Legal Update Part II – Federal Changes and Other Trends

At the Federal level there are two big items related to labor law.  The first is in regards to a Supreme Court ruling on the Defense of Marriage Act (DOMA).  The court ruled that benefits must be extended to same sex couples if the state they reside in recognizes same sex marriages.  What is unclear is how that applies in states that do not recognize same sex marriages.  Even more unclear is if a same sex couple gets married in a state that recognizes same sex marriages but lives and works in a state that does not.  Since the ruling on DOMA focuses on benefits, like health insurance or 401(k) plans, you should contact the administrator of those benefits and ask about the criteria they have set.  Then update your employee handbook to match their advice.

The second item at the Federal level is the Affordable Care Act (ACA).  The implementation of various pieces of the ACA has been changing since its inception.  2014 was no exception.  There is a provision of the ACA known as the employer mandate.  The employer mandate applies to employers that have 50 or more full time employees.  If you are a large employer and do not provide health insurance you will be taxed $2000 per full time employee per year (the first 30 are tax exempt). This tax was due to take place in 2014 but enforcement was delayed until 2015.  The recent change is that during 2015 the IRS is not going to enforce the employer mandate against employers with less than 100 employees. This is just a temporary reprieve as the IRS is supposed to begin enforcing the law as written in 2016.

At the state level there were bills in the Oregon Legislature focusing on the ACA.  One bill, HB 4072, would give a $500 tax credit per employee for businesses that spend at least that amount per employee on wellness programs. Another bill, SB 1543, proposed to fine large employers that avoid the employer mandate by exploiting a loophole in the definition of a full time employee.  If an employee works less than 32 hours per week then they do not qualify as a full time employee under the ACA and thus are not subject to the $2000 tax.  If an employer reduces hours to avoid the tax the employer would be guilty of an unlawful employment practice and the bill specifies penalties. Both bills appear to be stuck in committee and the 2014 session ends on March 9^th.

There are several trends worth highlighting.  Two are related to felonies.  One is from the Equal Employment Opportunity Commission (EEOC) which came out with guidelines that employers could not automatically exclude applicants if they had a felony conviction.  The EEOC wants employers to exclude applicants based on relevant felonies.  An example would be barring an applicant convicted of theft from being a bank teller.  The State of Texas objected and took the issue to court as they did not want to open up positions like a corrections officer to felons- essentially allowing former inmates to supervise current inmates. Other states have also objected but the EEOC has fired back with a letter defending its stance.  This is an issue to keep an eye on in the coming year.  The second trend is a push in some states or municipalities to bar employers from asking about criminal convictions up front. This effort is often referred to “Ban the Box” in reference to the yes or no question about past criminal convictions on most applications.

Another trend worth noting is workplace bullying.  This issue has been getting greater recognition and OSHA Enforcement can investigate if physical contact takes place.

A possible new trend is could be an increase in requests for accommodation under the Americans with Disabilities Act (ADA).   The American Psychiatric Association released an updated edition of Diagnostic and Statistical Manual of Mental Disorders.  An increase in the number of disorders could lead to an increase in ADA requests.

Arin J. Carmack

Health Insurance Strategies

**Originally posted on 02/26/2013**

Beginning in 2014 the principal part of the Patient Protection and Affordable Care Act, the health insurance requirement, will go into effect.  On January 1st of next year Americans will be required to obtain health insurance from an employer provided plan, or from an exchange or pay a tax/penalty.  Business owners with more than 50 employees will be faced with a similar question; to either provide health insurance or facing a $2000.00 penalty/tax per employee.  (For help in determining your full time equivalent employees as defined under the Affordable Care Act click here). 

Small Business Tax Credit

When deciding if you should offer health insurance there are a variety of things to consider.  Some companies have decided to get out of the health insurance game altogether.  Beginning 2014 these employers will offer a stipend allowing employees to go out and choose their own level of coverage.   The idea is that employees are better consumers and will choose better individual solutions for themselves while companies can limit their exposure to unpredictable swings in health insurance costs.  Another thing to consider is the recruiting and retention of employees.  In many professions offering health insurance coverage is a given while in others it is almost non-existent.  When formulating a strategy for 2014 keep in mind what your competitors are doing. 

