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HR Update: DOL Clarifies Worker Classification Test

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:

  1. Whether the worker’s job is an integral part of the employer’s business;
  2. Whether the worker’s managerial skill affects his or her opportunity for profit or loss;
  3. Whether the worker’s and the employer’s investments are comparable;
  4. Whether the work performed requires special skills and initiative;
  5. Whether the relationship between the worker and the employer is permanent or indefinite; and
  6. 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.

Managerial Skill

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.

Comparable Investments

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:

Example 1
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.
Example 2
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.

More Information

Please contact us for additional information on appropriate worker classification. We provide Solutions for Business. Solutions….that Work!

Human Resources Brief from CIBC of Illinios

Supreme Court Rules on Abercrombie Religious Discrimination Case

On June 1, 2015, the U.S. Supreme Court ruled against Abercrombie & Fitch in a high-profile religious discrimination case. The Supreme Court ruled in favor of a Muslim woman who was denied employment with Abercrombie due to wearing a headscarf, or hijab, in violation of the company’s “look policy.”

The Supreme Court held that to prove a violation of federal law, an applicant must only show that the need for a religious accommodation was a motivating factor in the employer’s decision. Whether the employer had actual knowledge of the need for an accommodation is irrelevant. An employer may not make an applicant’s religious practice—confirmed or otherwise—a factor in employment decisions.

Samantha Elauf, a practicing Muslim woman, was determined to be eligible for employment at Abercrombie after her first interview. The assistant store manager asked upper management whether Elauf’s headscarf, which she thought may be for religious reasons, conflicted with Abercrombie’s policy against caps. The assistant store manager was told not to hire Elauf because her headscarf would violate Abercrombie’s “look policy.” The Equal Employment Opportunity Commission (EEOC) sued on Elauf’s behalf, claiming violation of Title VII of the Civil Rights Act.

The question presented to the Supreme Court was whether the prohibition on discrimination under Title VII applies only when an applicant has informed the employer of the need for an accommodation. The Supreme Court disagreed with the Court of Appeals, holding that an applicant does not need to prove an employer had actual knowledge of a need for a religious accommodation. Rather, a job applicant can prove discrimination if he or she can show the need for accommodation was a motivating factor in the employer’s decision.

The Supreme Court’s decision confirms current practice for many employers. However, the ruling establishes a lower standard to prove discrimination. Employers should not base hiring decisions on an assumption that an applicant may require some form of accommodation. You should also consider whether you can accommodate applicant requests without undue hardship.


The Family and Medical Leave Act (FMLA) certification forms expired Feb. 28, 2015. Since that date, the Department of Labor (DOL) extended the expiration date of the forms by 30 days while the revised FMLA forms were under review with the Office of Management and Budget (OMB).

The DOL has now posted new model FMLA medical certifications and notices with an expiration date of May 31, 2018. The new forms are identical to the previous forms. However, the new medical certifications include instructions not to provide genetic information in accordance with the Genetic Information Nondiscrimination Act (GINA).

DOL Sends Proposed FLSA Regulations to OMB

In March 2014, President Barack Obama directed the Secretary of Labor, Thomas Perez, to revise the overtime pay provisions of the Fair Labor Standards Act (FLSA) to increase the number of workers who are eligible for overtime pay.

Over a year later, the DOL has sent proposed regulations that aim to “modernize and streamline the existing overtime regulations for executive, administrative, and professional employees” to the OMB for review. After the review, the proposed regulations will be made available to the public for comment.

The proposed regulations may affect the number of employees at your company who are eligible for overtime pay. In addition to staying up to date on the proposed regulations, you should assess your current workforce to prepare for possible changes.

For example, complete an audit to make sure your organization’s job descriptions are current and accurately reflect the duties and required skills of each position. This will be a powerful tool when navigating the proposed regulations.


Over four million babies are born in the United States every year, and the U.S. Centers for Disease Control and Prevention (CDC) recommends vaccination against 16 vaccine preventable diseases. Unfortunately, not all parents ensure their children are properly immunized.

Keeping Kids Healthy

Before vaccinations became widely available, diseases like measles, mumps and whooping cough were common in childhood, leaving thousands of children blind, deaf, brain-damaged or even dead. Today, vaccines have almost completely wiped out these major diseases.

What Is a Vaccination?

A vaccination (or an immunization) contains an imitation virus, typically a live but weakened virus, or an inactive bacteria virus, that is administered to protect against serious diseases. This virus causes the body to produce antibodies, special agents of the immune system that attack harmful elements inside the body. While fighting the imitation virus, the antibodies learn to recognize the real virus so they can attack it when the body is exposed to it. Researchers have found that live virus vaccinations seem to provide longer immunity than inactive ones.

Vaccinations are usually administered in one of two ways: orally or by injection. Doctors have found that vaccines administered orally tend to have a higher chance of side effects and allergic reactions than injected vaccines.

Possible Side Effects

Overall, vaccines are safe to administer and typically only cause minor side effects. According to the Food and Drug Administration (FDA), the risk of effects related to actually contracting a disease is much more dangerous than the risk of having a serious reaction to a vaccination. However, there have been a few cases of major reactions in small children, such as:

  • Extremely high fever—A rectal temperature reading of 105 degrees or more
  • Inconsolable crying—More than three hours of crying without stopping, or an abnormal cry
  • Convulsions—Full-body shaking, twitching or jerking in response to a high fever
  • Severe allergic reactions—Swelling in the mouth and throat, wheezing, breathing difficulties, dizziness, paleness or limpness.

