Category Archives: Employment Benefits

Supreme Court: Severance Pay is Subject to FICA Tax

supctLast week, the Supreme Court decided a case about how severance pay must be treated for tax purposes. The employer in the case (United States v. Quality Stores) had declared Chapter 11 bankruptcy. The employer provided severance pay in two programs: One paid employees who were terminated immediately, and the other paid employees who stayed with the company through its bankruptcy reorganization, until an agreed-upon termination date. Like most severance plans, the company’s program was based on length of employment and job grade.

The employer and the IRS agreed that the severance pay should be treated as income for purposes of income tax withholding. What they disagreed about was FICA taxes: the payroll taxes, split between employer and employee, that fund Social Security and Medicare. Although the employer initially paid it share of these taxes and withheld the employees’ share from their severance, it later asked the IRS for this money back, to the tune of more than a million dollars. The employer’s claim was that the severance payments didn’t count as “wages” under IRS rules.

The Supreme Court disagreed. In a unanimous decision, the Court found that severance pay is subject not only to income tax withholding, but to FICA tax withholding as well. (And, employers must pay their half of these taxes on severance.) The Court found that severance pay falls squarely within the definition of wages as “remuneration for employment,” especially where, as here, they are based on the employee’s tenure and role at the company. Not a big surprise, but at least employers can now blame the Supreme Court when terminated employees complain that their severance pay is less than they thought it would be.

Another Delay for the Employer Mandate

pillsAnother day, another delay in implementing the Affordable Care Act (also known as Obamacare). Originally, the employer mandate — the part of the law requiring employers with at least 50 employees to provide affordable coverage to their full-time employees or pay a fine — was supposed to kick in weeks ago, at the beginning of 2014. Last year, the Obama administration delayed the mandate for a year, until the beginning of 2015.

This week’s further delay comes in two parts:

  • Mid-range employers (those with at least 50 but fewer than 100 employees) will have another year to provide coverage. For these employers, the mandate will now kick in on January 1, 2016.
  • Larger employers (those with at least 100 employees) won’t have to cover everyone right away. For 2015, these employers will have to offer coverage to only 70% of their full-time employees (Remember, “full-time” under the law means employees who work at least 30 hours a week.) For 2016, 95% of full-time employees will have to be offered coverage.

These delays (or “transition relief,” as a Treasury Department official described them in an article in the New York Times) appear in final regulations from the IRS interpreting the employer mandate portion of the law.

 

Will Emergency Unemployment Compensation Benefits Expire?

unemployedThere was a sobering article in the New York Times this morning, “Extension of Benefits for Jobless Set to End.” Since the economy tanked in 2008, the federal government has made additional unemployment benefits available through the Emergency Unemployment Compensation (EUC) program. This program supplements the benefits available in each state to provide additional weeks of compensation.

Today, most states provide a maximum of 26 weeks of unemployment benefits to those who lose their jobs through no fault of their own. (A few states — including Florida, Georgia, and North Carolina — have cut back and offer fewer than 26 weeks.) A permanent federal program, in place since 1970, offers extended benefits in states where the unemployment rate is both high and increasing. Although a number of states still have relatively high unemployment rates, those rates have been high for a while now. As a result, these states don’t have increasing unemployment rates. Therefore, according to the Center on Budget and Policy Priorities (CBPP), no state currently provides benefits under the extended benefit program.

That leaves the EUC program as the only source of extended benefits for the long-term unemployed. The EUC program offers 14 to 47 additional weeks of benefits. (The number of weeks depends on the state’s unemployment rate; there’s an up-to-date chart of each state’s benefit offerings at “How Many Weeks of Unemployment Compensation Are Available?” at the CBPP’s website.) However, the entire EUC program is set to expire at the end of the year.

