Category: Benefit Plan Audits

Posted on Aug 8, 2016

Federal Court

In a recent case, a federal district court ruled that an employer didn’t violate the Comprehensive Omnibus Budget Reconciliation Act (COBRA) — even though an employee who resigned from the company claimed that she never received notices that she was entitled to continue her health insurance benefits.

COBRA Facts

  • COBRA was passed in 1986 to provide continuation of group health coverage that otherwise might be terminated.
  • Employers with 20 or more employees are generally required to offer COBRA coverage and notify employees of its availability.
  • COBRA gives certain former employees, retirees, spouses, former spouses and dependent children the right to temporary continuation of health coverage at group rates. This is only available when coverage is lost due to specific “qualifying events.”
  • Qualifying events include voluntary or involuntary termination for reasons other than gross misconduct, reduction in hours, divorce, death of the covered employee and other situations.
  • Group health coverage for COBRA participants is usually more expensive than coverage for active employees. However, it’s generally less expensive than individual health coverage.

— Source: The U.S. Department of Labor

Under the law:

  • A plan administrator is required to give each participant a notice of certain health insurance coverage rights 44 days after a “qualifying event,” such as the termination of the participant’s employment.
  • If a plan administrator fails to provide the required COBRA notice, it may be “personally liable to such participant or beneficiary in the amount of up to $110 per day from the day of such failure.”

Facts of the Case

The employer submitted as evidence an affidavit by the delivery manager of its plan administrator, who is responsible for ensuring that COBRA notices are sent to departing employees, as directed by the employer. The affidavit stated that based on the delivery manager’s review of the computer records, the COBRA notices were sent to the employee by regular mail on March 7, 2014, and on February 17, 2015.

Court’s Decision

According to the U.S. District Court for the Western District of Michigan, the affidavit properly supported the employer’s contention that it complied with COBRA by having notices mailed to the employee.

The court noted that several other courts have specifically found that: “Several courts have specifically found that employers are in compliance with Section 1166(a) when they send COBRA notices via first class mail to an employee’s last-known address.” (Perkins v. Rock-Tenn Services, Inc., DC MI, 1:15-cv-8, 6/6/16)

Bottom line: The fact that the employee didn’t receive the COBRA notices didn’t mean that the employer failed to comply with the law. The court stated there was “no genuine dispute that (the company) complied with COBRA.”

Documentation Is Key

Many employers do their best to provide required COBRA notices to employees — but some fall short when it comes to documenting that notices were sent. If a federal government investigator requests proof that you mailed notices, you’ll need to provide it. So you must document the sending of notices. And you should adhere to the established procedures you have in place.

For more information, consult with your CJ Employee Benefits specialist, HR professional or employment attorney.

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Posted on Jul 31, 2016

The deadline for implementation of the SEC’s new money market rules is fast approaching. October 14, 2016 is the date that these new regulations will go into effect. You will want to make sure that the cash investment option available in your company’s 401(k) plan is the most appropriate choice based on the new rules.

The genesis of these new rules is rooted in the Financial Crisis of 2008. At that time, one of the largest money market funds, the Primary Reserve Fund, “broke the buck”. This means that its net asset value, or NAV, fell below $1 per share. As a result, many investors rushed to pull their money out of money market funds, thus creating further instability. The SEC began to investigate how to prevent this from happening in the future. The result was new rules that govern how money market funds operate and invest their assets.

Going forward, money market funds will be split into one of three categories: Government, Retail, or Institutional. Only the funds classified as government funds will have a stable NAV of $1 per share, and maintain full liquidity. The retail and institutional funds could have floating NAVs and potential redemption
fees or gates during times of market volatility. Many mutual fund providers have already started re-classifying their funds. The government funds will also have to invest 99.5% of their assets in government securities.

This creates a need for plan fiduciaries to evaluate their plan’s cash option to ensure that it remains the most prudent choice for plan participants.

Retirement Plan Industry Update information provided by RPS Retirement Plan Advisors.

