department of Labor (DOL).

COST IMPACT

The bill requires the Labor Commissioner to adopt guidelines for determining and collecting fees by October 1, 2015, and to begin collecting fees no later than 60 days after the close of the quarter for which they are assessed. Administration of this program is estimated to result in a cost of approximately $19.2 million annually, including collections, data management, audit and all associated fringe benefit costs. The estimate is based on the current cost of agency management services under the unemployment insurance system.

The bill allows covered employers to file a complaint with the Labor Commissioner, who must investigate and hold a hearing. This is anticipated to result in a cost of approximately $311,962 in FY 16 and $415,950 annually thereafter for salary ($75,000) and fringes ($28,988) associated with the hiring of four Staff Attorneys.

Additionally, the bill allows the Labor Commissioner to request that the Office of the Attorney General (OAG) investigate certain violations. The OAG already has authority over wage violations. The bill is not anticipated to have a fiscal impact on OAG because it is not expected to lead to a higher rate of violations of wage and hour laws.

There is no impact to the Judicial Department from OAG to bring a civil suit to the Superior Court. The number of appeals is not anticipated to be great enough to need additional resources. The court system disposes of over 450,000 cases annually.

The bill also establishes the Connecticut Low Wage Employer Advisory Board, whose members serve without compensation but are reimbursed for travel expenses. This results in a cost to DOL of less than $1,000 in FY 16 and in FY 17 for mileage expenses.

REVENUE IMPACT

The revenue estimate assumes approximately 146,710 of the 743,328 employees who work for firms with at least 500 employees would be covered under the bill. Additionally, the estimate assumes that the average annual hours worked per covered employee is approximately 2,080, based on hourly and annual wage data by job category and percentile compiled by DOL. Under the bill, it is uncertain how certain types of income (overtime, bonus, etc.) would be treated. Consequently, no adjustments are made to account for how this income would be treated. Additionally, the estimate assumes no behavior change on the part of employers or employees.

The bill specifies that the Labor Commissioner deposit the proceeds of the fee into a new, non-lapsing Human Service Support Account.  This account is intended to support and improve certain activities of the Departments of Social Services and Developmental Services and the Office of Early Childhood.  The fiscal impact of this new account is uncertain, as the bill is unclear whether the support is intended to expand or offset current state expenditures for the required activities.

The Out Years

The annualized ongoing cost impact identified above would continue into the future subject to inflation. The potential revenue gain described above would continue into the future subject to wage inflation and fluctuation in the number of jobs paying above and below $15 per hour.

OLR Bill Analysis

sSB 1044

AN ACT CONCERNING THE RECOUPMENT OF STATE COSTS ATTRIBUTABLE TO LOW WAGE EMPLOYERS.

SUMMARY:

Starting January 1, 2016, this bill establishes a quarterly low wage employer fee to be imposed upon (1) certain employers with at least 500 employees and (2) franchisors whose franchisees collectively employ at least 500 employees. These employers and franchisors (“covered employers”) must pay a $1- per- work-hour fee for each person who was (1) on the employer's payroll, or the payroll of one of the franchisor's franchisees, for 90 days prior to the most recently completed calendar quarter and (2) paid $15 per hour or less in wages by the employer or franchisee. The labor commissioner must collect the fees within 60 days after the end of the quarter for which they are assessed (presumably by the labor commissioner). The bill also establishes a complaint process for covered employers.

The bill establishes a human services support account as a separate, nonlapsing account within the General Fund. Under the bill, the labor commissioner deposits funds collected from the low wage employer fee into this account, which is allocated for specified purposes to the Department of Social Services (DSS), the Department of Developmental Services (DDS), and the Office of Early Childhood (OEC).

The bill also establishes the Connecticut Low Wage Employer Advisory Board to advise various departments on issues relating to, among other things, implementation of the low wage employer fee, public assistance use among working state residents, and improvements to the quality of public assistance programs affecting such residents.

