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Sen. Connie M. Leyva. (Photo: Kevin Sanders for California Globe)

Bill to Make Direct Contractors Liable for Contributions, Deductions, Withholdings of Subcontractors

SB 727 would provide that the Employment Development Department may enforce against a direct contractor

By Chris Micheli, March 10, 2021 11:24 am

On March 9, Senate Bill 727 was gutted-and-amended by Senator Connie Leyva (D-Chino) relating to the liability of direct contractors. The bill would amend Section 218.7 of the Labor Code.

First, the bill would provide that, for contracts entered into on or after January 1, 2022, the direct contractor would also be liable for any contributions, deductions, and withholdings that the subcontractor was required to forward to the State of California pursuant to the Unemployment Insurance Code on account of the performance of the labor and the direct contractor would further be liable for any relief the Labor Commissioner could seek against the subcontractor for the subcontractor’s failure to obtain and maintain valid workers’ compensation coverage.

Second, the bill would remove the word “only” preceding any unpaid wage, fringe, or other benefit payments to specify that the direct contractor’s liability includes payments owed to the State of California pursuant to the Unemployment Insurance Code, penalties, liquidated damages, and interest owed by the subcontractor on account of the performance of the labor.

Third, the bill would add to the ability of the Labor Commissioner to enforce against a direct contractor the liability that could pursued to include seeking any relief against a direct contractor for its subcontractor’s failure to obtain valid workers’ compensation coverage as required by law.

Fourth, the bill would allow a third party who is owed fringe or other benefit payments to include penalties, liquidated damages, and interest.

Fifth, the bill would provide that the Employment Development Department may enforce against a direct contractor, pursuant to the procedures in the Unemployment Insurance Code or through a civil action, the liability created by these new provisions of law for the subcontractor’s failure to make payments to the State of California required by the Unemployment Insurance Code.

Sixth, the bill would specify that the subcontractor and any lower tier subcontractors must provide records showing its reports and payments to the Employment Development Department.

This bill is likely to be heard in its first policy committee in April.

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5 thoughts on “Bill to Make Direct Contractors Liable for Contributions, Deductions, Withholdings of Subcontractors

  1. Let me get this straight. If a contractor is building a house and contracts with a drywall company to install the drywall, the contractor is responsible for the tax liabilities of the drywall company with regards to the state of CA???? Talk about throwing a wet blanket on ALL service industry participants and business going bye bye. Only in CA, do voters pull the lever for economic and social suicide.

    1. Contractors will have to withhold at least 50% of payments to insure all the liability is covered. Customers will pay a very large premium for all the paperwork and other expenses the contractor will incur. National companies may pull out of the state and smaller general contractors will simply pack up and leave or retire and close shop.

  2. Just goes to show you that ignorance (or more?) is no barrier to being in the CA Senate. She obviously has no clue as to the effect of this on a business. Idiot

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