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Posted on Jul 31, 2016

In April of this year, the Department of Labor (DOL) issued its final Fiduciary rule, which expands the definition of an “investment advice fiduciary” under the Employee Retirement Income and Security Act of 1974 (ERISA). This rule is also known as the Conflict of Interest Rule. Under the old guidelines, there was a 5-part test to determine if a service provider was a fiduciary. This new rule simplifies that determination process. Basically, any provider receiving compensation for providing advice or recommendations to an ERISA plan, including IRAs, will be deemed a fiduciary. This will include recommendations for investment options, as well as recommendations to roll-over or transfer money into or out of an ERISA plan.

In addition, certain types of compensation like commissions, 12b-1 fees, finder’s fees, and variable compensation, will be prohibited under the new rule, unless the service provider enters into a BIC, or Best Interest Contract, with the client. These BICs will grant prohibited transaction exemptions, but will be extensive documents. Service providers could find them costly to implement.

Even If you work with a level fee-based advisor who already acknowledges their fiduciary status, the new rule could still impact your company’s retirement plan. You will need to monitor service providers and what types of education, advice or recommendations they are providing.

Retirement Plan Industry Update information provided by RPS Retirement Plan Advisors.

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Posted on Jul 30, 2016

DOL Announces Increased Civil Penalties for Violations of Federal Laws

The Department of Labor recently issued final rules that will increase the civil penalties assessed to employers for violating various federal laws. The higher penalties are part of a law passed last year and are scheduled to begin with those assessed after August 1, 2016. This article explains why the penalties are increasing and some of the new amounts.

Penalties Going Up for Violations Related to Employment of Temporary Non-immigrant Workers

The DOL issued two interim final rules that will increase civil penalties for violations related to the employment of temporary non-immigrant workers under the H-1B and H-2B visa programs.

Descriptions and Penalties

H-1B visa program. The H-1B visa is used by U.S. employers to hire foreign workers in areas of specialized knowledge or technical expertise, such as scientists, engineers, or computer professionals. American employers that apply for the visa must prove there are no qualified U.S. workers that could fill the positions, and must ensure that the H-1B visa holders are paid the same as their U.S. counterparts.

The following H-1B visa program penalties are increasing August 1, 2016:

1. The civil penalty for violations pertaining to strikes, lockouts, displacement of U.S. workers, notification, misrepresentation of material facts, etc. is going from $1,000 to $1,782;

2. The civil penalty for willful violations pertaining to wages, working conditions, misrepresentation of material facts, etc. is increasing from $5,000 to $7,251; and

3.  The civil penalty for each willful violation that caused the displacement of a U.S. worker is rising from $35,000 to $50,758 per violation.

H-2B visa program. This visa program allows American employers who meet specific regulatory requirements to bring foreign nationals to the U.S. to fill temporary non-agricultural jobs. There are civil penalties on employers for violations including those related to wages, impermissible deductions, prohibited fees and expenses, and improper refusal to employ or hire U.S. workers.

Effective August 1, 2016, the related civil penalty is increasing from $10,000 to $11,940 per violation.

Background Information

On November 2, 2015, Congress passed the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015. It directed federal agencies to adjust civil penalties for inflation each year. Agencies were instructed to determine the last time civil penalties were increased and publish interim final rules to adjust penalties for inflation from that date. The amount of increase can’t exceed 150% of the existing penalty amount.

A DOL Fact Sheet explains that penalties are imposed on employers to encourage greater compliance. “These penalties, however, are less effective when they haven’t been raised for decades to keep up with inflation,” the DOL states. Recognizing this, Congress passed a law in 1990 directing agencies to adjust their civil monetary penalties to keep up with inflation, defining a civil monetary penalty as a penalty for a specific amount or maximum amount set by federal law that is assessed or enforced by a federal agency.

“But a low cap on these increases together with complicated rounding rules kept many penalties from accomplishing Congress’s stated goal of keeping up with inflation over time,” the DOL adds.

Furthermore, some agencies, such as the Occupational Safety and Health Administration (OSHA), were exempt from the 1990 law, so the agency’s penalties haven’t increased since 1990. That’s why Congress passed the Inflation Adjustment Act in 2015 to begin annually adjusting penalties using a more straightforward method than the 1990 law.