EFFECTIVE DATE: Upon passage

LOW WAGE EMPLOYER FEE

Under the bill, covered employers must pay a low wage employer fee, which the bill defines as a quarterly fee of $1 per hour worked during the assessed quarter by each person who was (1) on the employer's or franchisee's payroll for the last 90 days of the most recently completed calendar quarter and (2) paid wages by the employer or franchisee that were $15 per hour or less. Employers do not have to pay the fee for employees at parks, camps, or resorts open less than six months a year.

Starting October 1, 2015, the labor commissioner must adopt regulations on determining and collecting low wage employer fees, including establishing reasonable penalties or remedies for (1) failure to file timely reports and (2) delinquent or unpaid fees.

The low wage employer fee does not apply to employees whose pay was established by a collective bargaining agreement before the bill's effective date.

COVERED EMPLOYERS

Employers

An employer subject to the bill's provisions is any person, firm, business, educational institution, corporation, limited liability company, or other entity that directly employed at least 500 employees in the state in any one of the previous year's quarters. It does not include any private nonprofit entity, the state, or the state's instrumentalities and political subdivisions. The determination of whether an employer is subject to the fees must be made annually on January 1, based on the quarterly wage information employers submit to the labor commissioner for unemployment tax purposes.

Franchisors

The bill subjects franchisors to the bill's provisions if their franchisees collectively employed at least 500 employees in the state in any one of the previous year's quarters. A franchisor is an entity that grants a franchise to another entity. A franchise includes the authority to use a trademark, trade name, service mark, or other identifying symbol or name under a franchise.

By January 1, 2016, and annually thereafter, the bill requires employers submitting wage reports for unemployment tax purposes to indicate, on a form and in a manner determined by the labor commissioner, if they are a franchisee, and if so, their franchisor's contact information and any other information the commissioner requests. The determination of whether a franchisor is subject to the bill's provisions must be made annually on January 15 based on these responses.

In general, franchisors are not considered the employers of the employees who work in a franchise. Instead, because the franchisee who owns the franchise controls the hiring, firing, wage, and scheduling decisions for these workers, the franchisee is typically considered their employer under wage, unemployment, workers' compensation, and other labor laws. Thus, it is unclear whether a franchisor could be held financially liable for wage and hour decisions over which it has no control. It is also unclear whether the state can enforce and collect a fee imposed on an entity that is not located within the state (e.g., a franchisor that does not have a corporate headquarters in the state).

USE OF FUNDS

Human Services Support Account

The bill creates a human services support account and requires the labor commissioner, through the state treasurer, to deposit funds collected from the low wage employer fee into the account. The bill allocates funds in the account to:

1. DSS and DDS to support and improve the quality of state-supported, consumer-directed services for elderly and disabled persons and

2. OEC to increase access to, support, and improve the quality of (a) school readiness programs, (b) the Care 4 Kids program, (c) child development centers, (d) Head Start, (e) Early Head Start, or (f) other OEC programs providing child care and early learning opportunities for low wage workers' children.

To improve the quality of services in any of these DSS, DDS, or OEC programs, the bill allows use of the revenue from this account to pay for recruiting, retaining, and offering professional development to a qualified workforce.

Other Uses

The bill also permits the labor commissioner to use funds collected through the low wage employer fee to administer and enforce the fee requirement.

COMPLAINT PROCESS

The bill allows any aggrieved covered employer to file a complaint with the labor commissioner about her determination of fees. When she receives a complaint, the bill requires her to investigate it and allows her to conduct a hearing, in accordance with the state's Uniform Administrative Procedure Act.

VIOLATIONS

The bill allows the labor commissioner to request that the attorney general investigate any violation of the requirement to pay the low wage employer fee. Under the bill, information obtained during such an investigation is exempt from the state's Freedom of Information Act. If the attorney general finds that a covered employer has violated the bill's provisions, he can sue the employer in Hartford Superior Court.

