Most employers know that the real costs from employee benefits come from unhealthy choices by employees. Premiums are just one indicator of the “health” of the group, but there are other soft costs that add up to large expenditures of capital. Low productivity and staffing issues can also be major cost drivers for the employer. Here are a few tips that you can share with your staff, or better yet, build into a custom Employee Wellness Program:
Get the Nutrition Facts
As you and your family strive to eat healthier, you should be aware of what is in the food you consume. The best way to know what is in the food products you buy is to read the nutrition facts on food labels.
The following information on labels will help you understand how much is in a portion and how this compares to recommended intake:
- Serving size – The serving size lists the recommended amount to be eaten by a single person. The rest of the nutrition facts are based on this amount.
- Calories and calories from fat – Especially important if you’re trying to lose or maintain weight, these numbers tell you how many calories are in each serving and where they’re coming from.
- Percent daily values – Based on the recommended consumption of 2,000 calories a day, this value indicates how the food product compares to recommended amounts.
When reading ingredients on a product label, keep in mind that ingredients are listed in descending order: ingredients with the greatest amount will be listed first, followed by ingredients used in lesser amounts.
FDA Bans Artificial Trans Fats by 2018
The Food and Drug Administration (FDA) has announced that artificial trans fats are no longer Generally Recognized as Safe (GRAS) and is requiring that they be phased out of the food supply by 2018.
While trans-fat does occur naturally in some meat and dairy products, many processed foods, such as crackers, coffee creamer and margarine, contain artificial trans fats. Artificial trans fats are created in partially hydrogenated oils (PHO)’s, which are oils that have been infused with hydrogen. This process keeps the oils solid at room temperature, and is used to maintain flavor and increase the shelf life of processed foods. Intake of trans fat has been shown to cause various health problems, including high cholesterol and coronary heart disease.
Strengthen Your Core with Plank Exercises
Core muscles are one of the most active muscle groups in the body. Whether you are typing, putting on your shoes, vacuuming or playing basketball, you are engaging your core muscles in some capacity. Because you use core muscles for so many activities, it is important to keep them strong and flexible. There are several specific benefits to maintaining a healthy core:
- Strong back muscles. Many people suffer from debilitating low-back pain. A strong core can relieve the lower back from extra strain and pressure.
- Improved balance and stability. A strong core stabilizes your whole body, increasing your range of motion and decreasing your risk of falling.
- Good posture. Often overlooked, posture is an important factor in overall health. By standing tall, your core muscles can minimize wear on the spine and allow you to breathe more deeply.
Core fitness should be factored into any exercise plan. The plank pose is a popular and effective exercise that is great no matter what your fitness goals are.
To try the plank, get into a pushup position. Bend your elbows so your forearms are resting on the floor directly underneath your shoulders. Focus on creating a straight line with your body from head to toe, and try to hold the pose for as long as you can (if this is too challenging at first, you can try bending your knees). Many people struggle to hold a plank pose for 30 seconds on their first attempt, but, with regular practice, you should be able to hold the position for longer intervals. A good goal if you’re just getting started is to work up to a two-minute plank.
Once you are able to hold this position for two minutes, you can move on to more advanced versions of the plank pose, such as lifting an arm or leg, or resting your forearms on an exercise ball.
Contact us today for more information on how to drive down costs by increasing your employee’s connection to wellness.
On July 15, 2015, the U.S. Department of Labor (DOL) issued an administrative interpretation to clarify how to determine whether a worker is an employee or an independent contractor.
Employee misclassification is a growing concern for the DOL. An increasing number of U.S. workplaces are restructuring their business organizations, creating a higher risk of misclassifying employees as independent contractors.
Employer misclassification has a direct impact on employee eligibility for benefits, legal protections (such as minimum wage and overtime rights) and taxation.
Worker Classification Tests
Several tests exist to determine whether a worker is an employee or an independent contractor. The most common tests include the common law or agency test, the economic realities test, the hybrid test and the IRS test.
Traditionally, the DOL has favored using the six-factor economic realities test because this test seeks to determine whether a worker is economically dependent on his or her employer or whether the worker is in business for him- or herself. The DOL’s rationale is that if the worker is economically dependent on the employer, the worker should be classified as an employee and protected by employment laws, including the Fair Labor Standards Act (FLSA) and the Family and Medical Leave Act (FMLA).
The Economic Realities Test
The six factors for the economic realities test are:
- Whether the worker’s job is an integral part of the employer’s business;
- Whether the worker’s managerial skill affects his or her opportunity for profit or loss;
- Whether the worker’s and the employer’s investments are comparable;
- Whether the work performed requires special skills and initiative;
- Whether the relationship between the worker and the employer is permanent or indefinite; and
- An analysis of the nature and degree of the employer’s control over the worker.
In the administrative interpretation, the DOL emphasized repeatedly that no one factor is determinative and that the factors should not be applied in a mechanical fashion. Rather, the DOL encourages employers to use the six factors as a guide in their efforts to classify workers correctly.
The DOL further explains that the six factors should be interpreted within the context of the FLSA’s definition of employment. The FLSA defines “to employ” as to suffer or permit someone to work. The DOL explains that this broad definition of employment was “specifically designed to ensure as broad of a scope of statutory coverage as possible.” This “suffer or permit” standard prevents employers from using agents to evade labor and employment responsibilities. According to the DOL, under the economic realities test, most workers will be considered employees subject to the FLSA.