DOL Civil Penalties

The DOL will increase more than 20 civil penalty amounts, effective with civil penalties assessed after August 1, 2016, with associated violations that occurred after November 2, 2015. For example:

Minimum wage and overtime. The civil penalty for repeated or willful violation of the minimum wage and overtime provisions in the FLSA will increase from $1,100 to $1,894 per violation.

Child labor. The civil penalty for violations will increase from $11,000 to $12,080.

FMLA. The civil penalty for willful violation of the requirement that employers post and keep on their premises a notice about the FMLA and the procedures that employees may use to file complaints will increase from $110 to $163.

OSHA Penalties

OSHA’s maximum penalties, which were last adjusted in 1990, will increase by 78%. In addition, going forward, the agency will adjust its penalties for inflation each year based on the Consumer Price Index.

Serious violations. The top OSHA penalty for serious violations will increase from $7,000 to $12,471 and its top penalty for willful or repeated violations will rise from $70,000 to $124,709.

Other Agencies and Laws

This article only covers some of the increased penalties. For example, under the Employee Retirement Income Security Act, there will be several higher penalties for violations including:

  • Failure to furnish documents to certain employees, former participants and beneficiaries;
  • Failure to maintain records; and
  • Failure (or refusal) to file an annual report on Form 5500.

There will also be increased penalties assessed on some employers by the Employee Benefits Security Administration, Mine Safety & Health Administration and under the Office of Workers’ Compensation Programs. In addition, the DOL (along with the Department of Homeland Security) has adjusted penalties associated with the H1B and H2B temporary guest worker program (see right-hand box).

Click here for a chart showing all of the penalty adjustments.

This article only lists some of the increased penalties employers may face. For more information about your company’s situation, consult with your employee benefits adviser or employment attorney.

 

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Posted on Jul 20, 2016
401k Deposits Safe Harbor
Photo Credit: Julian Pett, Flickr

Small employers* now have added certainty in knowing their time frame for transmitting employee 401(k) contributions to the plan. Compliance with deadlines is important, because holding on to employee contributions too long constitutes a prohibited transaction that could result in penalties. The U.S. Department of Labor’s establishment of a safe harbor period eases up the rules and can help small employers avoid this dilemma.

What a Difference a Day Makes

Why is it so important that employee contributions be deposited into the appropriate plan on time? Employees don’t see the activity involved in moving their money. They tend to assume that their contributions are deposited into the plan on the day you withhold it from their paychecks. As the saying goes, “timing is everything,” especially in a volatile stock market. Employees who believe their investments were harmed by a delayed deposit could sue for a breach of fiduciary duty.

The DOL has long required that amounts withheld from an employee’s paycheck — such as elective deferrals to a 401(k) plan — must be transmitted to the plan on the earliest reasonable date.

    • In the case of a pension plan (including 401(k) plans), the DOL had set an outside limit of the 15th business day of the month following the month in which such amounts would have been available to the employee.
    • In the case of welfare plans, the outside limit is 90 days from the withholding.

Despite setting these outside limits, if an audit should occur, the DOL will look for the earliest date by which the contributions could have been transmitted to the plan. If the agency determines that this date is earlier than the outside limit, it will be the earlier date that applies. In some cases this may be just a few business days.

For employers, the difficulty is in adhering to the earliest-reasonable-date rule. After that time, employee amounts are considered plan assets and holding onto them is a prohibited transaction.

Since January 14, 2010, small employers have been granted a little breathing room. As long as the employee contributions are deposited into the plan within seven business days of the date they are withheld from the employee’s paycheck, they will be deemed to be handled in a timely manner. This is true even if the amounts are deposited in an account of the plan, but not yet credited to specific participants. This is the seven-day safe harbor rule, and it can apply even if the funds could have been deposited earlier, therefore, employers can use this rule to avoid prohibited transaction violations of the general rule.

The safe harbor rule can be used for 401(k) elective contributions as well as for participant contributions to any plan, or for participant loan repayments.

Is the Safe Harbor Rule Optional?

The simple answer is yes. Even if small employers deposit the funds after seven business days, they may still rely on the general rule to avoid a prohibited transaction — assuming the money was transferred as soon as possible.

Also, the safe harbor is applied on a deposit-by-deposit basis. So, an employer can miss the seven-day window for a particular pay period and instead use the earliest-reasonable-date approach and may then use the seven-day safe harbor for subsequent payroll periods.

