This week, I thought it would be important to help contractors avoid potential trouble when hiring new employees.
With the passing of Assembly Bill 1794 (AB 1794), employee reporting laws have been strengthened in California. In addition to the current 20-day reporting requirement, the Employment Development Department (EDD) is authorized to share new-hire employee information with other agencies including the Joint Enforcement Strike Force on the Underground Economy (JESF) (of which the Contractors State License Board (CSLB) is a member) and the State Compensation Insurance Fund (SCIF).
The goal of the information sharing is to ensure that employers are accurately reporting their employee payroll to their insurance carrier for establishing their workers’ compensation insurance premium.
The CSLB can take disciplinary action against contractors who fail to accurately report new employee information within 20 days of the established hire date. AB 1794 (which amends Unemployment Insurance Code section 1088.5) specifically enables EDD, SCIF, and CSLB to establish a memorandum of understanding to audit, investigate, and prosecute those who violate tax withholding requirements and commit premium insurance fraud.
The new law is intended to deter contractors from cutting corners in underreporting employees. When a contractor underreports employees to obtain a lower workers’ compensation premium, law-abiding contractors who report their employees correctly are placed at a competitive business disadvantage by having to pay up to five times more in workers’ compensation insurance premiums.
Information on reporting requirements can be found on the CSLB website.