An Integral Part of the Employer’s Business
A worker that performs activities that are an integral part of the employer’s business is more likely to be dependent on the employer, and, therefore, should be classified as an employee.
The administrative interpretation states that the courts have found the “integral” factor to be compelling even when the activity in question is just one component of the business or is performed by hundreds or thousands of other workers. For example, the DOL states, “a worker answering calls at a call center along with hundreds of others is performing work that is integral to the call center’s business, even if that work is the same as, and interchangeable with, many others’ work.”
The DOL also mentioned that work can be integral to an employers’ business even if it is performed away from the employer’s premises, at the worker’s home or even on the premises of the employers’ customers.
The focus of this factor is whether the worker’s managerial skill can affect his or her opportunity for profit or loss. To determine profit or loss opportunities, employers should look beyond the job at hand and determine whether the worker’s skills can lead to additional business from other parties or reduce the opportunities for future work.
When evaluating this factor, employers should consider a worker’s decision to hire others, purchase materials and equipment, advertise, rent space and manage timetables.
The DOL specifically mentions that a worker’s ability to work more hours and the amount of work available from the employer have “nothing to do with the worker’s managerial skills and do little to separate employees from independent contractors.” This is because both are likely to earn more if they work more and if there is more work available.
To determine whether the employer and worker investments are comparable, employers should look at the nature and the extent of the investments.
An independent contractor should make some investment and undertake at least some risk of loss if he or she is in business for him- or herself. The investment should support a business beyond any particular job. These types of investments include furthering the business’ capacity to expand, reducing business cost structure and extending the reach of the independent contractor’s market.
However, a worker’s investments should not be considered in isolation. They should be compared to the employer’s investment. If the worker’s investment is relatively minor, the employer and the worker may not be on the same footing and the worker may be economically dependent on the employer.
Finally, investing in tools and equipment is not an automatic indication of significant investment or that the worker is an independent contractor. This type of investment must be compared to the worker’s investment in his or her overall business and to the employer’s investment in the project and perhaps in its overall activities.
Special Skills and Initiative
A worker’s skills and initiative can be an indicator of economic independence. However, when considering a worker’s skill, employers should consider the worker’s business skills, judgement and initiative, rather than his or her technical skills, which are often required to perform the work. Special skills and initiative are indicators of economic independence when the worker can use them in an independent way, such as demonstrating business-like initiative.
The DOL provides the following illustrative examples:
|A highly skilled carpenter provides carpentry services for a construction firm; however, such skills are not exercised in an independent manner. For example, the carpenter does not make any independent judgments at the job site beyond the work that he is doing for that job; he does not determine the sequence of work, order additional materials, or think about bidding the next job, but rather is told what work to perform where. In this scenario, the carpenter, although highly-skilled technically, is not demonstrating the skill and initiative of an independent contractor (such as managerial and business skills). He is simply providing his skilled labor.|
|In contrast, a highly skilled carpenter who provides a specialized service for a variety of area construction companies, for example, custom, handcrafted cabinets that are made-to-order, may be demonstrating the skill and initiative of an independent contractor if the carpenter markets his services, determines when to order materials and the quantity of materials to order, and determines which orders to fill.|
Permanent or Indefinite Employment
Employment that is permanent or indefinite in character suggests that the worker is an employee. Most independent contractors will avoid permanent or indefinite work relationships and are usually hired to work until a job or a project is complete (even if this takes several months or years). Moreover, once a job or project is complete, the independent contractor does not necessarily continue to provide his or her services to the employer.
Employers should consider a worker’s reasons for intermittent, seasonal, permanent or indefinite employment. Neither working for others nor having multiple sources of income transforms a worker into an independent contractor. The key is to determine “whether the lack of permanence or indefiniteness is due to operational characteristics intrinsic to the industry (such as employers that hire part-time workers or use staffing agencies) or the worker’s own business initiative.”
For seasonal employment, the proper test to determine permanency is whether the employees worked for the entire operative period of a particular season, not whether the worker returns from season to season.
Nature and Degree of Employer Control
An independent contractor controls meaningful aspects of the work he or she performs. This type of control should lead objective observers to conclude that the worker is conducting his or her own business.
Control over meaningful aspects of the work may extend beyond controlling working hours and could include work schedules, dress code and task prioritization.
The DOL asserts that this control cannot be theoretical and explains that what counts is not what the worker could have done, but what the worker actually does.
Finally, the DOL warns that the control factor should not “play an oversized role” and dwarf other factors in the economic realities test when determining whether a worker is an employee or an independent contractor.
Please contact us for additional information on appropriate worker classification. We provide Solutions for Business. Solutions….that Work!
Provided by CIBC of Illinois, Inc.
On June 30, 2015, the U.S. Department of Labor (DOL) issued a proposed rule to modify the “white collar exemptions” provided by the Fair Labor Standards Act (FLSA). The white collar exemptions are minimum wage and overtime exception rules for executive, administrative, professional, outside sales and computer employees.
Specifically, the proposed rule seeks to:
- Increase the salary requirements for employees to be considered exempt;
- Implement automatic salary requirement updates; and
- Receive feedback on whether modifying the duties test is necessary at this time.
The DOL estimates that, if implemented, the proposed rule would extend overtime protections to approximately 5 million workers who are currently exempt under the white collar rules and would clarify overtime compensation eligibility for another 6 million white collar workers.
The DOL has invited the general public to comment on the proposed rule. Comments can be submitted electronically or via regular mail. All comments must be submitted or postmarked by Aug. 29, 2015.