If a small employer misses the seven-day safe harbor date and also misses the earliest reasonable date, penalties are calculated from the earliest date contributions could have been deposited, not from the safe harbor date.

Why did the DOL issue the safe harbor rule? They did it to address concerns from employers and advisers about the previous rules and the uncertainty they brought. Also, the DOL admitted that it was expensive and time consuming to pursue violations. We devote “significant enforcement resources to cases involving delinquent employee contributions, and the vast majority of applications under the Department’s Voluntary Fiduciary Correction Program involve delinquent employee contribution violations,” a DOL spokesperson said. With the safe harbor, small employers will be able to make timely deposits and rest assured they are within the law.

*For this purpose, small employers are defined as having fewer than 100 plan participants, determined at the beginning of the plan year.

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Posted on Jul 18, 2016

Roth IRA Accounts

Does your employer offer a 401(k), 403(b) or governmental 457 plan? If so, you may be able to set up a designated Roth account through your company’s plan. Then your Roth account will be allowed to receive designated Roth contributions that are taken out of your salary through so-called “salary-reduction contributions.” Here’s more on how this strategy works, why it may be advantageous for certain taxpayers and how new IRS regulations add greater flexibility to allocating distributed after- and pre-tax amounts.

Designated Roth Account Basics

Unlike regular salary-reduction contributions, designated Roth contributions don’t reduce your taxable salary. Instead, the tax advantage comes later when you are allowed to take distributions from your designated Roth account without owing any federal income tax. These tax-free amounts are referred to as qualified distributions.

The catches to receiving tax-free qualified distributions are twofold: First, the Roth account must have been open for more than five years. Second, you must have reached age 59½ or become disabled before taking distributions from your Roth account.

The five-year period is deemed to begin on the first day of the year in which you make your first designated Roth account contribution. For example, if you made your first contribution anytime in 2014, the five-year period is deemed to have started on January 1, 2014. In this scenario, you can receive tax-free qualified distributions anytime after December 31, 2018, as long as you’re at least 59½ or disabled. If you die, your heirs can receive tax-free qualified distributions as long as the five-year requirement has been met.

Important note: Setting up a Roth account makes the most sense if you believe you’ll pay the same or higher tax rates during your retirement years.

Treatment of Designated Roth Account Distributions

At some point, you may want to direct designated Roth account distributions to multiple destinations — say, to one or more taxable accounts and one or more tax-favored accounts — using tax-free rollovers. These transactions can be executed using the 60-day rollover rule or via direct rollovers where money is transferred directly between accounts. Favorable IRS rules generally allow you to allocate after-tax (tax-free) amounts from nondeductible contributions and pretax (taxable) amounts from deductible contributions and account earnings to the various destinations to achieve the best tax results.

The IRS recently issued an amended final regulation to eliminate a previous requirement affecting some Roth account transactions. That requirement mandated that a disbursement from a designated Roth account that was directly rolled over into a Roth IRA or another designated Roth account be treated as a separate distribution from any amount simultaneously paid directly to the account owner (you). When such mandatory separate distribution treatment applied, the pretax and after-tax amounts included in the designated Roth account disbursement had to be allocated pro rata to each separate distribution.

The following example illustrates how the now-eliminated rule that required distributions from designated Roth accounts to be treated separately could lead to unfavorable tax results.

Example 1: Old rule for designated Roth account distributions. A 50-year-old woman owns a Roth IRA. She also has a $50,000 balance in a designated Roth account set up through her employer’s 401(k) plan. The designated Roth account balance consists of $30,000 of after-tax dollars (from nondeductible contributions to the account) and $20,000 of pretax dollars (from account earnings). Therefore, 60% of the account balance ($30,000/$50,000) is after-tax money and 40% ($20,000/$50,000) is pretax money.

The woman quits her job and arranges for a $50,000 disbursement to close out the designated Roth account. This is not a qualified designated Roth account distribution, because she’s not age 59½, disabled or dead. So, if she puts the entire $50,000 into a taxable account with a bank or brokerage firm (or straight into her pocket), the woman will owe federal income tax on the $20,000. She’ll probably owe the dreaded 10% early distribution penalty on the $20,000 and any applicable state income taxes, too.