ADVISORY BOARD

Establishment and Duties

The bill establishes the Connecticut Low Wage Employer Advisory Board, within the DOL for administrative purposes only, to advise the labor commissioner, DSS, DDS, and OEC generally on matters related to (1) the low wage employer fee implementation, (2) public assistance use among working residents of the state, (3) improvements to the quality of public assistance programs affecting these residents, (4) wages and working conditions for the workforce delivering services to low wage working families, and (5) large businesses' reliance on state-funded public assistance programs. The board must also:

1. advise the Labor Department (DOL) and other agencies as needed on matters related to implementing the low wage employer fee, the complaint process, or wage information collection;

2. study and monitor causes and effects of large businesses paying low wages to state residents, including the impact of such practices on (a) workers' need for public assistance, (b) benefits employers receive from public assistance provided to the state workforce, and (c) solutions to associated problems;

3. consider, suggest, and review legislative and agency proposals and actions;

4. foster communication between working state residents who provide or receive public assistance and employers and state agencies to improve the quality of state public assistance programs serving lower-income residents; and

5. advise the labor commissioner and other interested state agencies or officials on (a) policies and procedures related to public assistance use among lower-income working residents and (b) public assistance programs' impact on workforce quality and stability.

Under the bill, the advisory board may form working groups to solicit feedback from stakeholders as necessary to fulfill its duties.

Reporting Requirement

The bill requires the advisory board to annually report its findings and recommendations every December 1 to the DOL, DSS, and OEC commissioners. The board's findings must also be made available to the public and the Labor, Human Services, and Education committees.

Membership

Under the bill, the 13-member board consists of (1) the labor commissioner, or her designee; (2) the Office of Policy and Management secretary, or his designee; and (3) 11 appointed members. The board's members have initial terms of four years. Though the bill requires appointing authorities to appoint members by July 31, 2015, it also requires the board to meet within 40 days of passage of the bill, which could precede that date. The appointed members are:

1. (a) one expert on issues facing low wage workers, (b) one expert on the large business community's labor force needs, (c) one expert on the small business community's labor force needs, (d) one recipient of consumer-directed Medicaid services, and (e) one person enrolled in a state child care program, all appointed by the governor;

2. one representative of an organization whose principal purpose is advocacy for services funded by consumer-directed Medicaid programs, appointed by the Senate president pro tempore;

3. one representative of an organization whose principal purpose is advocacy for services funded by state child care programs, appointed by the House speaker;

4. one representative of organized labor, representing workers who provide services funded by consumer-directed Medicaid programs, appointed by the Senate majority leader;

5. one representative of organized labor representing workers who provide child care services funded by state child care programs, appointed by the House majority leader;

6. one person experienced in large business community labor force needs, appointed by the Senate minority leader; and

7. one person experienced small business community labor force needs, appointed by the House minority leader.

Under the bill, following the expiration of their initial term, all appointed members serve three-year terms. Appointing authorities may reappoint previously appointed members and must fill vacancies within 30 days.

Board Member Requirements

Under the bill, each board member has one vote, and a majority of the board constitutes a quorum for the board's business transaction, exercise of powers, or performance of duties. The bill requires board members to (1) elect two chairpersons at the first meeting; (2) meet quarterly; and (3) serve without compensation. They must be reimbursed, however, within available appropriations, for necessary expenses under standard state employee travel reimbursement policy.

The bill requires board members, within ten days of appointment, to take an oath of office to (1) diligently and honestly administer the board affairs and (2) not knowingly violate applicable legal provisions or willingly permit them to be violated. The bill requires the chairperson of the board to administer the oath.

BACKGROUND

Related Bills

HB 6791, favorably reported by the Labor and Public Employees Committee, applies a similar low wage employer fee to covered employers of at least 250 employees.

COMMITTEE ACTION

Human Services Committee

Joint Favorable Substitute

¹ The fringe benefit costs for most state employees are budgeted centrally in accounts administered by the Comptroller. The estimated active employee fringe benefit cost associated with most personnel changes is 38.65% of payroll in FY 16 and FY 17.