Should your child suffer from any of the above symptoms after receiving his or her vaccinations, call your doctor immediately.

Vaccination Facts

Although today in the United States epidemics of infectious diseases are rare, bacteria and viruses that cause many diseases still exist. These bacteria and viruses may affect people who are not protected by vaccines. Vaccinations are necessary because they can prevent repeated epidemics of infectious diseases.

Do I Need to Vaccinate?

Experts recommend that all children be routinely vaccinated. Most children in the United States are currently vaccinated as recommended, helping control infectious diseases that were common and deadly in the past.

Scientists, doctors and other health care professionals extensively test vaccines to make sure they are safe and effective before putting them on the market. In the United States, the FDA reviews all the test results to decide if it will approve a vaccine for use.

When Should I Vaccinate?

Newborns are immune to many diseases because of antibodies they have acquired from their mothers while in the womb. These antibodies only last from about a month to a year after birth, so it is best to vaccinate children when they are babies. However, you should still have your children vaccinated, even if you do not do it when they are babies or when they are very young—it is better for them to be vaccinated late than not at all.

By vaccinating your children when recommended, you will have to worry less about them becoming infected or infecting others, especially once they begin attending school, which increases their risk.

Health Insurance

Vaccinations are covered by most insurance programs, but because of their importance they are available even to those without insurance. If you are not insured and cannot afford your child’s vaccinations, contact your city, county or state health department. They can help you find a place to have your child immunized where it will be inexpensive or even free.

If you are unsure when you should take your child in for vaccinations, call your health care provider for information and vaccination schedules. More information is also available at: Centers for Disease Control and Prevention (CDC) National Immunization Hotline, 800-232-2522 or

HR Update: Pregnant Worker Accommodation Protections Addressed By U.S. Supreme Court

On March 25, 2015, the U.S. Supreme Court ruled in favor of a former employee of United Parcel Service (UPS) who was faced with the choice to either continue working her labor-intensive job during pregnancy or take unpaid leave. In a 6-3 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 giving her the same light-duty accommodation that was given to other UPS employees who were considered injured or disabled.

The Supreme Court’s decision establishes a legal framework for this type of pregnancy discrimination case. Due to this ruling, it may be easier for employees to succeed on claims that their employers violated the PDA by failing to accommodate them. To help limit liability under the PDA, employers should review their employment practices and policies regarding accommodations to make sure pregnant workers are treated the same as other workers with similar restrictions.

Pregnancy Discrimination Act

Title VII of the Civil Rights Act prohibits a covered employer (15 or more employees) from discriminating against any individual with respect to the terms, conditions or privileges of employment because of the individual’s sex. In 1978, Congress added the PDA to Title VII. The PDA has two clauses:

  • The first clause clarifies that Title VII’s prohibition on sex discrimination includes discrimination based on pregnancy, childbirth or related medical conditions.
  • The second clause 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.

Factual Background

The employee, Peggy Young, worked as a part-time driver for UPS. When Young became pregnant in 2006, her doctor advised that she should not lift more than 20 pounds. UPS, however, required drivers like Young to be able to lift up to 70 pounds. When Young presented UPS with her doctor’s note, she was told that she could not work while under a lifting restriction. Young consequently stayed home without pay during most of the time she was pregnant and eventually lost her employee medical coverage.

Young sued UPS, alleging that her employer violated the PDA’s second clause because it had a light-duty policy for other types of workers, but not for pregnant workers.

Under its light-duty policy, UPS accommodated workers who were injured on the job, those suffering from disabilities under the Americans with Disabilities Act (ADA) and those who had lost their Department of Transportation (DOT) certifications. According to UPS, because Young did not fall within one of these three categories, it treated her the same as it would treat other relevant persons and therefore did not discriminate against her based on pregnancy.

Legal Decision

The district court granted UPS’ motion for summary judgment, concluding that those who Young compared herself to—those falling under the on-the-job, DOT and ADA categories—were not similarly situated groups of employees. The 4th Circuit Court of Appeals affirmed the district court’s decision.

The Supreme Court vacated the 4th Circuit’s decision and remanded the case for further proceedings. The Supreme Court ruled that Young created a genuine dispute as to whether UPS provided more favorable treatment to at least some employees whose situations were similar to hers. Thus, the Supreme Court gave Young another chance to show that UPS violated the PDA when it failed to accommodate her light-duty request.

The Supreme Court also outlined the framework that applies in this type of disparate treatment case under the PDA. Under this framework, an individual alleging pregnancy discrimination may establish a case by showing that:

  • She was pregnant at the relevant time;
  • Her employer did not accommodate her; and
  • Her employer did accommodate others who are similar only “in their ability or inability to work.”

According to the Supreme Court, this burden is “not onerous” for an employee. It also does not require the employee to show that she and the non-pregnant employees who were treated more favorably were similar in all non-protected ways.