What if, instead, she chose to put $30,000 of the $50,000 into a taxable account (or her pocket) and rolled over the remaining $20,000 into a Roth IRA using a direct transfer? Under the old separate distribution rule, the woman was required to treat the $30,000 that she didn’t roll over as consisting of $18,000 of after-tax money (60%) and $12,000 of pretax money (40%). Similarly, the $20,000 that she directly rolled over into her Roth IRA was deemed to consist of $12,000 of after-tax money (60%) and $8,000 of pretax money (40%).

As you can see, the unfavorable separate distribution rule would have resulted in the woman owing taxes on the $12,000 of pretax money that’s deemed to have gone into her taxable account (or pocket). She also might have owed the 10% penalty tax and state income tax on the $12,000.

New IRS Guidance on Designated Roth Account Distributions

Fortunately, under a recently amended IRS regulation, separate distribution treatment is no longer required when part of a disbursement from a designated Roth account is directly rolled over tax-free into one or more eligible retirement accounts and part is sent to the account owner.

Now, you can follow the taxpayer-friendly rules to allocate after-tax and pretax amounts between the destinations to achieve the best tax results. The following example illustrates how the new guidance adds greater flexibility to allocating distributed after- and pretax amounts.

Example 2: New, more flexible rule for designated Roth distributions. Now that the separate distribution rule no longer applies, the woman in the previous example has a more tax-favorable option for allocating her distributions. Pursuant to IRS Notice 2014-54, she can treat the $30,000 that was transferred into the taxable account (or her pocket) as consisting entirely of after-tax (tax-free) dollars, and she can treat the $20,000 that was directly rolled over into her Roth IRA as consisting entirely of pretax dollars.

Under the new guidance, she would owe no federal income tax on the designated Roth account disbursement and no 10% early-distribution penalty or state income taxes. In addition, she’ll be eligible to take the $20,000 out of her Roth IRA through tax-free qualified Roth distributions once she reaches age 59½ (or becomes disabled).

Effective Date

The amended final regulation applies to distributions from designated Roth accounts that are made on or after January 1, 2016. However, you can also elect to follow the favorable amended final regulation for distributions that were made on or after September 18, 2014, and before January 1, 2016. For more information about how the new guidance applies to your Roth accounts, contact your tax adviser.

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Posted on Jul 6, 2016

Non-compete agreements have long been a staple of executive employment contracts. Today, however, they’re becoming increasingly common even in lower-level jobs. According to the Wall Street Journal, a steady rise in litigation over non-competes “largely reflects the increased usage of non-compete arrangements among lower-level staffers, along with employees’ greater mobility and access to sensitive information.”

It might seem like overkill to require a non-compete agreement with employees below the executive level. However, an individual’s ability to damage your business by going to work for a competitor will grow over time — assuming the employee gains responsibility and knowledge that could help a competitor. If you don’t secure a non-compete agreement at the beginning of an employment relationship, you’ll probably need to jump through an extra hoop to make it legally enforceable later on.

State Law Rules

State law governs non-compete agreements, and some of the rules vary from one state to the next. In an extreme case, California generally doesn’t recognize the validity of these agreements at all.

Federal courts may also sometimes get involved. One federal court recently weighed in on a case and upheld a common principle — the need for an employee to receive “consideration” (some form of compensation) in exchange for accepting a non-compete agreement.

Ordinarily, being offered a job is deemed to be adequate consideration in itself. However, if an employee has already been working for a while, simply being allowed to keep the job might not be deemed adequate consideration. That’s how the U.S. District Court in Hawaii came down on the issue in the case of The Standard Register Co. v. Keala (No. 14-00291 JMS-RLP).

“Numerous courts have held that where an employee has already been hired, continued at-will employment, standing alone, is insufficient consideration for a non-competition agreement,” the court held, and denied the employer’s request for a temporary restraining order against former employees.

Is the Agreement Enforceable?