Why Is the DOL Issuing a Proposed Rule?
On March 13, 2014, President Barack Obama directed the DOL to simplify and modernize the regulations that protect “white collar” workers under the FLSA.
The Administration’s concern is that current white collar exemption requirements are outdated, since the salary threshold has been changed only twice in the last 40 years. Fewer workers are eligible for overtime now than in the past due to inflation.
White Collar Exemptions
To qualify for the white collar exemption, an employee must meet a salary basis test, a salary level test and a duties test.
- The salary basis test is used to make sure the employee is paid a predetermined and fixed salary that is not subject to reduction due to variations in the quality or quantity of work.
- The salary level test is used to ensure that the employee meets a minimum specified amount to qualify for the exemption.
- The duties test requires that the employee’s job duties conform to executive, administrative or professional duties, as defined by law.
Higher Salary Requirements
The proposed rule would increase the current minimum salary level of $455 per week ($23,660 per year) to $921 per week or ($47,892 per year). The proposed new salary level represents the 40th percentile of wages earned by workers across the United States in 2013. Projected data for 2016 would set these numbers to $970 per week and $50,440 per year.
The proposed rule would also increase the $100,000 salary level for highly compensated individuals to $122,148 per year—the 90th percentile of wages earned by workers in 2013.
The DOL is also considering special salary tests for employees in American Samoa and workers in the motion picture industry.
The DOL has stated that these updates are necessary to accurately represent the intent of minimum wage and overtime exemptions, which have not been updated since 2004.
Automatic Salary Requirement Updates
If implemented, the proposed rule will automatically update minimum salary level requirements for the white collar exemptions every year. Implementing automatic annual updates would prevent salary level requirements that lag behind current wage payment trends.
In the proposed rule, the DOL explains that it is considering tying minimum salary requirements to:
- Fixed percentiles of wages paid (40th percentile for weekly wage and 90th percentile for highly compensated individuals); or
- Inflation, as measured by the consumer price index.
Calculating Employee Wages
The proposed rule also states that the DOL is considering allowing an employer to apply nondiscretionary bonuses and incentive payments towards a portion of an employee’s standard salary level.
The proposed rule explains that including these bonuses would more accurately represent an employee’s earnings and would provide a better assessment of whether a white collar exemption should apply.
Public Comments on Duties Test
The proposed rule does not include specific suggestions to modify the white collar exemption duties test.
However, the DOL is considering whether updating this test is also necessary. To this end, the DOL is inviting public comments on whether the duties test is working as intended. The DOL has included several questions in the proposed rule for commenters to consider.
Impact on Employers
If implemented, the proposed rule would require employers to re-determine the exemption status of employees, update and adapt overtime policies, notify employees of policy changes and adjust their payroll systems.
These measures could trigger significant costs. For example, employers may be required to pay overtime wages to previously exempt employees or incur ongoing managerial costs because they would need to monitor more closely the work of employees they didn’t have to monitor before.
On the other hand, the DOL is predicting that higher salary level requirements for white collar exemptions will simplify the process of employee classification because employers would not be required to perform a duties test for employees below the updated salary requirements. This simplification could result in fewer lawsuits and lower litigation costs for employers.
As always, contact us today for a full analysis of your exposure to this new regulation, and for Custom CIBC Solutions to help mitigate your associated costs.
What Employers Should Know
The Supreme Court’s decision impacts the legality of same-sex marriages throughout the country. By ruling that state laws prohibiting same-sex marriage are unconstitutional, the Supreme Court has effectively legalized same-sex marriage in all 50 states. Same-sex couples will be allowed to marry in any state, and will be entitled to the all the rights, benefits and obligations given to opposite-sex spouses under both federal and state law.
Also, due to the Supreme Court’s ruling, employers will generally be required to treat employees in same-sex marriages the same as employees in opposite-sex marriages for many federal and state law purposes.
Many federal laws have already been interpreted to include both same-sex and opposite-sex marriages due to the Supreme Court’s decision on DOMA. The Supreme Court’s most recent ruling will expand these legal rights and protections to additional couples.
Also, many state law leave rights for legally married spouses should extend to employees with same-sex spouses. Same-sex married couples should also be subject to the same state tax rules as opposite-sex married couples. State insurance laws may require employers with insured health plans to offer equal health plan coverage to opposite-sex and same-sex couples.
The Supreme Court did not consider whether federal nondiscrimination laws should be expanded to protect workers from discrimination based on sexual orientation or gender identity. However, a number of states have laws that prohibit such workplace discrimination. Employers should keep any applicable laws in mind when providing any rights or benefits to employees.
Call us today for a full analysis. It’s up to you to make sure you and your business are compliant with the law, both Federally and within your particular State….and we can help!
Health savings accounts (HSAs) are a great way to save money and efficiently pay for medical expenses. HSAs are tax-advantaged savings accounts that accompany high deductible health plans (HDHPs).
While HSAs are a helpful approach to paying for medical care, the fact that they combine both insurance and tax regulations make them a unique type of benefit with a fairly involved set of requirements. There can be confusion over how HSAs are administered, especially concerning unusual scenarios. The following questions address situations that HSA owners may find themselves in, but are not a typical part of standard HSA information.
What if I want to deposit the maximum annual contribution at once?