The employer may justify its refusal to accommodate the employee by relying on a legitimate, non-discriminatory reason. The employee may then in turn show that the employer’s justification is a pretext for discrimination. An employee may show pretext by providing sufficient evidence that the employer’s policies impose a significant burden on pregnant workers and that the employer’s reasons are not strong enough to justify the burden. A significant factor that will help prove an employee’s case is if the employer accommodates a large percentage of non-pregnant workers while failing to accommodate a large percentage of pregnant workers.

Impact of Decision

The Supreme Court’s decision in Young v. UPS is a victory for pregnant workers because it establishes an easier framework to prove illegal discrimination. However, many employers may have already changed their policies to allow light-duty accommodations for pregnant workers due to other recent legal developments.

  • In 2008, Congress expanded the definition of “disability” under the ADA to make it clear that physical or mental impairments that substantially limit an individual’s ability to lift, stand or bend are ADA-covered disabilities. This expanded definition, as interpreted by the Equal Employment Opportunity Commission (EEOC), requires employers to accommodate employees whose temporary lifting restrictions originate off the job.

In July 2014, the EEOC issued enforcement guidelines that cover employers’ light-duty policies for pregnant workers. According to these guidelines, if an employer provides light-duty assignments to any of its employees who are temporarily unable to perform their full duties, then similar accommodations should be made for pregnant employees who cannot perform their full duties. Although the Supreme Court decided not to take these guidelines into consideration in Young vs. UPS, employers may have reevaluated their accommodations policies based on this guidance.

Affordable Care Act Update: Subsidy Certifications Explained

Certifications of Employee Eligibility for Subsidies

The Affordable Care Act (ACA) requires health insurance Exchanges to send a notice to employers regarding employees who purchase coverage through an Exchange and qualify for a health insurance subsidy. These notices are also called “Section 1411 Certifications” because the notice requirement is contained in Section 1411 of the ACA.

The Section 1411 Certification is part of the process established by the Department of Health and Human Services (HHS) for verifying that only eligible individuals receive health insurance subsidies. Both state-run and federally facilitated Exchanges are required to send these certifications to employers. For 2015, it is expected that HHS will issue the certifications in batches, beginning in spring 2015.

These certifications are not directly related to the ACA’s shared responsibility rules for applicable large employers (ALEs). Starting in 2016, the Internal Revenue Service (IRS) will contact ALEs to inform them of their potential liability for a shared responsibility penalty for 2015, and it will provide them with an opportunity to respond. Employers that receive certifications may appeal a subsidy determination to help ensure, as much as possible, that employees are not mistakenly receiving subsidies. Appealing subsidy determinations may also help limit an ALE’s potential liability for a shared responsibility penalty.

affected employers

The Exchanges are required to provide the certifications to all employers with employees who purchase coverage through an Exchange and qualify for a health insurance subsidy. This includes ALEs that are subject to the ACA’s shared responsibility rules and small employers that do not qualify as ALEs. Also, for efficiency reasons, Exchanges can either send the certifications on an employee-by-employee basis as subsidy determinations are made, or the Exchanges can send the certifications to employers for a group of employees.

health insurance subsidies

There are two federal health insurance subsidies available for coverage purchased through an Exchange—premium tax credits and cost-sharing reductions. Both of these subsidies vary in amount based on the taxpayer’s household income, and they both reduce the out-of-pocket costs of health insurance for the insured.

  • Premium tax credits are available for people with somewhat higher incomes (up to 400 percent of the federal poverty level), and they reduce out-of-pocket premium costs for the taxpayer.
  • Reduced cost-sharing is available for individuals who qualify to receive the premium tax credit and have lower incomes (up to 250 percent of the federal poverty level). Through cost-sharing reductions, these individuals have lower out-of-pocket costs at the point of service (for example, lower deductibles and copayments).

To be eligible for a health insurance subsidy, a taxpayer:

  • Must have a household income for the year between 100 percent and 400 percent of the federal poverty level for the taxpayer’s family size,
  • May not be claimed as a dependent of another taxpayer,
  • Must file a joint return if married,
  • Cannot be eligible for minimum essential coverage (Government or employer sponsored plan).


An employee who may enroll in an employer-sponsored plan, and individuals who may enroll in the plan because of a relationship with the employee, are generally considered eligible for minimum essential coverage if the plan is affordable and provides minimum value.

The requirements of affordability and minimum value do not apply if an employee actually enrolls in any employer-sponsored minimum essential coverage, including coverage provided through a cafeteria plan, a health FSA or an HRA, but only if the coverage does not consist solely of excepted benefits. Thus, if an employee enrolls in any employer-sponsored minimum essential coverage, the employee is ineligible for a subsidy.

section 1411 certification

The ACA directed HHS to establish a program for verifying whether an individual meets the eligibility standards for receiving an Exchange subsidy. As part of this verification process, an Exchange must notify the employer when it determines that an employee is eligible for subsidized coverage.

Final regulations issued by HHS on March 27, 2012, specify the content requirements for the Section 1411 Certifications.

Here is a key point:

Employees who are eligible for employer-sponsored coverage that is affordable and provides minimum value are not eligible for a subsidy. This is significant because the ACA’s shared responsibility penalty for ALEs is triggered when a full-time employee receives a subsidy for coverage under an Exchange. An employee who is not eligible for a subsidy may still be eligible to enroll in a health plan through an Exchange. However, this would not result in a shared responsibility penalty for the employer.


section 1411 certification

The ACA directed HHS to establish a program for verifying whether an individual meets the eligibility standards for receiving an Exchange subsidy. As part of this verification process, an Exchange must notify the employer when it determines that an employee is eligible for subsidized coverage.