Congress has had to vote on this program a number of times in the past five years, and each time it has extended the program. As you may recall, however, this has been a particularly rough year for partisan fights over government funding. Congress still has to come up with a budget, as it agreed to do in ending the shutdown. As a result, the Times predicts that Congress is unlikely to continue the EUC program past the end of the year, with the result that 1.3 million people will immediately lose access to these additional benefits.

Hey, Wellness Programs: Reward Healthy Employees, Too

fitnessWorkplace wellness programs are booming: According to a recent study commissioned by Congress and conducted by the RAND Corporation, workplace wellness is a $6 billion industry (annually), with programs hawked by an estimated 500 vendors. (Unfortunately, Forbes reports that the study also reveals pretty minimal health benefits to employees and statistically insignificant cost savings for employers who adopt workplace wellness programs.)

The Affordable Care Act, better known as Obamacare, allows employers to adopt workplace wellness programs and reward employees who meet certain health goals. Understandably, the government has largely been concerned with making sure that employers don’t discriminate against employees whose medical conditions make it inadvisable to participate in certain activities or adopt certain health targets. (You can learn more about the final regulations on avoiding discrimination in our article, Final Rules for Wellness Programs Under Obamacare.)

Don’t get me wrong: I’m all in favor of employers offering programs to help employees improve their fitness, lower their cholesterol, lose weight, or stop smoking. And I understand that financial incentives are an effective motivation for most of us. But what about employees who are already fit and healthy? Many wellness plans offer an initial incentive to employees for taking a health assessment and participating in biometric screening, activities that are equally available to all. Beyond these measurements, however, some wellness plans offer additional rewards only to employees who need to change their behavior by, for example, participating in coaching programs, meeting certain health targets (such as achieving a particular BMI or cholesterol level), or participating in programs to monitor chronic health conditions, such as diabetes or hypertension. Employees who don’t need these types of assistance aren’t eligible for rewards.

Of course, good health is its own reward. But if money is being handed out, shouldn’t some of it go to the employees who are costing the company the least in insurance premiums? That’s what Eagle County, Colorado decided. According to an article at Workforce.com, the county’s HR director decided to reward the 25% of the county’s employees whom she described as “uber-athletes” with perfect health scores. She wanted to reward these employees and give them an incentive to motivate their coworkers. So, she gave them premium discounts on their health insurance and started paying their entrance fees for races and competitions; in exchange, they agreed to participate in workplace fitness teams, such as walking programs. Everyone wins, and the employees who are already costing the company less get to share a bit in the savings.

Obamacare Employer Mandate Postponed to 2015

In an announcement that seemed to take everyone by surprise, the Obama administration yesterday issued a statement that it would not enforce the employer mandate of Obamacare until 2015. More specifically, the statement indicates that the Obama administration won’t enforce the law’s reporting requirements for employers or assess the “shared responsibility” payments (fines for failing to provide adequate, affordable healthcare) until 2015. These provisions were supposed to take effect at the beginning of 2014.

This change was billed as the administration’s effort to “listen to the business community.” However, the effects of the change could be much more widespread. The deadline for the individual mandate has not changed; we all still have to have insurance coverage by January 1, 2014, or pay a penalty. I will refrain from detailing my thoughts about the administration giving a break to the “business community” while the actual humans are still on the hook. But postponing the employer mandate will make the individual mandate more challenging. For example, whether subsidies are available to employed people who buy their own insurance depends on the quality and cost of insurance available to them at work. If employers aren’t required to report on that, how is the IRS going to know who is eligible for a subsidy?

Postponing the employer mandate and reporting requirements also, frankly, gives employers more time to come up with ways to get around the law by restructuring their workforces (look for more job openings for employees to work no more than 29 hours per week), coming up with ways to offer the least coverage possible and pay the lowest penalties (like this scheme, which came to light only a few weeks ago), and so on.

Here’s an additional complication: The administration doesn’t seem to have the authority to require this delay. As noted in this article in Forbes, the effective date of the mandate is statutory. Congress said, right there in the law, that it applies to “months beginning after December 31, 2013.” Although the administration could choose not to enforce this part (as they did with DOMA before the Supreme Court overturned it), they might face a lawsuit over their decision. And, unlike the DOMA situation, there will be real people who are harmed by this delay.

