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Cost of Doing Business Expected to Rise as New State Laws Take Effect

Cost of Doing Business Expected to Rise as New State Laws Take Effect


Staff Reporter

California businesses are bracing for the full impact of a slew of new laws, many of which will add to the cost of doing business in an already lackluster economy.

Laws increasing workers’ compensation and unemployment insurance benefits took effect on Jan. 1, as did legislation temporarily taking away business tax credits, raising the bar for employers to have lawsuits dismissed, instituting new layoff notice requirements, and allowing local jurisdictions to pass stiff new labor standards.

“In this economic environment, these new laws are very onerous,” said Michael Shaw, assistant director for the state chapter of the National Federation of Independent Business. “They are more straws on a camel’s back that’s already sagging considerably.”

To be sure, a handful of laws that took effect on Jan. 1 may help business. Among these are a ban on “junk faxes” and a landmark agreement to limit the spread of construction-defect lawsuits that have plagued the housing industry

But most of the new laws impacting California employers are likely to have adverse impacts, costing businesses time and money and further reinforcing the perception that the state has become less business friendly.

Topping the list is the increase in workers’ compensation benefits. AB 749 (authored by Senate President John Burton, D-San Francisco) was hastily passed last February after Gov. Gray Davis abruptly switched tacks and backed a benefits increase bill. The law raised the maximum weekly benefit for injured workers from $490 to $602, effective Jan. 1. Two more increases, to $728 and $840, kick in for 2004 and 2005, respectively.

While the benefit increases are not supposed to be felt until claims payouts are made, employers are already feeling the increases in the form of sharply higher insurance premiums. In many cases, policy renewals are running more than 50 percent higher than last year.

“This is huge on the Richter scale of impact to employers,” said Fred Main, senior vice president of the California Chamber of Commerce.

The other high-profile law passed last year, SB 1661, which sets up a paid family leave program, doesn’t kick in until next Jan. 1, when employees start contributing paycheck dollars to the state insurance fund to finance the program. Actual paid family leaves can’t be taken until after July 1, 2004, at which time employers will need to hire and train temporary workers to replace employees on leave.

Employers are now feeling the pinch from higher unemployment insurance benefit levels under a bill, SB 40, that passed in 2001. The maximum weekly benefit rose on Jan. 1 from $330 a week to $370 per week; that’s on top of an even bigger increase (from $230 a week to $330 a week) taking effect on Jan. 1, 2002.

Higher premiums

Again, the main impact on employers is coming not from the benefit increases themselves but from insurance premiums. Thanks to both the higher benefit levels and increased usage of the unemployment insurance fund in a sluggish economy, employers now pay an average of $21 more per worker into the state-run insurance fund.

Higher taxes are also on the way even for businesses that posted losses for the 2002 calendar year. That’s because Gov. Gray Davis pushed through the Legislature a two-year suspension of tax credits for companies that post losses. In succeeding years, companies that post losses will be able to claim more in tax credits. “These tax credits are a crucial tool for small businesses in uncertain economic times,” Shaw said.

Among other laws that could have negative impacts on business is AB 2509 (by Hollywood area Democratic Assemblywoman Jackie Goldberg), which allows local municipalities to set stiffer labor standards within their jurisdictions.

“This will open the doors to having localities make their own wage standards, much as Santa Monica has tried to do with its living wage proposal,” said Matt Bartosiak, manager of the consulting help line at the Los Angeles-based Employers Group.

Another law, SB 688, increases the time for objections to be raised in court cases where an employer moves to have a case summarily dismissed. (When confronted with what they perceive as frivolous claims, employers move to have cases dismissed immediately.) Currently, plaintiffs have 28 days to respond to a summary judgment; SB 688 increases that to 75 days. As a result, employer advocates say, it will become harder and cost more to dismiss frivolous claims.

On the workplace injury front, employers now face tougher notification requirements. Under AB 2837, an employer must notify the California Occupational Safety and Health Administration within hours of the initial occurrence of a serious injury or accident. Failure to do so can cost an employer up to $150,000. Under existing law, if a serious injury or fatality occurs in the workplace, the employer must notify Cal-OSHA “immediately” (generally regarded as within 24 hours) with no financial penalty.

Access to records

Under AB 2412, which took effect on Jan. 1, current and former employees now have greater access to their payroll records. While this might impose some additional paperwork burdens, the main impact is likely to be felt by those employers who don’t get the records to employees within 21 calendar days. Those employers are now subject to thousands of dollars in civil penalties.

Meanwhile, employees stand to gain from a well-timed law, AB 1401, which extends so-called COBRA benefits from 18 months to 36 months. Under California’s COBRA law, employees who face termination of their health benefits (primarily after losing a job) can have those benefits extended from the same insurer at roughly the same rate paid by the employer.

This law is expected to impact health care providers, who may pass some of the costs on to employers in the form of higher premiums. But the impact on employers themselves is expected to be minimal.

Of more concern to employers in coming months will be what the state Legislature decides to enact this year.

“We’re likely to see a number of bills that were defeated or vetoed last year be reintroduced, especially in the area of health care mandates,” said Shaw.

Some New Laws Impacting Business:

– Workers’ Compensation: Increases maximum weekly benefit from $490 to $602 in 2003 and up to $840 in 2005.

– Health Benefits: Extends to 36 months the coverage provided by COBRA including those already enrolled in the plan.

– Age Discrimination: Prohibits employers from discriminating against employees over 40 in regard to training.

– Employee Access to Records: Requires employers to provide current or former workers access to payroll records within 21 days of request.

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