Connecticut Seal

General Assembly

File No. 387

    February Session, 2016

Senate Bill No. 391

Senate, March 31, 2016

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 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, section 31-76n of the general statutes and sections 3 and 4 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 or educational institution that employs five hundred or more employees in the state in any one quarter for quarters commencing on and after January 1, 2016, 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 where the franchisor and its franchisees employ, in the aggregate, five hundred or more employees in the state in any one quarter for quarters commencing on and after January 1, 2016, 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 department, agency or political subdivision thereof;

(7) "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

(8) "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, beginning with the first calendar quarter of 2017, and (2) whose wages paid by the covered employer, or the covered employer's franchisee, during the quarter were on average less than fifteen dollars per hour, shall pay a fee to the Labor Commissioner. The Labor Commissioner shall calculate the fee by multiplying the fee rate by number of hours during the quarter that such employee worked. The fee rate shall be equal to 0.004 dollars, or four-tenths of one cent, multiplied by the number of employees in excess of five hundred employed in the state by the covered employer directly or in the aggregate with its franchisees; provided in no event shall the fee rate be less than ten cents or greater than one dollar. The fee shall be assessed quarterly based on employee hours worked during the first calendar quarter of 2017 and thereafter.

(c) On January 1, 2023, and annually thereafter, "fifteen dollars" in subsection (b) of this section shall be adjusted by an amount corresponding to the prior year's increase, if any, in the Consumer Price Index for All Urban Consumers (CPI-U), as released by the Bureau of Labor Statistics of the United States Department of Labor, or its successor.

(d) The Labor Commissioner shall deposit moneys collected pursuant to subsection (b) of this section with the State Treasurer, who shall deposit such moneys in the General Fund, and shall report the amount of such deposits to the joint standing committees of the General Assembly having cognizance of matters relating to education, human services and appropriations and the budgets of state agencies. Each legislative session, said committees may issue recommendations concerning spending the moneys received to expand or improve services under state programs supporting the quality of and access to state-supported, consumer-directed services for elderly and disabled persons, school readiness programs, the child care subsidy program authorized pursuant to section 17b-749 of the general statutes, child development centers, Head Start, Early Head Start, or other programs to provide child care and early learning opportunities for the children of low wage employees. In making their recommendations, the committees shall consider any recommendations made by the Connecticut Low Wage Employer Advisory Board established pursuant to section 31-76n of the general statutes, as amended by this act. For the purposes of improving quality of and access to services pursuant to this subsection, moneys received may be appropriated for use by state programs to recruit, retain and offer professional development to a qualified workforce.

(e) 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) Not later than October 1, 2016, the Labor Commissioner shall adopt regulations in accordance with the provisions of chapter 54 of the general statutes for the determination and collection of fees pursuant to subsection (b) of this section. Such regulations shall include 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. Subsections (a) and (b) of section 31-76n of the 2016 supplement to the general statutes are repealed and the following is substituted in lieu thereof (Effective from passage):

(a) There is established the Connecticut Low Wage Employer Advisory Board. Such board shall advise the Labor Commissioner, the Departments of Social Services and Developmental Services and the Office of Early Childhood on matters related to: (1) The causes and effects of businesses paying low wages to residents of the state, (2) public assistance usage among working residents of the state, (3) minimum wage rates necessary to ensure working residents of the state [may] can achieve an economically stable standard of living, (4) improvement of the quality of public assistance programs affecting such residents, (5) wages and working conditions for the workforce delivering services to low-wage working families, [and] (6) reliance of businesses on state-funded public assistance programs, and (7) recommendations for using the moneys received from the low wage employer fee.

(b) In advising the Labor Commissioner, the Departments of Social Services and Developmental Services and the Office of Early Childhood on the matters described in subdivisions (1) to [(6)] (7), inclusive, of subsection (a) of this section, the board shall:

(1) Study and monitor (A) the causes and effects of businesses paying low wages to residents of the state, including the impact of such labor practices on workers' need for public assistance, (B) the minimum wage rates necessary to enable working residents of the state to meet basic needs, such as food, housing, health care and child care without assistance from state-funded public assistance programs, and (C) the benefits received by employers from the provision of public assistance to the state workforce and solutions to associated problems;

(2) Consider, suggest and review legislative and agency proposals and actions regarding the matters described in subdivisions (1) to [(6)] (7), inclusive, of subsection (a) of this section;

(3) 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

(4) Advise the Labor Commissioner, and other interested state agencies or officials, on policies and procedures related to the board's areas of study, including, but not limited to, public assistance usage among lower-income working residents, the impact of public assistance programs on workforce quality and stability, and the wages and benefits necessary to maintain a stable and qualified workforce to administer and provide services in connection with public assistance programs.

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 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 31, 2017, 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.

This act shall take effect as follows and shall amend the following sections:

Section 1

from passage

New section

Sec. 2

from passage

31-76n(a) and (b)

Sec. 3

from passage

New section

Sec. 4

from passage

New section

HS

Joint Favorable

 

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:

Agency Affected

Fund-Effect

FY 17 $

FY 18 $

Labor Dept.

GF - Revenue Gain

Up to 150.3 million

Up to 300.6 million

Labor Dept.

GF - Cost

11 million

14.6 million

State Comptroller - Fringe Benefits1

GF - Cost

3.4 million

4.5 million

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill establishes a quarterly fee on certain employers at a rate of up to $1.00 per work hour for each hour worked by an employee paid on average less than $15 per hour. This results in a General Fund revenue gain of up to $150.3 million in FY 17 and up to $300.6 million annually thereafter. This also results in a cost of approximately $14.4 million in FY 17 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, 2016, and to begin collecting fees during the first calendar quarter of 2017. 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 $445,328 in FY 17 and $593,771 annually thereafter for salary ($106,076) and fringes ($42,367) associated with the hiring of four Staff Attorneys.

There is no fiscal impact to the Judicial Department from allowing the Attorney General to file suit in Hartford Superior Court. The number of suits is not anticipated to be great enough to need additional resources. The court system disposes of over 500,000 cases annually.

REVENUE IMPACT

The revenue estimate assumes approximately 148,472 of the 752,255 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 Out Years

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation. The revenue gain described above would continue into the future subject to wage inflation and fluctuation in the number of jobs paying above and below the wage threshold triggering the fee.2

Sources:

Labor Department Labor Market Information

 

United States Census Bureau

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:

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)

TOP

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 39.94% of payroll in FY 17 and FY 18.

2 The bill includes a provision increasing the wage threshold at which the fee becomes payable beginning on January 1, 2023.