This is allowable. While HSAs are typically deducted from your paycheck and deposited every pay period, you may opt for a one-time payment provided that:
Your contribution does not exceed the HSA limit when added to an employer contribution. HSA limits apply to the overall account contribution, and not to each person or entity depositing money into the account. For this reason, you may need to calculate the yearly employer contribution before determining your personal maximum contribution.
You are eligible to contribute to an HSA for the entire year. If you obtained HSA eligibility after Jan. 1, your maximum contribution limit decreases by one-twelfth for every month you are not eligible. You can only make a contribution for the months you’re eligible. There is an exception to this rule for individuals who are eligible to contribute to an HSA on Dec. 1 of a calendar year. They are allowed to contribute an amount equal to the annual HSA contribution amount provided they remained covered by the HSA for at least a 12-month period after contributing.
What if my spouse or family member wants to make contributions to my HSA?
Family members may make contributions on behalf of other family members, provided:
The total contribution put forth by you, your family member and your employer does not exceed the annual contribution limit (with only a single exception for the additional catch-up contribution if the account holder is at least 55 years old).
What if I want to use an HSA to pay for my dependent’s medical care?
This is generally allowable, as qualified medical expenses include unreimbursed medical expenses of the owner, his or her spouse or dependents.
What if I use my HSA for a nonqualified medical expense?
Nonqualified withdrawals from your HSA are considered taxable income. The money you spend would be added to your gross income and taxed, and would also be subject to a 20 percent penalty. An exception to this rule is if you are age 65 or older, you are totally and permanently disabled, or you make the withdrawal after you die.
What if I want to use my HSA to pay my premiums?
This would not be considered a qualified medical expense and would be subject to taxes and penalties.
What if I want to use my HSA to pay for long-term care insurance?
This is allowable. HSA distributions used to pay for long-term care insurance premiums qualify as tax-free, penalty-free distributions. However, there is an annual limit to the amount you may contribute toward this expense, which is adjusted by the IRS every year.
What if I want to close my account?
Unless any of the previous exceptions have been met, the funds remaining in the account would be subject to taxes and penalties if withdrawn for reasons other than a qualified medical expense.
What if I want to invest the funds in my HSA?
You can invest the funds in bank accounts, money markets, mutual funds and stocks, if that is something your HSA servicer allows. Any earnings made on the investments would not count toward your annual contribution limit. You may not invest in collectibles, art, automobiles or real estate.
What if I leave my employer?
Your HSA belongs to you regardless of your employment. If you change jobs, or stop working altogether, you can keep your total HSA balance, including all employer contributions. You can continue spending the account balance on qualified medical expenses free of taxes or penalties.
However, you will not be able to make further contributions to your account, unless you remain enrolled in a HDHP. If you lose your HDHP, all contributions to an HSA must be suspended until you are back on an HSA-compliant HDHP plan.
What if I change my health coverage to a plan that doesn’t allow an HSA?
You will have to stop making contributions to your HSA, but you will be free to spend the account balance with the same tax-free benefits, provided they go toward qualified medical expenses. You could also hold on to the balance and any investments until age 65, at which point the money would be available to you with no taxes or penalties.
For more information on these or other HSA scenarios, contact CIBC of Illinois, Inc. today.
On May 4, 2015, the Internal Revenue Service (IRS) released Revenue Procedure 2015-30 to announce the inflation-adjusted limits for health savings accounts (HSAs) for calendar year 2016. The IRS announced the following limits for 2016:
- The maximum HSA contribution limit;
- The minimum deductible amount for high deductible health plans (HDHPs); and
- The maximum out-of-pocket expense limit for HDHPs.
These limits vary based on whether an individual has self-only or family coverage under an HDHP.
Only some of the HSA limits will increase for 2016. The limits that will increase are the HSA contribution limit for individuals with family HDHP coverage and the maximum out-of-pocket expense limit for self-only and family HDHP coverage.
|Type of Limit||2015||2016||Change|
|HSA Contribution Limit||Self-only||$3,350||$3,350||No change|
|HSA Catch-up Contributions (not subject to adjustment for inflation)||Age 55 or older||$1,000||$1,000||No change|
|HDHP Minimum Deductible||Self-only||$1,300||$1,300||No change|
|HDHP Maximum Out-of-pocket Expense Limit (deductibles, copayments and other amounts, but not premiums)||Self-only||$6,450||$6,550||Up $100|
Just let us know if you have any other questions about this, or any other aspect of the Affordable Care Act.
http://www.CIBCINC.com / 1-866-936-3580
Supreme Court Issues Ruling in Pregnancy Discrimination Case
On March 25, 2015, the U.S. Supreme Court ruled in favor of a former employee of United Parcel Service (UPS). The employee was faced with the choice to either continue working her labor-intensive job during pregnancy or take unpaid leave.
In its Young v. UPS decision, the Supreme Court held that the employee should be given the opportunity to prove that UPS violated the Pregnancy Discrimination Act (PDA) by not providing her the same light-duty accommodation that was given to other UPS employees who were considered injured or disabled. The PDA requires that women affected by pregnancy, childbirth or a related medical condition be treated the same for all employment-related purposes as “other persons not so affected but similar in their ability or inability to work.”
The employee in this case, Peggy Young, worked as a part-time driver for UPS. In 2006, Young became pregnant and was advised by her doctor that she should not lift more than 20 pounds. However, UPS required drivers to be
able to lift up to 70 pounds and denied Young’s lifting restriction.
Young sued UPS, alleging that it violated the PDA because it had a light-duty policy for other types of workers, including those who were injured on the job or disabled under the Americans with Disabilities Act (ADA), but not for pregnant workers. UPS argued that it treated her as it would treat other relevant individuals and therefore did not discriminate against her based on pregnancy.
