Category: Payroll

Posted on Jul 25, 2017

The Family and Medical Leave Act (FMLA) is often tweaked, adjusted or reinterpreted as cases of alleged abuse continue to pop up and courts are asked to weigh in. With so much change, it’s a good idea to check your policies regularly. Is your company in compliance?

Here’s a very streamlined recap of the top 10 FMLA fundamentals to refresh your memory. (Keep in mind that your state and local laws may have stricter requirements.)

1. Allowable purposes for unpaid leave up to 12 weeks: Attending to the birth or adoption of a child, caring for a family member with a serious health condition, or suffering a health condition that prevents one from performing essential  job tasks. (Special rules apply where family members are on active duty in the military.)

2. To be eligible, employees must: Have logged at least 1,250 hours of service during the period before the leave, and have worked for the employer for one year over a period no greater than seven years (that is, employment gaps are permissible).

3. Private sector employers are exempt from the FMLA if: They have fewer than 50 employees overall or at a specific site that’s at least 75 miles away from any of its other employment sites.

4. When taken, the FMLA leave period: Doesn’t have to be a single block of time consisting of consecutive days; intermittent leave may be possible, as well as working on a reduced schedule basis. When leave is intermittent in a nonemergency situation, employees should make a “reasonable effort” to accommodate the operational scheduling needs of the employer.

5. Maintenance of benefits: Employees out on FMLA leave must stay on the employer’s health plan under the same terms (including cost-sharing provisions) as before.

6. Coordination with paid leave benefits: Often it’s possible for employers to require employees taking FMLA leave to use up accrued paid leave time concurrently.

7. When requesting an FMLA-mandated leave, employees must: Give employers a 30-day notice, if the need for the leave was foreseeable, or otherwise as soon as possible. When making an FMLA leave request for the first time, employees don’t need to state that the request is being made under the FMLA. They merely need to provide employers enough information about the purpose of the leave for the employer to independently determine that the leave is sanctioned by the law.

8. Notification requirements: Employers must maintain posted notices about the FMLA; include information about it in their employee handbooks; and, upon request, provide information about employees’ rights and responsibilities under the law.

9. Medical certification: When a leave request is based on a serious medical condition of the employee or the employee’s family member, the employer can request documentation from a health care provider, as well as seek second and third opinions.

10. Job restoration: When employees return from their leave periods, they must be given their original jobs or another position with equivalent pay, benefits, and other employment terms and conditions.

Legal Authority

In an FMLA case, only a U.S. Supreme Court decision can affect the law nationwide. Still, a lower court ruling — even if it occurs in a jurisdiction other than your own — might be influential where you’re located. Below are three noteworthy cases that highlight the need to keep abreast of FMLA legal developments:

Case 1. The court upheld an employer’s decision to terminate an employee while she was on FMLA leave, against the employee’s claim that her termination violated her FMLA rights and was discriminatory. The court accepted the employer’s explanation that it had a sound business rationale to eliminate the employee’s position: The company was shrinking; other employees could assume her duties, and it would have made the same decision if the employee weren’t on leave.

Case 2. The court agreed with an employee’s argument that she was being prevented from gaining the full benefit of her FMLA leave because of her employer’s pattern of making substantial requests of her time while on leave. The court held that it was permissible for the employer to contact employees on leave for certain tasks. Examples include:

  • Passing along relevant institutional knowledge to new staff,
  • Providing computer passwords,
  • Giving closure on complicated assignments, and
  • Identifying other employees who could fill the void created by her absence.

But it was inappropriate for the employer to contact the employee regularly with questions about her work duties and absences, inputting data, and taking time out to receive training before returning to work. The fact that the employee was terminated shortly after her return to work buttressed her argument that her employer was trying to interfere with her rights.

Case 3. The Ninth Circuit Court of Appeals upheld a lower court ruling in favor of an employer that terminated an employee who claimed her FMLA leave benefits were denied. The employee had requested, and received, a period of leave to care for her sick father. But she’d requested that it not be treated as FMLA leave, but instead as ordinary paid leave. The company agreed.

However, the employee didn’t return to work until two weeks after the date she’d promised to come back and was terminated. She argued that the extra two weeks should have been treated as protected FMLA leave, because her reason for remaining away from work was to care for an ailing family member. The courts drew two conclusions: 1) It’s possible for an employee to seek and receive non-FMLA leave for an FMLA-eligible purpose, and 2) Unauthorized leave cannot automatically become protected FMLA leave without the employee explicitly requesting it on that basis.

Regular Tune-Ups Advised

New FMLA cases are decided all the time, creating a demand for attorneys who specialize in this corner of the law. Therefore, given the fluidity of FMLA legal interpretation, it’s prudent to periodically review your compliance with the evolving legal standards.

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Posted on Jul 11, 2017

Sometimes it’s clear when an employee is entitled to overtime pay, and how much, and other times it isn’t.The issue can become especially tricky when employees are paid at least partially in commissions. In a recent case, a federal appellate court remanded back to a lower district court its ruling on the allocation of commissions in determining overtime pay. The appeals court said the lower court didn’t properly interpret federal overtime law. (Freixa v. Prestige Cruise Services, LLC, CA-11, No. 16-13745, 4/14/17).