Final regulations issued by HHS on March 27, 2012, specify the content requirements for the Section 1411 Certifications.


section 1411 certification

The ACA directed HHS to establish a program for verifying whether an individual meets the eligibility standards for receiving an Exchange subsidy. As part of this verification process, an Exchange must notify the employer when it determines that an employee is eligible for subsidized coverage.

Final regulations issued by HHS on March 27, 2012, specify the content requirements for the Section 1411 Certifications.

Section 1411 Certifications must: ·          Identify the employee;·          Provide that the employee has been determined to be eligible for advance payments of a health insurance subsidy;·          Indicate that, if the employer has 50 or more full-time employees, the employer may be liable for a penalty under Code Section 4980H; and

·          Describe the employer’s appeal rights.

appeal rights

When an employer receives a certification regarding an employee’s eligibility for an Exchange subsidy, the employer may appeal the determination to correct any information about the health coverage it offers to employees. The appeals process can help:

  • Minimize the employee’s potential liability to repay advance payments of the subsidy that he or she was not eligible to receive; and
  • Protect the employer from being incorrectly assessed with a tax penalty under the shared responsibility rules (if the employer is an ALE). If the appeal is successful and the employee does not receive an Exchange subsidy, the employee cannot trigger penalties for an ALE under the shared responsibility rules.

Final regulations issued by HHS on Aug. 30, 2013, established general parameters for the employer appeal process. A state-run Exchange may have its own appeals process or it may follow the federal appeals process established by HHS. In either case, the Exchange must:

  • Give employers at least 90 days from the date of the Exchange notice to request an appeal;
  • Allow employers to submit relevant information to support the appeal;
  • Not limit or interfere with an employer’s right to make an appeal request; and
  • Accept appeal requests made by telephone, by mail, via the Internet or in person (if the Exchange is capable of receiving in-person appeal requests) and provide assistance in making the appeal request if this assistance is needed.

The appeals entity must provide written notice of the appeal decision within 90 days of the date the appeal request is received, if administratively feasible.


Another key point:

HHS’ final regulations clarify that an appeals decision in favor of the employee’s eligibility for a subsidy does not foreclose any appeal rights the employer may have for a penalty assessment under Code Section 4980H. Thus, while ALEs that receive certifications may appeal a subsidy determination to help ensure, as much as possible, that employees are not mistakenly receiving subsidies, they are not required to appeal a subsidy determination to preserve their rights to appeal an IRS assessment of a penalty tax.

Also, employers may develop policies to allow an employee to enroll in employer-sponsored coverage outside an open enrollment period when the employee is determined to be ineligible for Exchange subsidies as a result of an employer appeal decision.

other employer considerations

To help avoid incorrect subsidy determinations, HHS encourages employers to educate their employees about the details of employer-sponsored health coverage. This includes information on whether their plans are affordable and provide minimum value. Employees enrolling in Exchange coverage will generally complete an Employer Coverage Tool that gathers information about the employers’ group health plans. HHS encourages employers to assist employees with their Exchange applications by providing information regarding the employer-sponsored coverage through the Employer Coverage Tool.

In addition, employers should remember that the ACA amended the Fair Labor Standards Act (FLSA) to include whistleblower protections for employees. Employees are protected from retaliation for reporting alleged violations of the ACA. Employees are also protected from retaliation for receiving a subsidy when enrolling in an Exchange plan. If an employer violates the ACA’s whistleblower protections, it may be required to reinstate the employee, as well as provide back pay (with interest), compensatory damages and attorney fees.

As always, contact us at 877-936-3580 for more information on this, or any other aspect of employee benefits and the Affordable Care Act.


ACA Update: Feds Prohibit All Employer Reimbursement of Individual Premiums

Due to the rising costs of providing group health insurance, some employers have considered helping employees pay for individual health coverage instead of offering an employer-sponsored group plan. However, these employer reimbursement arrangements do not comply with Affordable Care Act (ACA) requirements.

On Nov. 6, 2014, the Departments of Labor (DOL), Health and Human Services (HHS) and the Treasury issued FAQs clarifying that all individual premium reimbursement arrangements are prohibited. Despite the previously widespread understanding that only pre-tax reimbursement arrangements are prohibited, the clarification includes pre-tax and post-tax premium reimbursements and cash compensation for individual premiums.

An employer arrangement that provides cash reimbursement for an individual market policy is considered to be part of a plan, fund or other arrangement established or maintained for the purpose of providing medical care to employees, without regard to whether the employer treats the money as pre-tax or post-tax for the employee. Therefore, the arrangement is group health plan coverage subject to the ACA’s market reform provisions.

In addition, the Nov. 6 FAQs clarify that an employer cannot offer a choice between enrollment in the standard group health plan or cash only to employees with a high claims risk. This practice constitutes unlawful discrimination based on one or more health factors, which violates federal nondiscrimination laws.

Violation of this guidance by offering prohibited individual premium reimbursement arrangements to employees may trigger penalties. Under Code Section 4980D, an employer could be fined an excise tax of $100 per day for each applicable employee ($36,500 per year per employee).