In 2008, the ADA’s definition of “disability” was expanded, requiring employers to accommodate employees with temporary lifting restrictions originating outside of work. In 2014, the EEOC also issued guidance requiring employers that provide light-duty assignments to employees who are unable to perform their full duties to make similar accommodations for pregnant employees. Many employers may have already changed their policies in light of this guidance.
The Supreme Court sent the case to the lower court for further review and also outlined standards for PDA cases. An individual may show discrimination by showing that her employer did not accommodate her while pregnant but did accommodate others who are similar “in their ability or inability to work.”
The decision is a victory for pregnant workers because it establishes an easier framework to prove illegal discrimination. Employers should review their policies to make sure that they do not discriminate against pregnant workers in violation of applicable laws. A significant factor in determining whether discrimination occurred will be if the employer accommodates a large percentage of nonpregnant workers while failing to accommodate a large percentage of pregnant workers.
HR Summertime Checklist
Employers and HR departments that take time to prepare for the summer months may be able to enjoy them a bit more. Now is a good time to start considering the employee management areas outlined below to ensure a smooth summer. Think about how each area impacts your organization and whether any action should be taken.
PTO/Vacation Requests – Do managers and supervisors know how to administer employee requests to make sure appropriate staffing levels are maintained and employees are treated fairly?
Summer Hours – Will your company begin or continue a “summer hours” policy? Will it be company-wide?
Dress Code – Does your company allow for a more relaxed dress code during the summer? How long does this last?
Staffing – Are you a seasonal employer who should start hiring for the summer? Are there layoffs to be administered prior to summer? Will you be hiring interns?
Of course, the above is not an all-inclusive list and each organization is unique. Think about what the summertime season means for your organization and get prepared.
DID YOU KNOW?
Many employers have implemented wellness programs to control health care costs. However, the Equal Employment Opportunity Commission (EEOC) has filed several lawsuits against employer-sponsored wellness programs it says violate the Americans with Disabilities Act (ADA) and the Genetic Information Nondiscrimination Act (GINA).
Until more clear guidance is available, you should take note of the issues highlighted in the EEOC cases. Specifically, you should review your wellness plan to ensure participation is voluntary and that employees are not excessively penalized for refusing to participate. In addition, you should evaluate whether the information collected about employees is protected under the ADA, GINA or any other employment benefit law.
For help with any part of the Employee Benefits spectrum, call us today at 877-936-3580.
From CIBC of Illinois
IRS Invites Comments on Cadillac Tax Implementation
On Feb. 23, 2015, the Internal Revenue Service (IRS) issued Notice 2015-16 to describe potential approaches for a number of issues related to the Affordable Care Act’s (ACA) so-called Cadillac tax. The IRS is seeking comments as it begins developing guidance for the implementation of the Cadillac tax. Public comments may be submitted to the IRS until May 15, 2015.
Proposed or final regulations have not yet been issued on the ACA’s Cadillac tax provision. This notice is intended to invite comment as guidelines are assembled, and taxpayers should not rely on the information provided in Notice 2015-16.
Cadillac Tax Overview
The Cadillac tax will go into effect beginning in 2018. This provision imposes a 40 percent excise tax on high-cost group health coverage. The Cadillac tax is intended to encourage companies to choose lower-cost health plans for their employees.
The Cadillac tax provision is found in Internal Revenue Code Section 4980I. This provision taxes the amount of an employee’s “excess benefit.” The excess benefit is the amount by which the monthly cost of an employee’s employer-sponsored health coverage exceeds the annual limitation.
For 2018, the statutory dollar limits are:
- $10,200 per employee for self-only coverage; and
- $27,500 per employee for other-than-self-only coverage.
The tax amount for each employee’s coverage will be calculated by the employer and paid by the coverage provider.
The Cadillac tax applies to “applicable employer-sponsored coverage” (both insured and self-insured). Applicable employer-sponsored coverage is coverage under any group health plan made available to the employee by the employer, which is excludable from the employee’s gross income under Code Section 106.
Applicable coverage also includes health flexible spending accounts (FSAs), health savings accounts (HSAs), on-site medical clinics, retiree coverage, multiemployer plans and coverage only for a specified disease or illness and hospital indemnity or other fixed indemnity insurance (if paid on a pretax basis or if a Section 162(l) deduction is allowed).
DOL Issues Final Rule to Expand FMLA Protections for Same-sex Spouses
The Department of Labor (DOL) has issued a final rule that will expand rights under the Family and Medical Leave Act (FMLA) for same-sex spouses. Under the final rule, eligible employees in legal same-sex marriages will be able to take FMLA leave in order to care for their spouses or family members, regardless of where they live.
The DOL’s new guidance is effective March 27, 2015, and it replaces guidance regarding FMLA protections for same-sex spouses that was issued following the U.S. Supreme Court’s decision in United States v. Windsor.
The final rule changes the definition of “spouse” under the FMLA as follows:
Adopts a “place of celebration” rule (which is based on where the marriage was entered into), instead of the “state of residence” rule that applied under prior DOL guidance; and
- Expressly includes same-sex marriages in addition to common law marriages, and encompasses same-sex marriages entered into abroad that could have been entered into in at least one state.