One possibility for “consideration” in that situation might have been a bonus or a promotion. However, courts aren’t always predictable in what they’ll uphold. Here are other key facets of a non-compete agreement that courts examine:

  • Does it protect a legitimate business interest? For example, let’s say you claim that an employee possesses sensitive information which could harm you if it fell into a competitor’s hands. Unless there’s evidence that you made a real effort to protect the secrecy of that information, a court may decide your stated business interest isn’t legitimate.
  • What is the duration of the agreement? Courts are sympathetic to the idea that people need to earn a living. Therefore, they often frown on agreements that restrict former employees for periods longer than, for example, six months. But “reasonable” limits vary by circumstances and courts.
  • What are the geographic parameters? A court will try to determine reasonableness here based on the size of your market. If you don’t have many competitors beyond a certain distance, such as a 10-mile radius, you wouldn’t be able to justify an agreement based on a 50-mile radius. Again, there’s considerable variability in this parameter.
  • What activity is prohibited? The broader the scope of the prohibition, the less likely the agreement is to be enforceable. The most “reasonable” restriction in the eyes of the majority of courts is against soliciting your customers.

Red Pencil, Blue Pencil

If a court reviews a non-compete agreement and finds fault with it, there are three possible outcomes — depending on the state. The most restrictive standard is known as the “red pencil” rule. It requires the invalidation of an entire agreement even if only one provision is flawed. Nebraska takes the position, and South Carolina, Virginia and Wisconsin generally do as well.

Under the less draconian “blue pencil” standard, courts are allowed to invalidate specific provisions of an agreement, while leaving other ones standing. Arizona, Connecticut, Indiana, Maryland, Montana and North Carolina generally take that approach.

The best scenario is “reformation,” which is permitted in approximately 30 states. This is where the court can actually rewrite the agreement to allow it to be as faithful as possible to the employer’s original intent, but only to the extent permissible by law. That way, you might win a partial victory if you’re still allowed to restrict the former employee’s activities, even if not as thoroughly as you’d hoped.

Not all states fall into such tidy categories, and their positions evolve. Wherever you’re located, you will need to consult with a qualified attorney to draft a non-compete agreement that will hold up to local scrutiny.

Also, many job applicants will take a dim view of a requirement to sign this type of contract. With that in mind, you’ll need to balance your eagerness to hire a particular applicant with the consideration you’re willing to offer to make the agreement more palatable. Otherwise, the non-compete agreement could be a deal breaker.

Consult your Cornwell Jackson adviser for more information.

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Posted on Jul 4, 2016

Punch Clock

Businesses are still buzzing about the government’s long-awaited revised overtime rules.

The Department of Labor (DOL) had provided a sneak peek in the form of proposed regulations issued in 2015, putting many employers on high alert about the main changes. Recently, the department provided additional guidance on two exemptions that often fly under the radar.

Background

Under the Fair Labor Standards Act (FLSA), employees must be paid time-and-a-half their regular pay rate for overtime above 40 hours a week unless they fall under an exemption. Employers who don’t adhere to the rules could be liable for payroll taxes on top of the payment due for overtime.

DOL regulations have generally required each of the following three tests to be met for employees to be exempt from overtime pay:

  1. Salary basis. The employee must be paid a predetermined and fixed salary that isn’t subject to reduction because of variations in the quality or quantity of work performed.
  2. Salary level. The amount of salary paid must meet a minimum specified amount.
  3. Duties. The employee’s job duties must primarily involve executive, administrative or professional duties as defined by the DOL regulations.

Before the recent revised rules, the DOL last updated these regulations in 2004. At that time it set the weekly salary level at $455 ($23,660 annually) and introduced an exemption for “highly-compensated employees.”

The new regulations more than double the wage threshold to $913 a week ($47,476 a year). This limit will be adjusted every three years, beginning January 1, 2020. Employees earning less than that amount are entitled to overtime pay regardless of their job responsibilities.

A Threshold Reset

The goal of these changes is to reset the income threshold to the point it would have reached, with inflation adjustments, had it not been frozen more than a decade ago. With the higher wage threshold, millions of “white-collar” employees — including those in executive, administrative and professional capacities — will qualify for overtime pay.

In a related change, the annual pay threshold for highly-compensated employees was boosted, from $100,000 to $134,004. Employees earning more than this may be treated as exempt regardless whether the duties test would classify jobs as non-exempt.