The information contained in this newsletter is not intended as legal advice. Please consult a professional for more detailed analysis and specific information.

HR Update: November-December 2014

hr dec

Open Enrollment Checklist From CIBC of Illinois, Inc.

To prepare for open enrollment, health plan sponsors should become familiar with the legal changes affecting the design of their plans for the 2015 plan year. These changes are primarily due to the Affordable Care Act (ACA). Employers should review their plan documents to confirm that they include these required changes.

In addition, any changes to a health plan’s benefits for the 2015 plan year should be communicated to plan participants. Health plan sponsors should also confirm that their open enrollment materials contain certain required participant notices, such as the summary of benefits and coverage (SBC).

There are also some participant notices that must be provided annually or upon initial enrollment. To minimize cost and streamline administration, employers should consider including these notices in their open enrollment materials.


Grandfathered Plan Status

A grandfathered plan is one that was in existence when the ACA was enacted on March 23, 2010. If you make certain changes to your plan that go beyond permitted guidelines, your plan is no longer grandfathered. Contact CIBC of Illinois, Inc. if you have questions about changes you have made, or are considering making, to your plan.

  • If you have a grandfathered plan, determine whether it will maintain its grandfathered status for the 2015 plan year. Grandfathered plans are exempt from some of the ACA’s requirements. A grandfathered plan’s status will affect its compliance obligations from year to year.
  • If your plan will lose grandfathered status for 2015, confirm that the plan has all of the additional patient rights and benefits required by the ACA. This includes, for example, coverage of preventive care without cost-sharing requirements.

Cost-sharing Limits

Effective for plan years beginning on or after Jan. 1, 2014, non-grandfathered health plans are subject to limits on cost-sharing for essential health benefits (EHB). As enacted, the ACA included an overall annual limit (or an out-of-pocket maximum) for all health plans and an annual deductible limit for small insured health plans. On April 1, 2014, the ACA’s annual deductible limit was repealed. This repeal is effective as of the date that the ACA was enacted, back on March 23, 2010.

The out-of-pocket maximum, however, continues to apply to all non-grandfathered group health plans, including self-insured health plans and insured plans. Effective for plan years beginning on or after Jan. 1, 2015, a health plan’s out-of-pocket maximum for EHB may not exceed $6,600 for self-only coverage and $13,200 for family coverage.

  • Review your plan’s out-of-pocket maximum to make sure it complies with the ACA’s limits for the 2015 plan year ($6,600 for self-only coverage and $13,200 for family coverage).
  • If you have a health savings account (HSA)-compatible high deductible health plan (HDHP), keep in mind that your plan’s out-of-pocket maximum must be lower than the ACA’s limit. For 2015, the out-of-pocket maximum limit for HDHPs is $6,450 for self-only coverage and $12,900 for family coverage.
  • If your plan uses multiple service providers to administer benefits, confirm that the plan will coordinate all claims for EHB across the plan’s service providers, or will divide the out-of-pocket maximum across the categories of benefits, with a combined limit that does not exceed the maximum for 2015.
  • Be aware that the ACA’s annual deductible limit no longer applies to small insured health plans.

Health FSA Contributions

Effective for plan years beginning on or after Jan. 1, 2013, an employee’s annual pre-tax salary reduction contributions to a health flexible spending account (FSA) must be limited to $2,500. On Oct. 31, 2013, the Internal Revenue Service (IRS) announced that the health FSA limit remained unchanged at $2,500 for 2014. However, the $2,500 limit is expected to be adjusted for cost-of-living increases for later years. The IRS is expected to release the health FSA limit for 2015 later this year.

  • Work with your advisors to monitor IRS guidance on the health FSA limit for 2015.
  • Once the 2015 limit is announced by the IRS, confirm that your health FSA will not allow employees to make pre-tax contributions in excess of that amount for 2015. Also, communicate the 2015 health FSA limit to employees as part of the open enrollment process.

Transition Policy for Small Group Health Plans

Some non-grandfathered health plans in the small group market were allowed to renew for 2014 without adopting all of the ACA’s market reforms under a temporary transition policy adopted by the Obama Administration. The transition policy was originally a one-year reprieve from certain ACA market reforms; however, it was later extended for two more years, to policy years beginning on or before Oct. 1, 2016.

The transition relief is not available to all small group health plans. It only applies to small businesses with coverage that was in effect on Oct. 1, 2013. Also, because the insurance market is primarily regulated at the state level, state governors or insurance commissioners must allow for the transition relief. In addition, health insurance issuers are not required to follow the transition relief and renew plans.

Even if transition relief was available for a small group plan in 2014, it may not be available in 2015 and later years due to insurance market regulations or issuer decisions. If the transition relief no longer applies to your small group plan, confirm that your plan includes the following ACA market reforms for 2015:

  • Pre-existing Condition ExclusionsThe ACA prohibits health plans from imposing pre-existing condition exclusions (PCEs) on any enrollees. (PCEs for enrollees under 19 years of age were eliminated by the ACA for plan years beginning on or after Sept. 23, 2010).
  • Coverage for Clinical Trial ParticipantsNon-grandfathered health plans cannot terminate coverage because an individual chooses to participate in a clinical trial for cancer or other life-threatening diseases or deny coverage for routine care that would otherwise be provided just because an individual is enrolled in a clinical trial.
    • Comprehensive Benefits PackageInsured plans in the individual and small group market must cover each of the essential benefits categories listed under the ACA. Each state has a specific benchmark plan for determining the essential health benefits for insurance coverage in that state.