This change will impact FMLA leave in several ways. Specifically, the definitional change means that eligible employees, regardless of where they live, will be able to:
- Take FMLA leave to care for their same-sex spouses with serious health conditions;
- Take qualifying exigency leave due to their same-sex spouses’ covered military service; or
- Take military caregiver leave for their same-sex spouses.
In connection with the final rule, the DOL also issued a set of frequently asked questions (FAQs) to help employers and employees understand the changes to the FMLA’s definition of “spouse.”
To comply with the final rule, employers should review and update their FMLA policies and procedures as necessary. Employers should also train employees who are involved in the leave management process on the expanded eligibility rules for same-sex spouses under the FMLA.
DOJ to Allow Claims Based on Gender Identity Discrimination
On Dec. 18, 2014, the U.S. Department of Justice (DOJ) announced a reversal of its position regarding whether discrimination based on sex incudes discrimination based on an individual’s gender identity and transgender status.
The DOJ has now taken the position that discrimination based on sex includes discrimination based on an individual’s gender identity and transgender status.
Although the DOJ’s authority to file discrimination lawsuits is limited to government employers, this announcement solidifies the federal government’s position on gender identity rights.
Background Title VII of the Civil Rights Act prohibits employers from discriminating on the basis of race, color, religion, sex or national origin when making employment decisions. In 2006, the DOJ took the position that discrimination based on sex excluded discrimination based on an individual’s gender identity or transgender status. The DOJ has now reversed this position.
Gender identity is an individual’s internal sense of being male or female. An individual’s internal identification may or may not correspond to the individual’s biological gender. Transgender individuals are people with a gender identity that is different from the sex assigned to them at birth.
Effect on Employers Employers can expect to see more individuals file claims based on gender identity discrimination and increased federal support for employee protections against discrimination based on gender identity and sexual orientation.
Employers should review their employment policies to ensure that they are compliant with federal, state and local anti-discrimination regulations.
New Guidance and Relief for Employer Payment of Individual Premiums
Under the ACA, employer payment plans do not comply with several provisions that took effect beginning in 2014. Violations of these rules can result in excise taxes of $100 per day for each employee.
An employer payment plan is an arrangement where an employer reimburses or pays premiums for an employee’s individual health insurance.
New Guidance on Employer Payments
The Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury have released several pieces of guidance clarifying the rules regarding these arrangements. The IRS issued Notice 2015-17 on Feb. 18, 2015, providing further clarification.
Specifically, this notice provides information on several related issues:
- Reiterates that employer payment plans are group health plans that will fail to comply with the ACA’s market reforms applicable to group health plans;
- Clarifies that increases in employee compensation do not constitute an employer payment plan, as long as the increases are not conditioned on the purchase of individual health coverage;
- Provides transition relief from the excise tax for employer payment plans sponsored by small employers (those not subject to the ACA’s employer shared responsibility rules) and to S corporation health care arrangements for 2-percent shareholder-employees;
- Addresses whether employers may reimburse employees for Medicare or TRICARE premiums for active employees under the ACA; and
- States that employer payments for individual premiums can be excludable from an employee’s income under the tax code but will still violate the ACA’s market reforms.
Employers should review their benefit and compensation plans and policies to ensure they are not in violation of current guidance regarding employer payment plans.
The information contained in this newsletter is not intended as legal or medical advice. Please consult a professional for more information.
In the past, many employers have helped employees pay for individual health insurance policies instead of offering an employer-sponsored plan. In recent months, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury (Departments) have released several pieces of guidance addressing these arrangements.
The Departments’ guidance specifically addresses “employer payment plans,” under which an employer reimburses or pays premiums for an employee’s individual health insurance policy.
According to this guidance, employer payment plans do not comply with several ACA provisions that took effect beginning in 2014. Violations of these rules can result in excise taxes of $100 per day for each employee.
IRS Notice 2015-17
On Feb. 18, 2015, the Internal Revenue Service (IRS) issued Notice 2015-17. This notice:
- Reiterates that employer payment plans are group health plans that will fail to comply with the ACA’s market reforms applicable to group health plans;
- Clarifies that increases in employee compensation do not constitute an employer payment plan, as long as the increases are not conditioned on the purchase of individual health coverage;
- Provides transition relief from the excise tax for employer payment plans sponsored by small employers (those not subject to the ACA’s employer shared responsibility rules) and to S corporation healthcare arrangements for 2-percent shareholder-employees;
- Addresses whether employers may reimburse employees for Medicare or TRICARE premiums for active employees under the ACA; and
- States that employer payments for individual premiums can be excludable from an employee’s income under the tax code, but will still violate the ACA’s market reforms.
The DOL and HHS have reviewed the notice and agree with the guidance provided. The Departments noted that they expect to issue further clarifications regarding other aspects of employer payment plans and HRAs in the near future.
Increases in Employee Compensation
Notice 2015-17 clarifies that, if an employer increases an employee’s compensation, but does not condition the additional compensation on the purchase of health coverage (or otherwise endorse a particular policy, form or issuer of health insurance), it is not considered an employer payment plan.
According to the IRS, providing employees with information about the Exchange or the premium tax credit is not endorsement of a particular policy, form or issuer of health insurance. Because this type of arrangement generally will not constitute a group health plan, it is not subject to the ACA’s market reforms.
Excise Tax Delay for Small Employers
Small employers have often helped employees pay for individual coverage. As noted above, these employers would normally be subject to an excise tax of $100 per day for each employee.