Key Facts of the Case

The District Court for the Southern District of Florida had ruled that a cruise ship employee who received commissions was ineligible for overtime pay. As a sales representative, the employee sold cruise trips to customers. He received a fixed salary of $500 a week plus commissions. During the one year he was with the company, he earned over $70,000 in compensation. Of this amount, 63% was paid in commissions.

The commissions were calculated monthly and paid the following month. Both parties agreed in court that the sales rep worked an average of 60 hours a week during his employment, but they disagreed about the number of hours he worked in any individual week.

Subsequently, the employee sued the cruise ship line for overtime pay. He argued that the compensation he received in certain weeks fell below the required threshold for the exemption from overtime that applies to retail workers who are paid commissions.

Lower Court’s Rationale

The district court acknowledged that the law generally requires a calculation of the regular rate of pay on a week-to-week basis. But the court found it difficult to determine the exact weeks during which the sales representative earned commissions.

As a result, it decided to divide his entire remuneration for the year across every hour in every week he worked — assuming 60 hours of work a week — to arrive at an average hourly rate of $23.45. Because that rate exceeded the exemption threshold of $10.88 per hour, the district court awarded summary judgment in favor of the cruise ship company.

In reaching this decision, the district court said it believed its calculation conformed with federal regulations that allow for a different “reasonable and equitable method” to calculate the regular rate of pay “if it is not possible or practicable to allocate the commission among the workweeks of the period in proportion to the amount of commission actually earned or reasonably presumed to be earned each week” (29 CFR 778.120).

Appeals Court’s Rationale

But that wasn’t the end of the story. After the sales representative appealed, the Eleventh Circuit Court overturned the lower court’s ruling, saying that the district court had misinterpreted the federal regulations.

The appeals court ruled that when commissions are computed monthly, those earned in one month might not be allocated across weeks worked in other months. Instead, federal regulations limit the district court to allocating commissions across weeks within the time period in which they were earned. The appeals court cited a related regulation that required as a general rule, “that the commission be apportioned back over the workweeks of the period during which it was earned” (29 CFR 778.119).

Based on the context of this and other regulations, the appeals court said it’s clear that the term “period” means “computation period.” For the sales representative in this case, it refers to each month of his employment, not the entire year that he worked. For example, the court said it believed that the district court could allocate commissions earned in January across weeks worked in January, but not across weeks worked from February through December.

We haven’t heard the last word on this matter. The case was remanded back to the district court for further proceedings.

What the Upper Court Cited

The regulation cited by the appeals court says that if calculation and payment can’t be completed until after the regular pay day, the employer may disregard the commission in computing the regular hourly rate until the amount of commission can be determined. Until then, the employer may pay overtime at a rate not less than one and one-half times the hourly rate paid the employee, excluding the commission.

Then, when the commission can be determined, the employer must pay any additional overtime compensation due once the commission is included. To compute the additional overtime, “it is necessary, as a general rule, that the commission be apportioned back over the workweeks of the period during which it was earned.”

The additional compensation must be not less than one-half of the increase in the hourly rate of pay attributable to the commission for that week in question multiplied by the number of overtime hours worked.

Key point: In accordance with the the Fair Labor Standards Act of 1938, an exemption to the usual overtime pay requirements exists for employees who work for a retail or service establishment if two requirements are met:

  1. The regular rate of pay exceeds one and one-half times the minimum hourly rate (that is, $10.88 an hour), and
  2. More than half of the compensation for a reasonable period (but not less than one month) represents commissions paid on goods and services.
    This calculation of overtime pay under this exemption was at the core of the above case.

Avoid Rapid Decisions

The rules in this area are complex and may be open to interpretation. Don’t make any quick assumptions about your company’s responsibilities without consulting with your professional payroll advisors.

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Posted on Apr 10, 2017

On average, women are paid less than men, but the difference may be smaller than you think. You may have heard widely quoted statistics which can be misleading, such as the belief that women earn 76 cents for every dollar that men make. While men do make more, the gap narrows when you adjust for differences in job category and tenure. Still, a gap exists, and one compensation management software company calls it the “uncontrolled gender pay gap.”

That software company, PayScale, claims that when data is adjusted to allow an apples-to-apples comparison, women make about 98 cents for every dollar a man makes, although this varies by industry.

The gap might be smaller than previously thought, but is it justified? Pay equity advocates have had some recent successes in challenging common practices that may contribute to gaps, such as asking job candidates for their pay history before formulating a job offer. Specifically, the practice will be banned in Philadelphia in May. And beginning next year, employers in Massachusetts will face that restriction.

Locked In

The concern is that women are, in effect, locked in to lower pay scales due to past pay discrimination. Employers are sometimes reluctant to bring in a new employee at a substantially higher rate of pay than he or she is or was already making, if the purpose is only to keep new workers on par with current employees in similar jobs. That’s understandable, because paying more than appears necessary defies financial common sense. But there’s more to the story.

Given the philosophical diversity of the country, it’s unlikely that laws such as those enacted in Philadelphia and Massachusetts will take the entire country by storm. But even without such laws, “Employers should start thinking about the ramifications of stopping previous-pay discussions, whether or not their locality passes measures banning these inquiries,” according to the Society for Human Resource Management.

Why? For one thing, debate and discussion about this topic is building even in remote areas of the country. Over time, more female (and also some male) job hunters may simply decline to reveal their pay history.

