OLR Bill Analysis

SB 391

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

SUMMARY:

This bill requires certain employers with over 500 employees in the state, and franchisors who, combined with their franchisees, collectively employ at least 500 employees in the state, to pay a quarterly fee (i.e., a “low wage employer fee”) to the labor commissioner, based on the number of hours worked by employees who were (1) on the employer's or franchisee's payroll for at least 90 days before the end of the most recent calendar quarter and (2) paid on average less than $15 per hour during the quarter. Under the bill, the labor commissioner must assess the fee quarterly beginning with the first calendar quarter of 2017. Beginning January 1, 2023, the bill requires the average pay per hour threshold of $15 to be adjusted annually by an amount corresponding to the prior year's increase in the Consumer Price Index for All Urban Consumers, a measure of inflation published by the U.S. Department of Labor's Bureau of Labor Statistics.

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

The bill also establishes a complaint process for employers and franchisors affected by the bill's provisions (i.e., “covered employers”).

Under the bill, the labor commissioner must deposit in the General Fund any funds collected through the fee and report the deposited amounts to the Appropriations, Education, and Human Services committees, which may make recommendations each legislative session on how to spend the money to expand or improve state services. The bill expands the duties of the Connecticut Low Wage Employer Advisory Board to include advising certain state agencies on recommendations for using funds received from the low wage employer fee and requires the legislative committees to consider the board's recommendations when making their own recommendations.

EFFECTIVE DATE: Upon passage

COVERED EMPLOYERS

Employers

An employer subject to the bill's provisions is any person, firm, business, or educational institution that employs at least 500 employees in the state in any one quarter, beginning with the quarter that started January 1, 2016, based on the quarterly wage information employers submit to the labor commissioner for unemployment tax purposes. It does not include any private nonprofit entity, the state, or the state's departments, agencies, or political subdivisions.

Franchisors

The bill subjects franchisors to the bill's provisions if the franchisor and their franchisees employ, in the aggregate, at least 500 employees in the state in any one quarter, beginning with the quarter that started January 1, 2016. A franchisor is an entity that grants a franchise to another entity, including the authority to use a trademark, trade name, service mark, or other identifying symbol or name under a franchise. A franchisee is the entity to which a franchise is granted by the franchisor.

Beginning January 31, 2017, the bill requires employers submitting their quarterly wage reports for unemployment tax purposes to inform the labor commissioner whether they are a franchisee, and if so, provide their franchisor's contact information and any other information the commissioner requests. (Though the bill's requirements apply earlier to franchisors these reporting requirements appear to give the commissioner time to impose a fee if necessary.)

In general, franchisors are not considered 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-related laws. Thus, it is unclear whether a franchisor could be held financially liable for wage and hour decisions over which it does not have control.

LOW WAGE EMPLOYER FEE

Calculation

The bill requires the labor commissioner to calculate the low wage employer fee for each covered employer. He must do so by first calculating the number of hours worked by employees (1) who were listed on a covered employer or franchisee's payroll for at least 90 days before the end of the most recent calendar quarter and (2) whose wages during the quarter were on average less than $15 per hour. He then must multiply that number of hours by the fee rate. Under the bill, the fee rate varies depending on the total number of employees in the state (regardless of their wages) employed by the covered employer and, if applicable, its franchisees in aggregate as shown in Table 1.

Table 1: Fee Rate

Number of Employees

Fee Rate

500 to 525

$0.10

526 to 749

(Number of employees – 500) X 0.004

750 or greater

$1.00

Implementation

The bill requires the labor commissioner to assess the low wage employer fee quarterly beginning with the first calendar quarter of 2017. By October 1, 2016, the labor commissioner must adopt regulations on how to determine and collect the fees, including penalties or other remedies for (1) failure to file timely reports and (2) delinquent or unpaid fees.

EXEMPTIONS

Under the bill, the low wage employer fee does not apply to any employee whose pay was established through a collective bargaining agreement executed before the bill's effective date. The bill's requirements also do not apply to employees of parks, camps, or resorts that are open six months per year or less.

USE OF FUNDS

Expansion or Improvement of Services

Under the bill, the labor commissioner must (1) deposit funds collected through the low wage employer fee with the state treasurer, who must deposit the funds in the General Fund and (2) report the amount to the Appropriations, Education, and Human Services committees. The committees may make recommendations each legislative session on how to spend the money on expansion or improvement of services under the following programs or types of programs:

1. state programs supporting the quality of and access to state-supported consumer-directed services for elderly people or individuals with disabilities,

2. Care 4 Kids,

3. child development centers,

4. Head Start,

5. Early Head Start, or

6. other programs to provide child care and early learning opportunities for low wage employees' children

To improve the quality of and access to these services, the bill allows the funds to be used for recruiting, retaining, and offering professional development to a qualified workforce.

Other Uses

Under the bill, the labor commissioner may also use the funds to administer and support the collection, assessment, and calculation of the fee.

The bill requires the committees to also consider any recommendations made by the Connecticut Low Wage Employer Advisory Board. Under the bill, the advisory board must make recommendations on how to use funds generated through the low wage employer fee to the labor commissioner, the Department of Social Services, the Department of Developmental Services, and the Office of Early Childhood.

COMPLAINT PROCESS

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

COMMITTEE ACTION

Human Services Committee

Joint Favorable

Yea

10

Nay

8

(03/15/2016)