Bottom line: Beginning December 1, 2016, employees who earn between $47,476 and $134,004 may earn overtime pay. Their status will be determined by the same duties test that has been in place for years. For this purpose, an employee’s pay includes nondiscretionary bonuses, incentive pay and commissions, as long as those payments occur at least quarterly and don’t exceed 10% of compensation.

The guidance from the DOL focuses on two types of employers, educational institutions and state and local governments.

Educational Institutions

Because of special regulations, many white-collar employees at higher education institutions aren’t subject to the salary level test or are subject to a different test. The new salary level won’t affect them.

For instance, the salary level and salary basis requirements for the white-collar exemption don’t apply to bona fide teachers. Academic administrative personnel that help run higher education institutions and interact with students outside the classroom are governed by a special alternative salary level. These employees include department heads, and academic counselors and advisors. They are exempt from the FLSA overtime requirements if they earn at least the entrance salary for teachers at their institution.

However, workers whose duties aren’t unique to the education setting, such as managers in food service or the institution’s bookstore are covered by the same salary level as their counterparts at other kinds of institutions and businesses.

State and Local Governments

Neither the FLSA nor the DOL regulations provide a blanket exemption from overtime for state and local governments. However, the FLSA contains several provisions unique to state and local governments, including compensatory time (comp time).

State or local government agencies may arrange for their employees to earn comp time instead of cash for overtime hours. Any comp time arrangement must be established under the terms of:

    • A collective bargaining agreement,
    • A memorandum of understanding,
    • An agreement between the public agency and representatives of overtime-protected employees, or
    • An agreement or understanding between the employer and employees before the work is performed.

The comp time must be provided at a rate of 1.5 hours for each hour of overtime. The comp time is paid at the regular rate of pay.

Comp Time Ceilings

Most state and local government employees may accrue up to 240 hours of comp time. Law enforcement, fire protection and emergency response personnel, as well as seasonal workers (such as those processing state tax returns), may accrue up to 480 hours of comp time in one pay period.

The FLSA also provides an exemption for fire protection or law enforcement employees working for an agency with fewer than five employees. This exemption is based on a “work period” rather than a “work week.”

A work period may be from seven to 28 consecutive days. Overtime compensation is required when an employee’s hours worked exceed the maximum hours in the regulations. An employee must be permitted to use comp time on the date requested unless that would “unduly disrupt” the operations of the agency.

The final overtime rule takes effect on December 1, 2016. That should give employers ample time to comply with the changes and to develop plans for the future.

Potential H.R. Changes

Employers of all stripes have their work cut out for them between now and December 1. This may trigger other H.R. and payroll changes in light of the new overtime requirements. Keep in mind that there’s no “wrong” or “right” way to do things. Your payroll advisers can lend a helping hand.

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Posted on Jun 20, 2016

FMLA Fraud, FMLA Abuse

The Family and Medical Leave Act (FMLA) protects jobs when employees need extended time off because of their own or a family member’s health problems.

Who Qualifies for FMLA Leave

Employees are eligible for FMLA leave if they worked for a covered employer for at least 12 months and at least 1,250 hours during that time. The months do not have to be consecutive, but work periods before a break in service of seven years or longer don’t have to be counted unless:

1. The break is to fulfill a National Guard or Reserve military obligation, or

2. There is a written agreement stating the employer’s intention to rehire the employee after the break.

There are restrictions on family leave when spouses work for the same employer. Leave is limited to a combined total of 12 weeks for the birth and care of a newborn child, placement of a child for adoption or foster care, or to care for a parent. Leave for a birth or placement must end within 12 months.

To help prevent such abuses, the law allows you, as an employer, to insist that employees supply medical certifications verifying the seriousness of their conditions. The Labor Department regulates both the process you must follow and the information you can request when asking for certification.The law allows employees as many as 12 weeks of unpaid medical leave in any 12-month period to take care of qualifying medical conditions. While in most instances these leaves are legitimate, there are employees who try to take advantage of the system.