Response Ready

There’s a good chance that, at some time in the future, you’ll encounter job applicants who simply won’t reveal their pay history. Suppose you get an application without pay data, from someone who, otherwise, seems well-suited to the position. Will you refuse to consider that person? If so, this could mean missing out on an excellent candidate. Instead, be prepared to continue assessing the candidate without regard to pay history.

You should already have some kind of system in place that you use to establish pay ranges for particular jobs, based both on the value of that job to the organization, and the prevailing pay for positions at your company. This is important even when you’re not hiring, because your current employees need to have some level of confidence that their pay isn’t arbitrarily determined.

By refusing to consider an applicant who won’t reveal his or her pay history, you could be doing your company a disservice. That is, you could miss out on hiring the best candidate for the job, and in the process, may even end up paying more than necessary to another applicant.

If a candidate you are interested in is reluctant to reveal his or her pay history, ask for a range, or general idea of what the person expects as a starting wage. If you end up in the same pay ballpark, you can proceed from there. Just make sure you go to the interview with some pay research under your belt, so you don’t undervalue the job or offer more than you should. Chances are, the applicant already has a good idea how much a job is worth, and so should you.

Armed with some research, you may be able to overcome concerns about a perceived “low” pay range by explaining your process for evaluating performance and the possible pay increases that can result from a strong performance review.

Gender Gap in Your Pay Scale?

Polls taken by PayScale reveal that many workers consider this a hot-button issue, even if you’ve never heard it mentioned. That’s why PayScale warns, “If your employees don’t think you’re doing enough to address gender inequity, they might already have one foot out the door.”

As mentioned earlier, do you pay less to a worker who has returned to a job after a long absence (typically a woman who took time off to raise children)? If so, consider whether time on the job improves performance. If not, does it really make sense to pay her less? You could find yourself accused of pay inequity, based on gender. The potential ill will is probably not worth the money saved.

Hiring the right people at the right pay is crucial to your organization’s success. Compensation and recruiting consultants can provide more insights on these topics if you are unsure about whether you’re doing the right thing.

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Posted on Feb 1, 2017

The Trump Administration and the Republican majority in Congress plan to repeal and replace the Affordable Care Act (ACA) in the coming months. In the meantime, however, employers must continue to comply with the existing rules for 2016, including the information reporting requirements and shared responsibility provisions.

The IRS previously issued three sets of FAQs that provide guidance on employer responsibilities under the Affordable Care Act (ACA). This guidance was recently updated to include significant clarifications and help employers ensure that they’re in compliance with the rules. Here, we highlight the extensive updates that were issued in December 2016 and that you may find useful in fulfilling your information-reporting obligations for 2016, if you’re subject to the requirements.

Background

The employer shared responsibility provisions of the ACA require an applicable large employer (ALE) to pay a penalty if it doesn’t offer minimum essential health coverage (or doesn’t offer coverage that is affordable and provides minimum value) to its full-time employees and at least one full-time employee purchases coverage through a health insurance marketplace and receives a premium tax credit. Full-time employees are generally those who average at least 30 hours of service per week during a given month.

An ALE for a calendar year is an employer that employed an average of at least 50 full-time employees or the equivalent on business days during the preceding calendar year. To determine the number of full-time equivalent employees (FTEs), the overall hours worked by part-time employees during a month are added up, and the total is divided by 120 hours (equal to four weeks multiplied by 30 hours per week) and added to the number of full-time employees. However, the actual penalty is applicable solely to the health coverage status of full-time employees, not FTEs.

FAQs on Information Reporting

There are various reporting requirements associated with the employer shared responsibility provisions that apply to both coverage providers and employers. In general, every health insurance issuer, sponsor of a self-insured health plan, government agency that administers government-sponsored health insurance programs and other entity that provides “minimum essential coverage” must file annual returns reporting information for each individual for whom such coverage is provided. They also must furnish a written statement to each individual listed on the return showing the information that must be reported to IRS for that individual.

The information reported on Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, and Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is used to determine whether an employer may be liable for a penalty under the employer shared responsibility provisions of the ACA, as well as the amount of any penalty. Form 1095-C is also used by the IRS and the employee in determining the eligibility of the employee (and his or her family members) for the premium tax credit.

The FAQs provide additional information about completing these forms for the 2016 calendar year (for filing in 2017). Here’s what’s been revised under the updated guidance:

Question 9. Do ALE members that are combined to form a single employer (an “aggregated ALE group”) file one authoritative transmittal reporting summary information for all ALE members in the aggregated ALE group?

The revisions clarify that an aggregated ALE group may not file one authoritative transmittal reporting summary information for all members in the group. Rather, the reporting requirements apply separately to each member.

Question 26. Should an ALE member report coverage under a Health Reimbursement Arrangement (HRA) for an individual who’s enrolled in both the HRA and the employer’s other self-insured major medical group health plan?

Under the updated guidance, enrollment in an HRA must generally be reported in the same manner as enrollment in other minimum essential coverage, unless an exception applies. One such exception is that if an individual is covered by two or more plans that provide minimum essential coverage and that are provided by the same reporting entity, reporting is required for only one of them for that month.

Question 27. Should an ALE member report coverage under an HRA for an individual who’s eligible for the HRA because the individual is enrolled in the employer’s insured group health plan?

