New bill adds annualization requirements, ends DIR exemptions, and tightens California prevailing wage compliance.
By Shandon Harbour, President & CEO of ABC San Diego
No doubt you’ve been hearing about a bill in the California Assembly – AB 889. In essence, this bill takes an annualization rule from the Department of Labor and codifies it in CA Labor code. Here’s what you need to know about it.
The new regulation – that was signed into law by Governor Newsom on October 11 and will go into effect January 1 of 2026 – intends to create uniformization of fringe benefit credit rules to close perceived loopholes and reduce discrepancies. Proponents argue that it will help “prevent wage theft” in public works projects.
But there’s more to the story.
Because the bill retroactively revokes exemptions previously granted under the Department of Industrial Relations (DIR) authority, our member contractors who have been acting in compliance under the exemptions will encounter stricter documentation requirements and higher costs.
ABC San Diego and ABC California are working on programs to help our members navigate the uncertainty brought by this new bill. Contractors managing public works projects will need to verify that their training contributions follow the new codified rules for hours worked on both public and private projects. In addition, workers may see changes on how benefits are credited.
The big takeaway? AB 889 shifts power away from the DIR Chief (who previously held exemption and interpretation authority) and locks more rules into statute. This narrows administrative discretion and reduces an avenue for employers to seek clarification or relief. All previous DIR exemptions are gone so contractors must follow the new rules no matter what guidance or exemptions they have received in the past.
What’s more, fringe benefits (and training contributions) must be annualized which is divided by all hours worked (not just public projects since it impacts both public and private projects). Department of Labor Standards and Enforcement (DLSE) can request documentation at any time so contractors must be ready to provide total hours worked on public work, total hours worked on private work, contribution schedules, etc.
Where California law is silent, the Department of Labor Field Operations Handbook January 2023 will be the reference.
How to prepare? Update your policies now. Train your payroll and HR teams on annualization and make sure your prevailing wage software program is updated as well. And stay tuned to information ABC San Diego will be releasing. As we continue to learn more about this new regulation, we’ll be providing more information and hosting seminars.