Generally speaking, a health care provider must attest that the employee or a qualifying family member has an illness, injury, impairment or physical or mental condition that involves one of these two conditions:

A period of incapacity or treatment that requires overnight stays in a hospital or residential medical care facility, or

Continuing treatment that causes incapacity, such as:

  1. A treatment and recovery lasting more than three consecutive days. There must either be two or more treatments or one treatment followed by a regimen such as prescription medications or physical therapy.When there is more than one treatment, the first must occur within seven days of the day the employee becomes incapacitated. When there are two treatments, both must occur within 30 days of the incapacitation.
  2. Pregnancy or prenatal care (a visit to a health care provider is not necessary for each absence).
  3. A chronic health condition that continues over an extended period and requires at least two visits a year to a health care provider. This may include such episodic conditions as asthma or epilepsy and does not require a visit to a health care provider for each absence.
  4. Permanent or long-term conditions for which treatment may not work and that require supervision by a healthcare professional. This includes such conditions as terminal cancer, Alzheimer’s disease or a stroke.
  5. Restorative surgery after an accident or injury, or conditions that would likely result in incapacitation for more than three days if not treated, such as radiation or chemotherapy for cancer or dialysis for kidney disease.

The Certification Process

If you require certification, employees must provide it within 15 days. As an employer, you must:

  • Use either the Labor Department’s WH 380 Certification of Health Care Provider forms or devise your own. If you use your own, you cannot ask for more information than the government forms require.
  • Ask for certification within five business days after the leave request or after the start of the leave if it was unforeseen.
  • Tell employees that you can deny FMLA leave if the certification is incomplete, insufficient or unclear.
  • Give employees a written notice of the problems with the certification and allow seven calendar days to fix them.

In some cases, the employee’s medical condition may be considered a disability under the Americans with Disabilities Act (ADA). In such situations, information obtained through ADA procedures may be used in the FMLA leave determination.

You can directly contact the employee’s medical provider for clarification through a health care provider, human resources professional, leave administrator or management official. The employee’s direct supervisor, however, cannot contact the provider for clarification.

You may require annual certifications if an employee’s need for FMLA leave lasts longer than a year. And you may ask for certification at a later date if you doubt the appropriateness or duration of the leave.

FMLA leave is an entitlement, but it can be abused. Talk to a professional about these and other procedures that can help prevent misuse of the law and cut the unnecessary costs and workplace disruptions that can stem from illegal, lengthy absences.

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Posted on May 27, 2016

Language Barriers in HR

It’s not uncommon these days to have employees who don’t speak English or have difficulty understanding it. But those employees are just as eligible for benefits as the rest of your staff and it’s important that they understand their rights and obligations.

The federal Employee Retirement Income Security Act (ERISA), which covers a wide range of employee benefit plans, requires businesses to provide a summary plan description to all employees. And while the law doesn’t require you to translate the plan description into writing in other languages, in some situations you are required to include a foreign language directive that offers foreign-language speakers assistance in understanding your programs.

You are obliged to provide the foreign language notice:

  1. If fewer than 100 employees participate in your plan and 25 percent of them are literate in only the same non-English language.
  2. If either 500 participants, or 10 percent of all plan participants, are literate in only the same non-English language.

So if only a few employees are non-English speaking, the notice is not required. On the other hand, an employer may need to provide notices in more than one language (for example, Spanish and Vietnamese) if the requisite number of employees are literate in only those languages.

The notice must tell employees that help is available and how to get it. For example, an effective notice might include the name, address, phone number and office hours of the plan administrator.

This, of course, is the minimum, and many employers take additional steps, including:

  • Translations. Some companies provide translations of the entire summary plan description (or at least the highlights), comparison charts and enrollment forms. If you opt for this, use a translation company to ensure that nuances are correct and certain words such as “coverage,” “blanket” and “umbrella” are properly translated.
  • Open benefits meetings. It can be helpful to include English-speaking relatives or friends at meetings explaining benefits. Bilingual or separate meetings in another language are also an option, although this is likely to involve more time and expense.
  • Colleague assistance. Some companies ask employees who are fluent in both English and another language to help those who have difficulty with English. This can be helpful at meetings where it can be difficult to follow the rapid flow of presentations and question-and-answer sessions.

Employee benefit programs can be difficult to understand even for those for whom English is their native language. Your company makes a large investment in its benefits, so ensuring they are understood can help avoid complications and help make sure employees appreciate them.

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