The revised guidance states that if an individual is eligible for an HRA because the individual is enrolled in an employer’s insured group health plan for which reporting is required, reporting generally isn’t required for the HRA.

However, an ALE member must report HRA coverage for an employee who’s enrolled in the HRA but not enrolled in another group health plan of the employer.

FAQs on Offers of Health Insurance Coverage

Certain employers are required to report to the IRS information about whether they offered health coverage to their employees and, if so, information about the coverage offered. This information also must be provided to employees. With respect to reporting offers of health insurance coverage, the FAQs provide that:

Question 23. For purposes of reporting, including reporting facilitated by a third party, may an ALE member file more than one Form 1094-C?

The revisions explain that an ALE member may file more than one Form 1094-C, provided that one (and only one) of those transmittals is an “authoritative transmittal” reporting aggregate employer-level data for the ALE member.

Question 24. May an ALE member satisfy its reporting requirements for an employee by filing and furnishing more than one Form 1095-C that together provide the necessary information?

Under the updated guidance, an ALE member may not satisfy its reporting requirements for an employee by filing and furnishing more than one Form 1095-C that together provide the necessary information. There must be only one Form 1095-C for each full-time employee for that full-time employee’s employment with the ALE member.

FAQs on the Shared Responsibility Rules

If you still have questions about whether you’re considered an ALE for 2016 and whether you’ve complied with the shared-responsibility requirements, you may find the revised FAQs regarding the employer shared responsibility provisions helpful:

Question 8. If an employer hires additional employees, including some part-time employees, how does it determine if the entity has become large enough to be an ALE?

The revisions clarify that if an employer hires additional employees, including some part-time employees, during the current calendar year, the employer must take those employees into account when determining if it’s an ALE for the next calendar year.

Question 9. Do the employer shared responsibility provisions apply only to large employers that are for-profit businesses or to other large employers as well?

The revisions clarify that all employers that are ALEs are subject to the employer shared responsibility provisions. This includes for-profit, government and nonprofit employers, regardless of whether the entity is a tax-exempt organization.

Question 20. Is a full-time equivalent employee different than a full-time employee?

According to the revised answer to this question, the number of an employer’s FTEs is relevant only for purposes of determining whether the employer is an ALE.

Question 24. How does an employer count a particular employee’s hours of service if that employee works for two employers that are treated as one employer under the employer shared responsibility provisions (for example, different subsidiaries under a parent corporation that together form an aggregated ALE group)?

The rules for combining employers that have a certain level of common, or related, ownership, apply for purposes of determining whether an employer employs at least 50 FTEs.

Question 28. What counts as an “offer of coverage” under the employer shared responsibility provisions?

The updated guidance stipulates that an ALE makes an “offer of coverage” to an employee if it provides the employee an effective opportunity to enroll in the coverage (or to decline coverage) at least once for each plan year. Coverage refers to minimum essential health coverage under an eligible employer-sponsored plan.

Question 34. For purposes of the employer shared responsibility provisions, in determining what counts as an offer of coverage to at least 95% of an employer’s full-time employees (and their dependents), does an employer have to take into account full-time employees (and their dependents) that are eligible for coverage through another source?

Under the revisions, the determination of what counts as an offer of coverage to at least 95% of an ALE’s full-time employees applies regardless of whether any full-time employees have coverage from another source, such as Medicare, Medicaid or a spouse’s employer.

Question 43. Who’s an employee’s dependent for purposes of the employer shared responsibility provisions?

The revisions explain that a dependent is an employee’s child, including a child who has been legally adopted, or legally placed for adoption with the employee, who has not reached age 26. A dependent doesn’t include:

  • A spouse, or
  • A stepchild, foster child or child who doesn’t reside in the United States (or a country contiguous to the United States) and who isn’t a U.S. citizen or national.

Question 44. If an ALE is made up of multiple employers (called ALE members), is each separate ALE member liable for its own employer shared responsibility payment, if any?

According to the updated answer, if an ALE is made up of multiple ALE members, each separate ALE member is liable for its own employer shared responsibility payment.

Still Got Questions?

The rules for providing health care benefits can be overwhelming to employers. These FAQs offer some guidance, but tax and financial professionals can help explain the shared responsibility provisions and the related reporting requirements using plain English. Contact your advisors for additional guidance.

Also be aware that the deadlines for filing ACA information forms are fast approaching. The due date for filing 2016 Forms 1094-B, Transmittal of Health Coverage Information Returns; 1095-B, Health Coverage, 1094-C and 1095-C with the IRS are February 28, 2017, if not filing electronically, or March 31, 2017, if filing electronically. However, the IRS extended the information reporting deadlines until March 2, 2017, for furnishing 2016 Forms 1095-B and 1095-C to individuals.

In the meantime, stay tuned for changes to health care coverage requirements. Health care reform has been made a top priority during President Trump’s first 100 days in office and Congress has already begun to pass related legislation.

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Posted on Nov 17, 2016

The challenges of Affordable Care Act reporting for the 2015 tax year will likely follow companies and organizations into 2016 — and the honeymoon period with the IRS is over. It will take more than careful administration to ensure proper reporting and avoid kicked back forms or penalties for missing or inaccurate data. Benefits brokers that specialize in ACA reporting recommend a combination of careful administration along with support from payroll outsourcing companies. This planning includes a CPA team that can advise on tax and payroll administration.