 

Is There an Employer Mandate Loophole in Obamacare?

pillsIn the last few weeks, a number of articles have been published on a possible way for employers to game Obamacare. (The most influential one was Employers Eye Bare-Bones Health Plans Under New Law, in the WSJ.) Here’s the basic strategy: Offer a minimal health benefit plan (called a “skinny” plan), which doesn’t meet the essential benefits requirements. Then, pay the secondary penalty under the employer mandate if any employee wants more comprehensive coverage, gets it through a state exchange, and is eligible for a tax subsidy based on income.

Surprised? Me too, although not that employers are trying to avoid costs. What surprised me was that, based on reporting so far, it sounds like the Obama administration isn’t coming out loudly to say this won’t work. (Much more information is still needed here before anyone can say definitively whether employers can get away with this.)

The first step is to get a plan that offers “minimal essential coverage.” If you think that means it has to cover the ten categories of “essential benefits” we keep hearing about, like mental health services, prescription drugs, and hospitalization, you are not alone. But you are wrong. Those rules apply to individuals and small businesses, but not to the larger businesses that are subject to the employer mandate. For these employers, nearly any plan will do, as long as it covers certain preventive services without an annual or a lifetime limit (according to the WSJ article). It doesn’t have to provide coverage for surgery or hospitalization. As long as the plan offered meets this very low bar, the employer can avoid the primary penalty under the employer mandate: $2,000 per employee, not counting the first 30 employees.

The second step is to be ready to pay the secondary penalty under the mandate, for having inadequate coverage. Employers must pay $3,000 per employee for this penalty, which is imposed on employers whose plans don’t offer minimum value or are not affordable to their employees. If you’re wondering why an employer would want to pay a $3,000 penalty to avoid a $2,000 penalty, the answer is that this penalty is imposed only per employee who buys insurance through a state exchange and is eligible for a tax subsidy. Some employers are clearly betting that this won’t add up to many employees. For example, low-wage workers might not be able to afford comprehensive coverage, even with subsidies. High-income workers likely won’t be eligible for a tax subsidy if they want more comprehensive coverage. And, there are places to buy insurance outside of the exchanges, which eliminates the penalty.

Is this going to work? It’s unclear: Because it so obviously skirts the intent of the law, this strategy comes with plenty of legal risk. And who came up with the idea of letting the larger employers who provide so much health coverage in this country somehow skirt the “ten essential benefits” requirements? The WSJ article quoted a former White House adviser saying, “Our expectation was that employers would offer high quality insurance.” Which kind of makes it sound like this was a surprise to them, too.

Dogs at Work, Part II

R&B

Temporary Office Dog: Richmond

A few years ago, I posted about some of the benefits of bringing dogs to work, including higher productivity, lower stress, better social cohesion, and better teamwork. A recent article in USA Today cites even more research to prove what dog owners instinctively know: Pets decrease stress in a tangible way, by lowering cholesterol and blood pressure levels. They increase our opportunities to socialize and exercise.

In fact, the article cites a 2012 study conducted at a single workplace in North Carolina, which revealed that workplace stress levels of employees who brought their dogs to work decreased by 11% as the day progressed. Employees who didn’t bring their dogs (or didn’t have dogs to bring) saw stress levels rise a whopping 70% in the same timeframe.

All of these benefits help explain the continuing office trend to allow dogs at work. Surveys show that about one in five employers allow employees to bring dogs to work, including the Daily Show and Google. (Those who consider themselves “dog people ” rather than “animal people” have to love their gentle rebuff of the feline: “we like cats, but we’re a dog company.” Me too, The Google; me too.)

flora

Former Office Visitor: Flora

And those are just the human benefits: For the dogs, the benefits might be even greater. Dogs get to enjoy the company of their human companions for more of the day. They get to scrounge scraps from coworkers. They get treats, belly rubs, and head scratches from office dog lovers. And, for some dogs, the opportunity to go to work lowers their stress as much as it lowers ours; it may even save their lives.