Notice 2015-17 provides a delay in the excise tax penalty for employers that are not applicable large employers (ALEs) under the ACA’s employer shared responsibility rules. These employers may need additional time to obtain group health coverage or to adopt a suitable alternative.
Therefore, an excise tax will not be assessed for violations of the ACA’s market reforms by certain employer payment plans that pay (or reimburse employees) for individual health policy premiums or Medicare Part B or Part D premiums.
This transition relief is available on a temporary basis. Employers may be eligible for relief from the excise tax as late as June 30, 2015. Specifically:
- For 2014, the relief applies to employers that are not ALEs in 2014.
- For Jan. 1 to June 30, 2015, the relief applies to employers that are not ALEs in 2015.
After June 30, 2015, these employers may be liable for the excise tax.
This relief does not extend to stand-alone HRAs or other arrangements that reimburse employees for medical expenses other than insurance premiums.
Employers eligible for this relief are not required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans) as a result of having these arrangements during the period for which the employer is eligible for the relief.
Reimbursement of Medicare and TRICARE Premiums
Notice 2015-17 notes that an arrangement under which an employer reimburses (or pays directly) some or all of Medicare Part B or Part D premiums for employees constitutes an employer payment plan. Similarly, an arrangement under which an employer reimburses (or pays directly) some or all of medical expenses for employees covered by TRICARE constitutes an HRA. In both cases, if the arrangement covers two or more active employees, it is a group health plan subject to the ACA’s market reforms.
An employer payment plan or an HRA may not be integrated with Medicare coverage or TRICARE to satisfy the market reforms, because Medicare coverage and TRICARE are not group health plans for integration purposes.
However, an employer payment plan or HRA that pays for or reimburses Medicare Part B or Part D premiums, or medical expenses for employees covered by TRICARE, is integrated with another group health plan offered by the employer for purposes of the market reforms if:
- The employer offers a group health plan (other than the employer payment plan or HRA) to the employee that does not consist solely of excepted benefits and offers coverage providing minimum value;
- The employee participating in the employer payment plan or HRA is actually enrolled in Medicare Parts A and B or TRICARE;
- The employer payment plan or HRA is available only to employees who are enrolled in Medicare Part A and Part B or Part D, or TRICARE; and
- The employer payment plan or HRA is limited to reimbursement of Medicare Part B or Part D premiums, or cost-sharing, and excepted benefits, including Medigap premiums or TRICARE supplemental premiums.
Note that, to the extent that this type of arrangement is available to active employees, it may be subject to restrictions under other laws, such as the Medicare secondary payer provisions or laws that prohibit offering financial or other incentives for TRICARE-eligible employees to decline employer-provided group health plan coverage, similar to the Medicare secondary payer rules.
An employer payment plan that has fewer than two participants who are current employees (for example, a retiree-only plan) on the first day of the plan year is not subject to the market reforms, and, therefore, integration is not necessary to satisfy the market reforms.
Also, an employer may provide more than one type of healthcare arrangement for its employees (for example, a Medicare Part B employer payment plan and a TRICARE-related HRA), provided that each arrangement meets the applicable integration or other rules.
S Corporation Healthcare Arrangements for 2-percent Shareholder-employees
Under IRS Notice 2008-1, if an S corporation pays for (or reimburses) premiums for individual health insurance coverage covering a 2-percent shareholder, the payment or reimbursement is included in income, but the 2-percent shareholder-employee may deduct the amount of the premiums (provided that all other eligibility criteria for deductibility are satisfied). Notice 2015-17 refers to this as a 2-percent shareholder-employee healthcare arrangement.
The Departments stated that they may issue additional guidance on the application of the market reforms to a 2-percent shareholder-employee healthcare arrangement. However, until further guidance is issued (and at least through the end of 2015), the excise tax will not be assessed for any failure to satisfy the market reforms by a 2-percent shareholder-employee healthcare arrangement.
Furthermore, until additional guidance provides otherwise, an S corporation with a 2-percent shareholder-employee healthcare arrangement will not be required to file IRS Form 8928 (regarding failures to satisfy requirements for group health plans, including the market reforms) solely as a result of having a 2-percent shareholder-employee healthcare arrangement.
However, this guidance does not apply to reimbursements of individual health insurance coverage with respect to employees of an S corporation who are not 2-percent shareholders.
The IRS is also considering whether additional guidance is needed on the federal tax treatment of 2-percent shareholder-employee healthcare arrangements. However, until additional guidance provides otherwise, taxpayers may continue to rely on Notice 2008-1 with regard to the tax treatment of these arrangements for all federal income and employment tax purposes.
To the extent that a 2-percent shareholder is allowed both the deduction described above and a premium tax credit for coverage through an Exchange, Revenue Procedure 2014-41 provides guidance on calculating the deduction and the credit with respect to the 2-percent shareholder.
Notice 2015-17 also noted, however, that the market reforms do not apply to a group health plan that has fewer than two participants who are current employees on the first day of the plan year. Thus, an arrangement covering only a single employee (whether or not that employee is a 2-percent shareholder-employee) generally is not subject to the market reforms, whether or not the reimbursement arrangement otherwise constitutes a group health plan.
However, if an S corporation maintains more than one of these types of arrangements for different employees (whether or not 2-percent shareholder-employees), all are treated as a single arrangement covering more than one employee, so that this exception does not apply.