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Posted on Oct 11, 2016

There’s nothing like a heated political debate that spins out of control to kill productivity and damage working relationships. The risk of a workplace harassment charge is also present, if a member of a protected class feels bullied. Generally, there are two approaches to keeping strong political opinions from become a problem at work: by setting a good example, and with an official company policy.

The former, which is often called the “tone at the top,” is straightforward enough. It involves making sure your senior executives keep their political preferences to themselves. If the CEO lets his or her political leanings be known (whether by talking about it or by wearing a political button supporting one candidate), it’ll be tough to keep employees with strong opinions from sounding off.

As for a company policy, you may already have language in your employee handbook that addresses this issue. It’s common, for example, to have a policy stating that employees are to treat each other with civility, which should include political discussions. Even so, as the elections draw closer, it doesn’t hurt to remind your workforce to curb political debate while at work.

What Others Do

A member survey by the Society for Human Resource Management (SHRM) earlier this year found that nearly three quarters of respondents actively discourage political activities in the workplace. Only one quarter, however, have committed their policies to writing.

Written policies typically prohibit an employee from:

  • Campaigning for a candidate or political party during working hours,
  • Relying on his or her position to coerce a colleague to make political contributions to a candidate or cause, and
  • Using employer resources (for example, your email server) to support a candidate or party.

What You Can Do

Some misconceptions surround employers’ ability to curb free speech. For example, the First Amendment doesn’t give employees the right to say anything anytime. Strictly speaking, the First Amendment prevents federal, state and local governments from taking actions interfering with the exercise of free speech in public settings. It generally doesn’t pertain to free speech in the workplace.

You’re well within your rights, for instance, to prohibit employees from distributing strictly political materials or plastering their work areas with political messages. You can also ban the wearing of political buttons under the same authority you use to establish dress code policies.

Depending on how strongly you feel about the hazards of employees’ wearing political buttons, you could focus your policy on customer-facing workers. Although this approach wouldn’t fully address the potential for conflict among non-customer-facing employees, it at least eliminates the risk of alienating the people who buy your products or services.

Political expression by employees outside the workplace is, of course, beyond the scope of employer authority. To maximize employee compliance, be sure to explain that the purpose of the policy isn’t to suppress employees’ political views, but to avoid the inadvertent infliction of emotional distress. It’s not self-evident to many people with strong views (on any topic) that their robust expression of opinions can be distressing to others.

Labor Union Politics

There are both legal and practical constraints on your ability to restrain political speech in the workplace. On the legal side, First Amendment notwithstanding, the National Labor Relations Act (NLRA) addresses the matter peripherally. Specifically, employers cannot ban employees from participating in “concerted activity,” such as speech pertaining to the “mutual aid and protection of employees” — in other words, labor union related actions.

What does labor union related actions refer to? It means employees can wear union-related clothing and buttons, which could be interpreted as a form of “political” expression. However, the NLRA does not sanction union membership solicitation during working hours. In any case, it’s important to draw a distinction between “political” and union-related communication.

Explain Procedures

When you unveil or re-introduce your policy, be sure to include an explanation of the procedure employees should follow if they feel others are violating the policy in order to trigger a company response.

If you have introduced a policy on political activity — or even if you haven’t — take seriously any employee complaints you receive about political harassment. As noted, if not investigated and properly addressed, complaints can evolve into legal charges.

Finally, you can incorporate a positive message into your worksite politicking policy: Encourage employees to take advantage of their opportunity to vote. Although you may already be required to do so under state law, you can let employees take time off from work to vote, preferably at the beginning or end of a shift if the polls are open.

A high proportion of employers participating in the SHRM poll (86%) do give employees that freedom. About half don’t pay employees for the time they take to vote; roughly one-third do.

After the Election

Emotional feelings about political matters don’t disappear once the election is over. While they may reach a crescendo on Nov. 8th, you’ll probably need to maintain your policy on Nov. 9th and every day thereafter. Don’t hesitate to remind your employees that, whatever the outcome, civility must rule the day in the workplace.

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Posted on Sep 29, 2016

ERISA Basics for Employers

If you’re a U.S. employer and you offer any kind of pension benefit to your employees, it’s critical that you have an understanding of the Employee Retirement Income Security Act of 1974 (ERISA). The failure to know and fulfill your obligations and responsibilities under the landmark law may lead to significant liability.

Background and Origin

ERISA established a set of standards and rules that regulated the pension industry and how employers provide retirement benefits to their workforces. The law allows favorable tax treatment for money contributed to pension plans, but it also sets forward a series of requirements as well. Specifically, to qualify for favorable status under ERISA, a plan can’t discriminate entirely in favor of executives and management, and it must extend such benefits to rank-and-file employees.

Pensions

ERISA doesn’t require employers to provide pension benefits at all. But if a pension is offered, for it to qualify for ERISA protection, it must meet a number of demands. Among them:

  • Employees’ pensions must vest to their benefit within a certain number of years.
  • Employers must keep defined benefit pensions sufficiently funded to meet expected benefits, based on the actuarial assumptions in the plan.
  • Income benefits for married couples must be calculated on the joint life expectancy of the couple, not just on the life expectancy of the employee — unless both spouses waive the requirement in writing.