Pet ownership is at an all-time high, according to the American Pet Products Association. Almost half of all households in this country have a dog. But it can be hard to take care of a dog when you’re a working stiff. Dogs need to use the facilities, exercise, socialize, and get their mental stimulation, just like we do. If a family member, friend, or paid helper isn’t available to meet these needs, dogs will figure out other ways — ways less friendly to furniture, carpets, and possibly neighbors — to get things done. Older dogs may be fine on their own all day, with the help of some chew toys and a doggie door. But for younger dogs and recently acquired dogs, more supervision is better.

F&R

No alarm clock today

That’s my personal angle on the dogs at work issue: It’s a great way to help more dogs get adopted and stay that way. My employer has been dog-friendly for its entire 40+ year history. Once a week, one of my dogs comes to work. Every once in a while, I stop by the office while walking a dog from our municipal shelter, Berkeley Animal Care Services, like red-headed beauty Flora. And recently, I was able to help a friend and her newly adopted dog get over the “home alone” hump by bringing teenage heartthrob Richmond to work with me for a few days. This allowed Richmond to socialize with lots of new people, get used to behaving calmly in a new environment, and have some time to settle in with his new family; now, he’s a successful stay-at-home companion to canine siblings (including little Bimo, pictured above) and human grandparents. (And my own dogs didn’t seem too sad about the opportunity to sleep in.)

Looking for your own dog to bring to work? Visit your local shelter! If you’re in one of the counties that participates in Maddie’s Fund Pet Adoption Days (San Francisco and Alameda County are), you can adopt your pet free on the first weekend in June — and be all set for Take Your Dog to Work Day on June 21.

 

Do You Really Want to Contest Unemployment Benefits?

The unemployment rate is gradually declining, but my own personal barometer — based on the admittedly unscientific measurement of questions people ask me because they know I’m an employment lawyer — shows that interest in unemployment remains high. Employers and employees want to know the same thing: What reasons for leaving a job disqualify someone from getting benefits?

Here in California, the rules about eligibility for unemployment are among the most generous in the country. An employee who quits a job for good cause can still get benefits. Good cause includes not only job-related reasons (such as dangerous working conditions or harassment) but also circumstances wholly apart from work. For example, if you quit your job because you need to relocate with your spouse, escape domestic violence, or care for an ailing family member, you will likely be eligible for unemployment benefits.

Employees who are fired can get benefits unless the termination was based on misconduct. If that sounds like a low standard, that’s only because you haven’t heard how California defines the term. An employee has committed misconduct only if all of the following are true:

  • The employee owed a material duty to the employer, such as showing up for work.
  • The employee substantially breached that duty: A minor or one-time transgression isn’t enough to meet this requirement.
  • The employee showed a wanton or willful disregard for that duty. In other words, the employee wasn’t just careless or thoughtless but, instead, intentionally violated the duty or showed a reckless disregard for the consequences of your breach of the duty. Inefficiency, inability to perform the job, or good faith errors in judgment don’t meet this standard and won’t render someone ineligible for benefits.
  • The employee’s breach tends to materially harm the employer’s business interests.

That third factor is the key that unlocks benefits for many fired employees. Poor performance, mistakes, and even incompetence are not supposed to be enough to deny benefits: The intention requirement in the standard means the employee must have been making a choice, either to engage in wrongdoing or to perform poorly. An employee who really can’t do the job is supposed to get benefits. (For comprehensive — and comprehensible — information on unemployment in California, check out the Unemployment Insurance page at the website of the always awesome Employment Law Center.)