Employer Payment Plans under Code Sections 105 and 106
The notice also addresses Revenue Ruling 61-146 (Rev. Rul. 61-146), which has been cited by some as authority permitting employer payment plans under the tax code. Under Rev. Rul. 61-146, employer reimbursements of an employee’s individual insurance premiums are excluded from the employee’s gross income under Code Section 106. This exclusion also applies if the employer pays the premiums directly to the insurance company.
According to the IRS, this guidance regarding the tax exclusion continues to apply. This means only that the payments are excludable from the employee’s gross income under Section 106 (regardless of whether the employer includes the payments as wages on the Form W-2).
However, the IRS stated that Rev. Rul. 61-146 does not address the application of the ACA’s market reforms, and should not be read as containing any implication regarding the application of those market reforms.
An arrangement under which an employer provides reimbursements or payments that are dedicated to providing medical care (such as cash reimbursements for the purchase of an individual market policy) is, itself, a group health plan. Accordingly, the arrangement is subject to the ACA’s market reform rules applicable to group health plans, without regard to whether the employer treats the money as pre-tax or post-tax to the employee. These employer health care arrangements cannot be integrated with individual market policies to satisfy the market reforms and, therefore, do not comply with the ACA.
The notice supplements two Information Letters previously issued by the IRS Office of Chief Counsel. Letter 2014-0037 and Letter 2014-0039 addressed the ability of employers to reimburse employees’ medical expenses with pre-tax dollars under Code Section 105. These letters note that, although the ACA has not changed the tax treatment under Section 105 or 106, these arrangements violate the ACA’s prohibition on annual limits because they reimburse medical expenses up to a fixed amount.
Prior Employer Payment Plan Guidance
- 24, 2013: Department FAQs addressed compliance of HRAs with the ACA’s market reforms.
- 13, 2013: IRS Notice 2013-54 and DOL Technical Release 2013-03 clarified that HRAs, certain health FSAs and other employer payment plans are considered group health plans subject to the ACA’s market reforms, and they cannot be integrated with individual policies to satisfy those requirements. As a result, effective for 2014 plan years, these plans are essentially prohibited.
- May 13, 2014: IRS FAQs addressed the consequences for employers that reimburse employees for individual health insurance premiums. These arrangements may trigger an excise tax of $100 per day for each applicable employee ($36,500 per year for each employee) under Code Section 4980D.
- 6, 2014: Department FAQs clarified that employer payment plans do not comply with the ACA’s market reforms and may subject employers to penalties, whether provided on a pre- or after-tax basis.
A key provision of the Affordable Care Act (ACA) is the individual mandate, which requires most individuals to purchase health insurance coverage for themselves and their family members or pay a penalty.
Starting in 2015, individuals will have to report on their federal tax return whether they had health insurance coverage for 2014 or were exempt from the individual mandate. Any penalties that an individual owes for not having health insurance coverage will generally be assessed and collected in the same manner as taxes.
How will coverage be reported under the individual mandate?
Starting in 2015, when you file a federal tax return for 2014, you will have to:
- Report that you, your spouse (if filing jointly) and any individual you claim as a dependent had health care coverage throughout 2014; or
- Claim a coverage exemption from the individual mandate for some or all of 2014 and attach Form 8965; or
- Pay an individual mandate penalty (called a shared responsibility payment) for any month in 2014 that you, your spouse (if filing jointly) or any individual you claim as a dependent did not have coverage and did not qualify for a coverage exemption.
If you and your dependents all had minimum essential coverage for each month of the tax year, you will indicate this on your 2014 tax return by simply checking a box on Form 1040, 1040A or 1040EZ; no further action is required.
If you obtained a coverage exemption from the Marketplace or you qualify for an exemption that you can claim on your return, you will file Form 8965, and attach it to your tax return.
For any month you or your dependents did not have coverage or a coverage exemption, you will have to make a shared responsibility payment. The amount of the payment due will be reported on Form 1040, Line 61, in the “Other Taxes” section, and on the corresponding lines on Form 1040A and 1040EZ.
Who is exempt from the individual mandate?
You may be exempt from the individual mandate penalty if you:
- Cannot afford coverage
- Have income below the federal income tax filing threshold
- Are not a citizen, are not considered a national or are not lawfully present in the United States
- Experience a gap in coverage for less than a continuous three-month period
- Qualify as a religious conscientious objector
- Are a member of a health care sharing ministry
- Are a member of certain American Indian tribes
- Are given a hardship exemption by the Department of Health and Human Services
- Are incarcerated
How much will the individual mandate penalty cost me?
The penalty for not obtaining acceptable health care coverage is being phased in over a three-year period. The amount of the penalty is either your “flat dollar amount” or your “percentage of income amount”—whichever is greater.
For 2014, the annual penalty is either:
- One percent of your household income that is above the tax return filing threshold for your filing status; or
- Your family’s flat dollar amount, which is $95 per adult and $47.50 per child, limited to a family maximum of $285.
Your payment amount is capped at the cost of the national average premium for a bronze level health plan, available through the Marketplace in 2014. For 2014, the annual national average premium for a bronze level health plan available through the Marketplace is $2,448 per individual ($204 per month), but $12,240 for a family with five or more members ($1,020 per month).
Calculating your payment requires you to know your household income and your tax return filing threshold.
Household income is the adjusted gross income from your tax return plus any excludible foreign earned income and tax-exempt interest you receive during the taxable year. Household income also includes the adjusted gross incomes of all of your dependents who are required to file tax returns.
Tax return filing threshold is the minimum amount of gross income an individual of your age and filing status (for example, single, married filing jointly, head of household) must make to be required to file a tax return.