ERISA also created the Pension Benefit Guaranty Corporation (PBGC). This is a quasi-government entity that acts as a backstop for pensions that run into financial trouble and serves to provide workers some security against the possibility of the failure of a pension plan.

All qualified pensions in the country must pay an insurance premium to the PBGC. If a covered pension plan becomes insolvent, the PBGC steps in, takes over the assets and ensures that workers in the plan receive promised benefits, up to certain monthly limits.

Requirements

Employers who provide ERISA-qualified pension plans must file a form 5500 with the Department of Labor. This includes both defined benefit (traditional) pension plans and defined contribution pension plans like the popular 401(k).

You must also provide every employee beneficiary or participant with a plan summary on request. This includes calculations of vested benefits and accrued balances and income benefits.

The Fiduciary Standard

ERISA established a fiduciary standard for plan sponsors, trustees and administrators. This means that those sponsoring or in charge of a plan or its assets are held to the highest standards of conduct, fair dealing and utmost good faith recognized in U.S. law. This is critical, because if plan sponsors fail to understand and abide by their responsibilities as plan fiduciaries, it could lead to significant civil liability and federal fines.

As a fiduciary, your responsibilities include:

  • Acting solely in the best interests of plan participants and their beneficiaries
  • Exercising prudence in carrying out your responsibilities
  • Avoiding any unreasonable plan expenses
  • Making investment and administrative decisions in accordance with plan documents
  • Diversifying investments

Health plans

ERISA also affects the administration of employer health plans. Specifically, to qualify for a full deduction of premiums paid on behalf of employees, the employer must extend benefits and eligibility not just to executives but also to all full-time employees.

A later amendment to ERISA, the Consolidated Omnibus Budget Reconciliation Act (commonly known as COBRA), requires employers to provide limited continuation health insurance coverage to all employees who leave service.

For more information about your obligations and responsibilities under ERISA, contact your employee benefits specialist at Cornwell Jackson.

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Posted on Sep 26, 2016

Punch Clock

The Department of Labor’s Wage and Hour Division recently released some Q&As about the new federal overtime rule, which goes into effect on December 1, 2016.

Under the final rule, the standard salary level used to determine whether executive, administrative, and professional (EAP) employees are eligible to receive overtime will increase from $455 per week ($23,660 per year) to $913 per week ($47,476 per year) for a full-time worker.

As you know, employers are unique and have questions about what the impact may be on their industries and businesses. Here are some highlights from the Q&As:

Question WHD Answer
Are agricultural workers affected? They aren’t affected by the final rule, unless they qualify for one of the “white collar” exemptions.
Are blue collar workers affected? Workers like mechanics won’t qualify for exempt status because they do not pass the duties requirements for exemption, so they are entitled to overtime pay unless another exemption applies.
What about commissioned employees working at a retail establishment? There has been no change to the exemption for commissioned employees working at a retail establishment.
How are computer professionals affected? The hourly salary for a computer professional to be exempt from overtime is still $27.63. However, the weekly standard salary amount will increase from $455 to at least $913 per week on December 1.
Motor carriers Drivers, drivers’ helpers, loaders who are responsible for proper loading, and mechanics working directly on motor vehicles, which are to be used in transportation of passengers or property in interstate commerce, may be exempt from the overtime rule.
Outside sales employees The old and new salary requirements do not apply to outside sales employees.
What about part-time workers? The standard salary level to qualify for exemption is $913 per week on December 1. whether a worker is full-time or part-time.
Are employees with J-1 visas included? The new rule applies to foreign nationals in the U.S. with J-1 visa status such as alien physicians and research scholars.
What about a seasonal business that is only open, say, eight months a year? During the eight-month period, the employer would need to guarantee that at least $913 per week is paid to an employee exempt from receiving overtime. The employer needs to be concerned with the $913 weekly threshold, not the $47,476 annual threshold.
What’s the difference between discretionary and non-discretionary bonuses — and how are they affected by the new rule? The final rule allows employers for the first time to use non-discretionary bonuses and incentive payments (including commissions) to satisfy up to 10% of the standard salary level. Non-discretionary bonuses and incentive payments are forms of compensation promised to employees, for example, to induce them to work more efficiently or to remain with the company.

By contrast, discretionary bonuses (may not be used to satisfy up to 10% of the standard salary level test) are those for which the decision to award the bonus and the amount is at the employer’s sole discretion and not in accordance with any pre-announced standards. An unannounced holiday bonus is a discretionary bonus, because the bonus is entirely at the discretion of the employer, and therefore may not satisfy any portion of the $913 standard salary level. A non-discretionary bonus applies to the quarter it is paid rather than the period it relates to. An employer may make one final catch-up payment sufficient to achieve the required level no later than the next pay period after the end of the quarter.
What are some ways that an employer can comply with the new overtime rule? Employers have a range of options. For each affected employee newly entitled to overtime, they may:

  • Increase the salary of an employee who meets the duties test to at least the new salary level to retain his or her exempt status;
  • Pay an overtime premium of one and a half times the employee’s regular rate of pay for any overtime hours worked;
  • Reduce or eliminate overtime hours;
  • Reduce the amount of pay allocated to base salary (provided that the employee still earns at least the applicable hourly minimum wage) and add pay to account for overtime for hours worked over 40 in the workweek, to hold total weekly pay constant; or
  • Use some combination of the options above.
Can free housing be used to meet the minimum salary threshold? For executive, administrative, and professional employees to qualify for exemption from overtime, an employee must earn the minimum salary amount “exclusive of board, lodging, or other facilities.” The phrase “exclusive of board, lodging, or other facilities” means “free and clear” or independent of any claimed credit for non-cash items of value that an employer may provide to an employee.
The rules are different in my state. What should my business do?
 The federal Fair Labor Standards (FLSA) doesn’t prevent a state from establishing more protective standards. If a state has a more protective standard than the FLSA, the higher standard applies there. To the extent the new minimum salary amount of $913 per week under the final rule is higher than the state requirement, the employer in that state must comply with the higher standard and pay not less than $913 per week to an exempt white collar employee.
Are comp time programs still allowed? Meaning that any hours over 40 can be banked to use later to either take time off or maybe get paid at end of year at straight time? Only employers that are public agencies under the FLSA (for example, a state government) can provide comp time in lieu of overtime premium payments.
Do teachers fall under the new rule?
 Special rules apply to teachers. Here’s some guidance.
What are the penalties for non-compliance of the new overtime rule? Under the FLSA, employers in violation of the law may be responsible for paying any back wages owed to their employees, as well as additional amounts in liquidated damages, civil money penalties, and/or attorney fees.

 

These questions only cover some of the provisions of the new overtime rule. Time is running out for employers to understand what will be expected as of December 1. For more information in your situation, contact your payroll advisor.

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Posted on Sep 26, 2016

PTO Bank

WorldatWork, the HR professional society, has been surveying its members for over a decade on this topic. In its most recent “Paid Time off Programs and Practices” report, within some demographic groups, a majority of employers now merge those paid time off (PTO) components. That creates a “combined bucket of available days to be used by employees … at their own discretion.” One benefit of this approach is that employers are no longer put in a position to have to judge whether leave is used appropriately.

Specifically, 51% of privately held companies have jumped on the PTO bank train. In the health care and “social assistance” industry sector, 79% of those surveyed have embraced this plan. In contrast, just over one-third of manufacturers are using PTO banks, so far.

Use of PTO banks also varies considerably by employer size. Here’s an overview.

Among employers having fewer than 100 workers, about 59% use PTO banks.

For employers in general, about half use PTO banks. This takes in all sizes of companies, except one.

In that one category, defined as 10,000 to 19,000 employees, more than two-thirds use PTO banks.
Growing Prevalence

Overall the choice to use this method of distributing paid time off is growing. A decade ago, only one in three companies used it, while today the overall figure is 43%. Of those surveyed more than one in four are at least considering a move to this system.

Here are the primary motivations for the employers that have already made the switch, and how frequently they were identified, according to the survey:

1. Greater flexibility for employees (63%),

2. Ease of administration (55%),

3. The ability to stay competitive with other companies (29%),

4. Reduced absenteeism (23%),

5. Improved employee morale (22%), and

6. Increased cost effectiveness (20%).

Although reducing absenteeism ranked fourth on that list, it’s noteworthy that 41% of survey respondents reported reduced absenteeism after a PTO program was adopted. That led researchers to believe the drop in absenteeism might be most dramatic right after the program was implemented.

Also noteworthy in the survey is the fact that employers using PTO banks, on average, give employees fewer total paid days off, than those that set individual limits for vacation, sick leave and personal days. As with traditional vacation policies, PTO bank policies allow more paid days off as employee tenure increases.

The accompanying table tells the story.

Average Number of Days Off by Paid Time Off Policy Traditional PTO Bank
< 1 year of service 20 16
1-2 years of service 23 17
3-4 years of service 24 18
5-6 years of service 28 22
7-8 years of service 28 22
9-10 years of service 29 23
11-15 years of service 32 25
16-19 years of service 34 26
20+ years of service 37 27
Source: 2016 WorldatWork Paid Time Off Programs and Practices Survey

Few employers vary their paid time off policies by employee rank, job classification, worksite or department.

 

Additional PTO Uses

A handful of employers with PTO bank policies expect workers to use their PTO allotments for certain purposes beyond vacation, personal days and sick days. Examples include:

  • Generally recognized federal and state holidays
  • Bereavement
  • Jury duty

On the other hand, a large number of companies that use PTO banks expect employees to use their paid time off hours for parental leave and to do volunteer or community work.

Nearly one-fifth of employers offer family leave benefits that are more generous than that required by the Family and Medical Leave Act (FMLA) and local laws (if applicable). Some do so by keeping such employees on the payroll when they aren’t required to do so. Common “beyond FMLA” family leave benefits include offering:

  • A longer duration of job-protected leave,
  • Leave for “a broader set of new-parent circumstances” than required by law, and
  • Leave with fewer administrative and documentation requirements.

Who’s Eligible?

Employers with those more-generous-than-required time off policies for new parents generally did not distinguish between benefits for mothers, fathers or adoptive parents. Nearly three-fourths also offered them to domestic partners of parents, and about half did so for foster parents.

Whether a PTO bank policy is appropriate for your organization will depend on your employee demographics, human resource philosophy and how you feel about policing the reasons why employees miss work.