Employers Under 50 Employees:

If you have determined that you will be under 50 employees and therefore not subject to the tax/penalty there are still a few things to consider.  Take a look at your employee count.  If you have fewer than 25 employees you may qualify for a tax credit.  Estimate the costs of providing health insurance, any tax credits and other factors to estimate your costs with each scenario.  Keep in mind your personal cost of non- compliance under the individual mandate. 

Employers close to 50 Employees:

For those just under 50 employees there will be the temptation to remain below that number. Remember that just because you are subject to the overall tax the first 30 employees still remain tax exempt.  The marginal cost of the 51^st employee is $42,000 not $102,000.

Over 50 Employees:

For employers that do not offer health insurance with a significant number of employees over 50 the coming year is causing increasing trepidation.  Many business owners are looking to see if their competitors will be passing on costs to consumers or trying one of the many strategies to lowers their costs under the Affordable Care Act.  Temporary employees are being considered more frequently as the temporary employees are counted under the temporary employer’s number of employees for the tax/penalty.  Another strategy has been to increase the number of employees and cut hours per employee.  For example a large restaurant chain signaled that they were planning on making as many of their part time employees truly part time as defined by the ACA.  Reclassifying employees as part time was accomplished by restricting the number of hours a part time employee can work to fewer than 30 hours per week.  Another time honored route to avoid payroll taxes, workers’ compensation and the like is to try and turn employees into independent contractors.  The Affordable Care Act is another reason some businesses will be looking at classifying people as 1099 independent contractors.   Enclosed is a link to the State of Oregon’s rules on independent contractors. http://www.oregon.gov/IC/pages/05-qanda02.aspx  If you go this route review your plan with someone like a CPA or attorney as there are a variety of pitfalls.  For example, the Internal Revenue Service, Oregon Employment Department and the Oregon Department of Revenue do not completely agree on the definition of an independent contractor. Other businesses are looking at breaking up their entities into groups smaller than 50 employees.   The Affordable Care Act has provisions to treat multiple businesses as one entity.  Structuring your businesses in such a manner that will not be considered as combinable is something you should review with an expert in this arena.  If you are considering this option here are links to the IRS website on controlled groups for you and your attorney and/or CPA to review.

Applicability to the PPACA - http://www.irs.gov/pub/irs-drop/n-11-36.pdf

Guidance on controlled groups-  http://www.irs.gov/pub/irs-tege/epchd704.pdf 

 A twist on independent contractors and non-combinable entities is outsourcing employees to another organization to keep your number of core employees closer to 50. Outsourcing non-core functions – from HR to accounting to shipping is easier than ever.

The Affordable Care Act is a complicated piece of legislation.  Review your options.  Put estimated price tags on each option. Evaluate what other are doing or ask your trade association. Doing so now will help avoid a scramble in the final quarter of 2013.

Arin J. Carmack

VP of Risk Management

Will the Affordable Care Act raise or lower workers’ compensation rates?

While doing research for the Affordable Care Act (ACA) I stumbled upon an article about workers’ compensation.  As a Risk Manager my first love is naturally workers’ compensation so I eagerly dived into the Rand Corporation’s study entitled, The Impact of Health Care Reform on Workers’ Compensation Medical Care.  In my experience, conventional wisdom among my peers in Risk Management is that employees with health insurance have lower workers’ compensation claim losses.  I share this preconception which is often reinforced when I see employees that do not have health insurance file workers’ compensation claims that probably did not happen on the job.  One of the many examples that come to mind is a hernia with a highly suspect set of facts.  The worker with the hernia also had a wife and newborn but did not yet have health insurance.  It was certainly within the realm of possibilities that a workers’ compensation claim was a way this employee could get treatment and keep his new job.