Some of the questions I’ve been asked lately (on the employer side) kind of remind me of that old Mad Magazine cartoon, “Unclear on the Concept.” Here are a couple of examples:

Can we ask employees to waive the right to collect unemployment in a severance agreement? Only if you don’t mind breaking the law. In California, unemployment benefits may not be waived. A contractual agreement by an employee to give up the right to apply for or collect unemployment is void and invalid. What’s more, severance pay ordinarily doesn’t count as “wages,” and so doesn’t reduce the amount of benefits a former employee can collect. (If severance is paid out over time as if it were wages, the employee may have to delay collecting benefits.)

Can we ask employees to agree that failing to meet our performance standards constitutes a voluntary quit? Same answer. It really doesn’t matter what you require employees to agree to: Employees are entitled to benefits when they lose their jobs unless they commit misconduct, as defined above, or quit without good cause, also as defined above. The EDD doesn’t care how you redefine these terms in a performance improvement plan or employment contract. If an employee is terminated because of poor performance, that is not a voluntary quit. In fact, employers who try this strategy might be facing more problems than an increase in unemployment claims: Requiring employees to sign a contract that you know you can’t enforce could arguably constitute an unfair business practice, which takes an employer into territory where huge damages can be awarded.

To return to the title of this post, it is almost never in the employer’s interest to try to contest benefits this aggressively. Fighting an employee’s claim on dodgy grounds will turn the employees you still have against you: They will find out about it, and they will not be feeling the love. It will take time and money to appeal employee claims. And you will make a bitter enemy of the employee you fired, one who has every incentive to file a lawsuit against your company. By all means, challenge claims by bad apples who are trying to game the system, who truly committed misconduct, who quit for no good reason, who stopped even trying to do their jobs months before you fired them. But otherwise, it’s generally best to let the system do what it’s supposed to do: provide some help to those who have lost their jobs through no fault of their own, until they can find new work.

No More 99ers: Federal Extensions of Unemployment Benefits Shortened

When unemployment rates are high, Congress has generally responded by passing legislation to supplement state unemployment insurance benefits. In keeping with this tradition, Congress passed the Emergency Unemployment Compensation (EUC) program in 2008 to provide additional weeks of eligibility to workers who had lost their jobs in the recession. Over time, the benefits available from state governments, plus four “tiers” of EUC, plus benefits available through the Extended Benefits program (a joint federal-state extension) added up to a potential total of 99 weeks of benefits. Some of the extra money available from Congress was dependent on the unemployment rate, so workers in some states weren’t eligible for the full 99 weeks. But many were, and some of the long-term unemployed took to calling themselves “the 99ers,” even before the Occupy movement made 99 the magic number dividing the haves and the have-nots.

Well, that number is changing. When Congress reauthorized the unemployment extension programs in February, it phased in a couple of changes intended to restrict benefits eligibility. First, it set higher unemployment rate thresholds a state must meet before qualifying for the benefits extension. And second, it decreased the total months of benefits available. Starting at the beginning of this month, those changes are taking effect.

Once unemployed workers have used up their state benefits (which last 26 weeks in most states, although a handful of states have cut back on this number too), the tiers of the EUC program become available as follows:

  • Tier 1: 20 weeks of benefits until September 2012; 14 weeks thereafter
  • Tier 2: 14 weeks of benefits, but only if the state unemployment rate is at least 6% (this trigger is new, beginning in June 2012)
  • Tier 3: 13 weeks of benefits until September 2012; nine weeks thereafter. This Tier is available only if state unemployment is at least 7% (this trigger has increased from the former requirement).
  • Tier 4: Six weeks of benefits until September 2012; ten weeks thereafter. The trigger for this Tier has been increased to 9%.

The extended benefits program offers an additional 13 to 20 weeks of benefits, based on the state unemployment rate. However, most states no longer qualify. The National Employment Law Project estimates that no states will qualify for extended benefits by September of 2012. The upshot is that by September of 2012, the maximum possible benefits available will drop by six weeks, to 93. Because no states are projected to continue qualifying for extended benefits, however, the true maximum will be 73 weeks — and that’s only in states whose unemployment rates remain quite high. Already, some states have stopped qualifying for Tier 4 benefits based on the trigger rate.