Employer Penalty Rules

Under the ACA’s employer penalty rules, applicable large employers (ALEs) that do not offer health coverage to their full-time employees (and dependent children) that is affordable and provides minimum value will be subject to penalties if any full-time employee receives a government subsidy for health coverage through an Exchange. The ACA sections that contain the employer penalty requirements are known as the “employer shared responsibility” provisions or “pay or play” rules. These rules were set to take effect on Jan. 1, 2014, but the IRS delayed the employer penalty provisions and related reporting requirements for one year, until Jan. 1, 2015.

On Feb. 10, 2014, the IRS released final regulations implementing the ACA’s employer shared responsibility rules. Among other provisions, the final regulations establish an additional one-year delay for medium-sized ALEs, include transition relief for non-calendar plans and clarify the methods for determining employees’ full-time status.

To prepare for the employer shared responsibility requirements, an employer should consider taking the following key steps:

  • Determine ALE status for 2015, including eligibility for the one-year delay for medium-sized ALEs;
  • For sponsors of non-calendar year plans, determine whether you qualify for the transition relief that allows you to delay complying with the pay or play rules until the start of your 2015 plan year;
  • Establish a system for identifying full-time employees (those working 30 or more hours per week);
  • Document plan eligibility rules; and
  • Test your health plan for affordability and minimum value.

HSA Limits for 2015

If you offer a high deductible health plan (HDHP) to your employees that is compatible with a health savings account (HSA), you should confirm that the HDHP’s minimum deductible and out-of-pocket maximum comply with the 2015 limits. Also, the 2015 increased HSA contribution limits should be communicated to participants. The following table contains the HDHP and HSA contribution limits for 2015.

HDHP Minimum Deductible Amount                                                                                                                             Individual                                                        $1,300

Family                                                              $2,600


            HDHP Maximum Out-of-Pocket Amount

Individual                                                         $6,450

Family                                                               $12,900


            HSA Maximum Contribution Amount

Individual                                                         $3,350

Family                                                               $6,650


            Catch-up Contributions (age 55 or older)   $1,000


  • Summary of Benefits and Coverage

The ACA requires health plans and health insurance issuers to provide a summary of benefits and coverage (SBC) to applicants and enrollees to help them understand their coverage and make coverage decisions. Plans and issuers must provide the SBC to participants and beneficiaries who enroll or re-enroll during an open enrollment period. The SBC also must be provided to participants and beneficiaries who enroll other than through an open enrollment period (including individuals who are newly eligible for coverage and special enrollees).

Federal agencies have issued a template for SBCs, which should be used for 2015 plan years. The template includes information on whether the plan provides minimum essential coverage and meets minimum value requirements. The SBC template (and sample completed SBC) are available on the Department of Labor (DOL) website.

In connection with your plan’s 2015 open enrollment period, the SBC should be included with the plan’s application materials. If plan coverage automatically renews for current participants, the SBC must generally be provided no later than 30 days before the beginning of the new plan year.

For self-funded plans, the plan administrator is responsible for providing the SBC. For insured plans, both the plan and the issuer are obligated to provide the SBC, although this obligation is satisfied for both parties if either one provides the SBC. Thus, if you have an insured plan, you should work with your health insurance issuer to determine which entity will assume responsibility for providing the SBCs. Please contact your CIBC of Illinois, Inc. representative for assistance.

  • Grandfathered Plan Notice

If you have a grandfathered plan, make sure to include information about the plan’s grandfathered status in plan materials describing the coverage under the plan, such as summary plan descriptions (SPDs) and open enrollment materials. Model language is available from the DOL.

  • Notice of Patient Protections

Under the ACA, non-grandfathered group health plans and issuers that require designation of a participating primary care provider must permit each participant, beneficiary and enrollee to designate any available participating primary care provider (including a pediatrician for children). Also, plans and issuers that provide obstetrical/gynecological care and require a designation of a participating primary care provider may not require preauthorization or referral for obstetrical/gynecological care.

If a non-grandfathered plan requires participants to designate a participating primary care provider, the plan or issuer must provide a notice of these patient protections whenever the SPD or similar description of benefits is provided to a participant, such as open enrollment materials. If your plan is subject to this notice requirement, you should confirm that it is included in the plan’s open enrollment materials. Model language is available from the DOL.


Group health plan sponsors should consider including the following enrollment and annual notices with the plan’s open enrollment materials.

  • Initial COBRA Notice

Plan administrators must provide an initial COBRA notice to participants and certain dependents within 90 days after plan coverage begins. The initial COBRA notice may be incorporated into the plan’s SPD. A model initial COBRA Notice is available from the DOL.

  • Notice of HIPAA Special Enrollment Rights

At or prior to the time of enrollment, a group health plan must provide each eligible employee with a notice of his or her special enrollment rights under HIPAA.

  • Annual CHIPRA Notice

Group health plans covering residents in a state that provides a premium subsidy to low-income children and their families to help pay for employer-sponsored coverage must send an annual notice about the available assistance to all employees residing in that state. The DOL has provided a model notice.

