Senate Budget Subcommittee Votes to Increase Employer Assessments

(March 8, 2013) A Senate budget subcommittee yesterday agreed to changes in the state Department of Industrial Relations (DIR) budget that will unfairly increase employer assessments. 

The California Chamber of Commerce and a large coalition of employer groups and associations sent a letter to the subcommittee outlining their concerns to the budget change proposal for the DIR. The coalition is especially concerned that the proposal lacks transparency into the activities of the agency and does not include any mandated review to determine whether ongoing assessments are appropriate.  

Ongoing, Unfair Increases

Until 2009, some DIR operations, including the Division of Labor Standards Enforcement (DLSE) and Division of Occupational Health and Safety (DOSH), were paid for through the state General Fund, special funds, penalties, and federal funding.

In 2009, the General Fund portion of the funding for these divisions was transferred primarily to private sector employers through annual assessments on workers’ compensation premiums, which are based upon the employers’ payroll. The Occupational Safety and Health Fund (OSHF) was created to collect employer assessments for DOSH. Similarly, the Labor Enforcement and Compliance Fund (LECF) was created to collect employer assessments to support the activities of the DLSE. The assessments for these funds, however, were limited based upon the annual budget caps of each division and were scheduled to sunset on July 1, 2013. 

The budget change proposal in essence removes any annual cap and does not impose a sunset date, thereby exposing employers to ongoing and unfair annual increases in the assessment.

Punishing Employers

Specifically, the budget change proposal will increase the annual cap for the LECF by $9 million and OSHF by $5 million. As the Legislative Analyst’s Office (LAO) reports, however, the language in the budget change proposal basically allows the Legislature to adjust these caps each year and therefore the caps are essentially artificial. 

The proposed increases in the annual budget of these divisions for 2013–2014 and the ability to allow annual increases thereafter will directly increase employer assessments each year, thereby raising the cost for California employers to continue to do business. This annual increase will be even more dramatic for employers that hire more employees as the amount an employer is assessed is based directly upon the employer’s payroll. The CalChamber does not believe punishing employers for hiring more employees through higher, unlimited annual assessments is a productive way in which to encourage job creation.

In addition, neither division’s budget includes any justification for the proposed increases. Although these divisions are funded through employer assessments, there is no requirement that either division report to employers about how the money is being utilized. Aside from general, sporadic reports, there is no established accounting requirement or transparency into how the agency is directing the revenue it receives from employer assessments. Employers should be provided with a quarterly accounting of where and how the revenue from the assessments is being utilized in order to provide transparency into this agency as well as a justification for any proposed increases in future years. 

No Sunset Date

The budget change proposal also seeks to eliminate the current July 1, 2013 sunset date of the employer assessment and does not propose a new sunset date. Failure to include a new sunset date eliminates any mandated transparent review of the propriety of this assessment. 

Until 2009, the General Fund supported these divisions of the DIR. It is possible that within several years, the General Fund will have the capacity to support all divisions within this agency again. Accordingly, the CalChamber believes a new sunset date of no later than 2017 should be imposed on the employer assessment in order to review at that time whether the agency should be funded through employer assessments, the General Fund, or another revenue source. The CalChamber also believes that eliminating or extending the sunset date should be approved by two-thirds of the Legislature, as this ongoing assessment is a tax on employers, given that the annual adjustment in either division’s budget is not limited to the reasonable and necessary costs of the agency. Moreover, both divisions provide a general public benefit, not just a benefit to the employers that pay the assessment.

The budget change proposal will be heard in an Assembly Budget Committee on March 12.

Staff Contact: Jennifer Barrera