A first step in examining whether instituting such a policy makes sense — assuming you haven’t already done so — might be comparing your total average employee days away from work to the average PTO allowances (by employee tenure) revealed in the WorldatWork survey. If the number is higher, and you don’t have an unusually unhealthy workforce, it might be a good idea to give the PTO bank concept a careful look.

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Posted on Sep 23, 2016

Employee Cell Phone Use

It’s hard to imagine life without cell phones.

These devices have become essential for just about everyone, and in particular many businesses, whose employees are often required to use one.

But in the cases of companies, there are tax ramifications that depend on whether the firm or the employee owns the phone. Strict substantiation requirements have been removed, so it’s easier for employer-provided cell phones to qualify for tax-free treatment. Otherwise, your firm’s payroll professionals will report amounts as taxable income to employees.

In some cases, employees occasionally will use a personal cell phone for business purposes, mainly for their convenience. There’s nothing wrong with that, but this article is devoted to times when employees are required to use cell phones for their jobs. (Employees paying their own costs may be eligible for miscellaneous expense deductions on their personal tax returns.)

2 Ways to Go

Assuming that cell phone use is part and parcel of the job, the starting point is to decide who owns the phones, employer or employee. Generally there are advantages to your company to furnishing cell phones for business use. It helps to keep a lid on costs, protect confidential information and it offers legal advantages. But this route may still be full of problems. With that in mind, here are the two most common ways to approach the issue:

1. Employer-owned cell phones. You call the shots on the plan being used. In other words, you pay only what you think the company needs based on the job. This includes voice, text and data services. Typically, but not always, business rates are lower than those for personal cell phone plans.

What’s more, you will own the phone numbers, so you are less likely to miss important calls if an employee leaves the company.

Also, remember that you are often responsible for client data. This is a critical legal issue. By owning the cell phones, you can set passwords and use applications for greater protection. Conversely, if employees own their cell phones, it’s more likely that problems will occur, especially when they control decisions on carriers and services.

Finally, if you purchase phones for employees, tech support will be simplified. It’s recommended that you use a single platform for a small-to-midsized business. This will further improve security and reduce exposure to outside hackers.

2. Employee-owned cell phones. Despite the advantages outlined above, owning cell phones is not always a slam-dunk for employers. Consider the following:

  • Cost. Employee-owned phones may be less costly for employers, particularly if the employee has a family plan, or a spouse’s employer covers the entire cost. When analyzing the costs, be sure to take all the relevant factors into account.
  • Personal use. Face it — the phones belong to the employees and they will be using them for personal reasons. If you’re uncomfortable with that, you might choose to reimburse employees for business use. Besides, do you really expect employees to carry two phones?
  • Data use. Personal use may push employees over the allotment. That means a line-by-line examination of the bills will be necessary.
  • Deactivation. If a departing employee refuses to give up a company-provided phone, you’ll have to take steps to deactivate it and re-route the number to another person. This hassle won’t exist with employee-owned phones.
    Usually, employers reimburse employees for substantiated business use, but not for personal use. As an alternative, you could use another form of reimbursement, such as a flat monthly amount of $50 or $100. If an employee doesn’t have a cell phone and can’t afford to buy one, you could arrange to pay for the phone initially and have the employee take over the payments at a later time.

Tax Consequences of Reimbursements

The Small Business Jobs Act made it easier to qualify for tax-free treatment. The IRS explained the basic guidelines in Notice IR-2011-93. As long as certain requirements are met, the value of employer-provided cell phones or reimbursements may be treated as a “working condition fringe benefit.”

But this tax break isn’t automatic. To qualify, the cell phones must be provided to employees for “noncompensatory business reasons.” In other words, there must a bona fide business purpose. The tax exclusion is extended to employer-paid cell phone plans.

The IRS provides three common examples of noncompensatory business reasons.

1. The employer must be able to contact the employee at all times for work-related emergencies,

2. The employer requires the employee to be available to speak with clients or customers at all times when away from the office, or

3. Employees must speak with clients located in other time zones at times outside the regular work time.
If the employer reimburses employees with personal cell phones for business use, it can count as a noncompensatory business reason. However, the amounts must be limited to the cell phone charges. Any excess should be returned to the employer or it will be treated as taxable compensation. Rely on your payroll providers to determine the taxable value.

Also, the value of personal use of an employer-provided cell phone used primarily for noncompensatory business reasons is a tax-free de minimis fringe benefit, provided such use is minimal.

In a memorandum to examiners, the IRS outlined an administrative approach for small businesses that provide cash allowances and reimbursements. Employers that require employees to use personal cell phones primarily for noncompensatory business reasons may treat reimbursements as being tax-free.

If there isn’t a noncompensatory business reason for cell phone use, the value is reported to the IRS as taxable income. Employees may owe tax, which is relatively small, but otherwise they get the phone for free. You may want to set up this arrangement when you want to:

  • Boost morale among employees,
  • Encourage new-hires,
  • Add to the compensation of employees, or
  • Reimburse or pay international coverage for a service technician with only local clients or customers.

IRS examiners have been instructed to ferret out reimbursement arrangements that appear out of the norm. For example, reimbursements that are substantially back-loaded to the end of the year could be disguised compensation. Consult with your Cornwell Jackson payroll provider to determine which route your company should take to avoid any problems.

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