And that’s before we reach what has come to be known as the “financial cliff” at the end of the year. That’s when all federal extensions to unemployment are set to expire, along with the Bush-era tax cuts, and those automatic spending cuts Congress enacted to force itself to reach a budget agreement are set to take effect. If Congress doesn’t act on the unemployment piece, benefits will revert to the 26 weeks or less available from state governments. Ouch.

Proposed FMLA Regulations Released

A couple of weeks ago, the Department of Labor released proposed regulatory changes to the Family and Medical Leave Act (FMLA). These changes would update the existing regulations to take into account two statutes passed in the last couple of years: One expands military family leave in several ways; the other clarifies eligibility requirements for flight crew members to ensure that more of them are able to take advantage of the law’s protections.

Here are some of the changes covered in the proposed regulations:

Qualifying exigency leave. Originally, employees with family members in the National Guard or Reserves were eligible for FMLA leave to handle certain practical matters when their family member was called to active military duty. In 2009, Congress expanded this protection to also cover employees with family members who are in the regular Armed Forces. It also made clear that this leave provision applied only to employees whose family members were deployed to a foreign country. The regulations reflect these changes. They also extend the amount of leave available to an employee who family member is on rest and recuperation leave (“R and R”) from five to 15 days, depending on the length of the family member’s R and R. Finally, the regulations clarify that an employee may take qualifying exigency leave to handle school and childcare matters arising out of the deployment of a spouse, child, or parent. In other words, the child who needs assistance need not be the employee’s child. If the employee’s parent is deployed, for example, the employee could take qualifying exigency leave to sort out childcare for a younger sibling.

Military caregiver leave. Employees are entitled to 26 weeks of leave to care for a family member who suffers a serious illness or injury while on active military duty. Congress expanded this entitlement in two important ways. First, someone who has a pre-existing injury or illness that is aggravated by active military duty is now covered. Second, veterans (those who were discharged or released from the military, under conditions other than dishonorable, in the past five years) are also covered. The proposed regulations define what constitutes a serious injury or illness for a veteran, propose to measure the five-year time limit backwards from the first date the employee takes leave, and propose changes to the certification requirements for this type of leave, to reflect that injured service members and veterans may be seeing private healthcare providers rather than using the military healthcare system. The Department of Labor is seeking comment on these changes, as well as on how it should define a pre-existing condition aggravated by military service, particularly given the military’s rigorous enlistment requirements that would presumably screen out many such conditions. In addition, the Department made a couple of very interesting statements in the proposed regulations on leave to care for a veteran:

  • The 26-week leave provision has been interpreted as a per service member, per injury requirement. In other words, an employee gets only a single period of leave unless a different family member is injured while on military duty or the same family member is injured again. The Department has shaken this up a bit by stating that it believes employees would be entitled to two leave periods for the same family member, once while the family member is still in the military and once after the family member becomes a veteran. It isn’t clear whether the Department intends that the injury must be different to entitle the employee to a second leave (for example, if the family member suffered a physical injury and then later developed PTSD).
  • The Department has taken the position that employers are not currently required to offer leave for employees to care for a veteran family member. Congress directed the Department to define, through regulations, what constitutes a serious injury or illness for a veteran. Because no final regulations yet address this issue, the Department has determined that the provision isn’t yet enforceable.

Flight crew coverage. Congress created different rules to measure employee eligibility for flight crew members, who were being excluded due to the way the 1,250 hours requirement was being interpreted. The regulations include these changes, as well as changes in how much leave an employee has taken is calculated.

These regulations are proposed, which means that the Department is accepting public comments for 60 days. The Department will then review the comments it receives, decide whether to incorporate them into (or otherwise modify) its regulations, then release the regulations in final form. Until that happens, these regulations aren’t legally enforceable.