  • WHCRA Notice

Plans and issuers must provide notice of participants’ rights under the Women’s Health and Cancer Rights Act (WHCRA) at the time of enrollment and on an annual basis. Model language for this disclosure is available on the DOL’s website in the compliance assistance guide.

  • Medicare Part D Notices

Group health plan sponsors must provide a notice of creditable or non-creditable prescription drug coverage to Medicare Part D eligible individuals who are covered by, or who apply for, prescription drug coverage under the health plan. This creditable coverage notice alerts the individuals as to whether or not their prescription drug coverage is at least as good as the Medicare Part D coverage. The notice generally must be provided at various times, including when an individual enrolls in the plan and each year before Oct. 15 (when the Medicare annual open enrollment period begins). Model notices are available at

  • Michelle’s Law Notice

Group health plans that condition dependent eligibility on a child’s full-time student status must provide a notice of the requirements of Michelle’s Law in any materials describing a requirement for certifying student status for plan coverage. Under Michelle’s Law, a plan cannot terminate a child’s coverage for loss of full-time student status if the change in status is due to a medically necessary leave of absence.

  • HIPAA Opt-out for Self-funded, Non-federal Governmental Plans

Sponsors of self-funded, non-federal governmental plans may opt out of certain federal mandates, such as the mental health parity requirements and the WHCRA coverage requirements. Under an opt-out election, the plan must provide a notice to enrollees regarding the election. The notice must be provided annually and at the time of enrollment. Model language for this notice is available for sponsors to use.

This Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.


Draft Instructions for Employer Reporting of Health Coverage Released

The Affordable Care Act (ACA) created new reporting requirements under Internal Revenue Code (Code) Sections 6055 and 6056. Under these new reporting rules, certain employers must provide information to the IRS about the health plan coverage they offer (or do not offer) to their employees.

On Aug. 28, 2014, the Internal Revenue Service (IRS) released draft instructions for the forms that employers will use to report under Code Sections 6055 and 6056.

  • Instructions for Forms 1094-B and 1095-B: These forms will be used by entities reporting under Section 6055 as health insurance issuers, sponsors of self-insured group health plans that are not reporting as applicable large employers (ALEs), sponsors of multiemployer plans and providers of government-sponsored coverage.
  • Instructions for Forms 1094-C and 1095-C: These forms will be used by ALEs that are reporting under Section 6056, as well as for combined reporting by ALEs who report under both Sections 6055 and 6056.

These instructions are draft versions only, and should not be relied upon for filing. The IRS may make changes to the instructions prior to releasing final versions.

Draft versions of Forms 1094-B, 1095-B, 1094-C and 1095-C were released in July 2014. The IRS expects both the forms and instructions to be finalized later this year.

Overview of Sections 6055 & 6056

The Code Sections 6055 and 6056 reporting requirements are intended to promote transparency with respect to health plan coverage and costs. They will also provide the government with information to administer other ACA mandates, such as the employer and individual mandates.

Code Section 6055 requires health insurance issuers, self-insured health plan sponsors, government agencies that administer government-sponsored health insurance programs and any other entity that provides minimum essential coverage (MEC) to report information on that coverage to the IRS and covered individuals.

Code Section 6056 requires ALEs subject to the employer shared responsibility rules to report information on the health coverage offered to full-time employees to the IRS and covered individuals.

Filing Requirements

Under both Sections 6055 and 6056, each reporting entity will be required to file all of the following with the IRS:

  • A separate information return for each individual who is provided MEC (for ALEs, this includes only full-time employees); and
  • A single transmittal form for all of the returns filed for a given calendar year.

Filing Due Dates

Under both Sections 6055 and 6056, the return and transmittal forms must be filed with the IRS on or before Feb. 28 (March 31, if filed electronically) of the year following the calendar year of coverage. However, if the regular due date falls on a Saturday, Sunday or legal holiday, entities should file by the next business day. For calendar year 2015, these forms must be filed by Feb. 29, 2016, (or March 31, 2016, if filing electronically).

These forms are not required to be filed for 2014. However, in preparation for the first required filing (in 2016 for 2015 coverage), reporting entities may voluntarily file in 2015 for 2014 in accordance with the draft forms and instructions. More information about voluntary filing is available on the IRS website.

Statements Furnished to Individuals

All entities reporting under Section 6055 or 6056 must furnish a copy of Form 1094-C or 1095-C, as applicable, to the person identified as the responsible individual named on the form. Statements must be furnished by mail, unless the recipient affirmatively consents to receive the statement electronically.

The statement must be furnished on or before Jan. 31 of the year following the calendar year of coverage. The first statements are due to individuals by Feb. 1, 2016.



Where To File

Any reporting entity that is required to file at least 250 returns under Section 6055 or 6056 must file electronically. The 250-or-more requirement applies separately to each type of return and separately to each type of corrected return.

Reporting entities that are filing on paper will send paper returns to the address provided in the instructions, based on where their principal business, office or agency (or legal residence, in the case of an individual) is located.

Instructions for Forms 1094-B and 1095-B

Under Section 6055, every person that provides MEC to an individual during a calendar year must file Forms 1094-B (a transmittal) and 1095-B (an information return). This includes:

  • Health insurance issuers or carriers;
  • Self-insured health plan sponsors;
  • Government agencies that administer government-sponsored health insurance programs; and
  • Any other entity that provides MEC.

However, ALEs subject to the employer shared responsibility rules that sponsor self-insured group health plans will report information about the coverage in Part III of Form 1095-C, instead of on Form 1095-B. In general, an employer with 50 or more full-time employees (including full-time equivalents) during the prior calendar year is considered an ALE.

Instructions for Forms 1094-C and 1095-C

All ALEs subject to the employer shared responsibility rules must file Form 1094-C (a transmittal) and Form 1095-C (an information return) for each full-time employee for any month.

  • Form 1094-C is used to report summary information for each employer to the IRS and to transmit Forms 1095-C to the IRS.
  • Form 1095-C is used to report information about each employee.

These forms help the IRS determine whether an ALE owes penalties under the employer shared responsibility rules, as well as whether an employee is eligible for premium tax credits.

How to Complete Forms

ALEs that sponsor a self-insured health plan must also complete Form 1095-C, Parts I and III, for any individual (including any full-time employee, non-full-time employee, family members and others) who enrolled in the self-insured health plan. If the employee is full-time for any month, the ALE must also complete Part II. If the employee is not full-time for all 12 months of the calendar year, the ALE must complete only Part II, line 14, by entering code 1G in the “All 12 Months” column.

For other types of coverage, the issuer or plan sponsor will provide the information about their health coverage to any enrolled employees. The employer should not complete Form 1095-C, Part III, for those employees.

An employer that sponsors self-insured health coverage but is not subject to the employer shared responsibility rules is not required to file Forms 1094-C and 1095-C. Instead, these employers report on Forms 1094-B and 1095-B for employees who enrolled in the employer-sponsored self-insured health coverage.

Authoritative Transmittal for ALEs Filing Multiple Forms 1094-C

A Form 1094-C must be attached to any Forms 1095-C filed by an ALE. An ALE may submit multiple Forms 1094-C, each accompanied by Forms 1095-C, for some of its employees, provided that Forms 1095-C are filed for each employee for whom the ALE is required to file.

ALEs must file a single Form 1094-C reporting aggregate employer-level data for all full-time employees, identifying the form, on line 19 of Part II, as the Authoritative Transmittal. One Authoritative Transmittal must be filed for each ALE, even if multiple Forms 1094-C are filed by and on behalf of the ALE. For example, if an employer has prepared a separate Form 1094-C for each of its two divisions to transmit Forms 1095-C for each division’s full-time employees, one of the Forms 1094-C filed must be designated as the Authoritative Transmittal and report aggregate employer-level data for all full-time employees (for both divisions).

One Form 1095-C for Each Employee of Each ALE

There must be only one Form 1095-C for each full-time employee of an ALE. For example, if an ALE separately reports for the full-time employees of its two divisions, the ALE must combine the information for any employee who worked at both divisions during the year so that there is only a single Form 1095-C for that employee which reports information for all 12 months of the calendar year.

In contrast, a full-time employee who works for more than one ALE that is a member of the same aggregated ALE group (that is, works for two separate ALE members) must receive a separate Form 1095-C from each ALE member.

More Information

Please contact CIBC of Illinois, Inc. for more information on reporting under Code Sections 6055 and 6056.

HR Update: Illinois Implements “Ban the Box” Law

The Job Opportunities for Qualified Applicants Act (Act), also known as “ban the box,” places restrictions on when employers may make pre-employment inquiries into an applicant’s criminal background or history. The law goes into effect on Jan. 1, 2015 and will impact Illinois employers’ hiring practices.

Covered employers

The Act applies to private employers that have 15 or more employees in the current or preceding calendar year, as well as employment agencies. Public employers are excluded from the Act.


Under the Act, a covered employer or employment agency may not inquire about, consider or require disclosure of an applicant’s criminal record or history until after the applicant has been determined qualified for the position and the employer or agency has notified the applicant that he or she has been selected for an interview. In the case of a position for which an employer does not conduct interviews, inquiries into an applicant’s criminal background or history cannot occur until after a conditional offer of employment has been extended to the applicant.

Although the Act places restrictions on pre-employment inquires, employers may notify applicants in writing of specific offenses that will disqualify them from employment due to a federal or state law, or due to the employer’s policy. Additionally, the Act itself does not prohibit employers from denying applicants who have been convicted of certain offenses from a position as long as the process for inquiring about those convictions has been followed.

Exempted Positions

The requirements of the Act do not apply to certain exempted positions. Specifically, it does not apply to positions where:

  • Employers are required to exclude applicants with certain criminal convictions from employment due to a federal or state law;
  • The position requires a standard fidelity bond or an equivalent bond, and an applicant’s conviction of one or more specified offenses would disqualify the applicant from obtaining the bond; or
  • The position requires licensing under the Emergency Medical Services System Act.


The Illinois Department of Labor (IDOL) is responsible for investigating alleged violations of the Act. If the IDOL finds that a violation has occurred, it may impose penalties ranging from a written warning for a first violation up to $1,500 fines for repeated violations or failure to remedy a previous violation.

Compliance Steps for Employers

Employers should thoroughly review their employment applications and policies to ensure that they are in compliance with the Act and other state and federal laws regarding handling arrest records and convictions.

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