COMPENSATION & BENEFITS

Compensation and benefits pose unique challenges to employers because they encompass both internal and external pressures. It can be difficult to find the appropriate balance of keeping competitive with external forces while maintaining internal equity and effective reward systems among employees. Don’t let legal compliance add stress or stand in the way of success. From wage and hour issues under the Fair Labor Standards Act (FLSA), to compliance with ERISA and providing the right type of benefits and vacation package for each unique workforce, to the ever-evolving Affordable Care Act, the following information and forms will help simplify the legal landscape, so you can focus on your company and your employees.                                     

 

ERISA

o   ERISA: The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

ERISA requires plans to provide participants with plan information including important information about plan features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; gives participants the right to sue for benefits and breaches of fiduciary duty; and, if a defined benefit plan is terminated, guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation (PBGC).

myHRcounsel's  ERISA Dynamic Compliance Calendar provide the most comprehensive and organized set of forms, notices and with our premium services, provides companies with legally prepared Summary Plan Descriptions, Summary of Material Modifications and Wrap/SPD documents, all requirements of ERISA.  Click below on the link to access the calendar:

 

flsa

The  Fair  Labor  Standards  Act  (FLSA) establishes minimum  wage, overtime pay, recordkeeping, and child  labor standards affecting  full-time  and part- time  workers  in the private sector and in federal, state, and local governments.

The  Wage  and  Hour  Division  (WHD) of  the  U.S. Department of Labor (DOL) administers and enforces the FLSA with respect to private employment,  state and local government employment, and federal employees of the Library  of Congress, U.S. Postal Service, Postal Rate Commission, and the Tennessee Valley Authority.  The FLSA is enforced  by the U.S. Office of Personnel Management for employees of other  Executive Branch  agencies,  and by the  U.S. Congress for covered employees of the Legislative Branch.

Special rules apply to state and local government employment involving fire protection and law enforcement activities, volunteer services, and compensatory time off instead of cash overtime pay.  For a handy reference and full overview of the FLSA, click here (DOL Reference Guide)

 

benefits

Benefits can be just as important to employees as their salary or wages, and employees come to expect benefits as part of their entire compensation package. Benefits are also a great way to motivate and retain quality workers. Do you know what benefits are required in your state and which are voluntary?

This Section is an overview of the principal laws that apply to employee benefit plans. It introduces some basics such as:

  • The types of employee benefits an employer can offer to employees.

  • The effect of the Internal Revenue Code (Code) on employee benefits.

  • The general structure and purpose of the Employee Retirement Income Security Act of 1974 (ERISA).

  • How and when ERISA applies.

  • The entities to which the Code and ERISA apply.

  • How other federal laws affect employee benefits.

 

Types of Employee Benefits

Employee benefits are compensation provided by employers to employees in addition to wages, generally on a voluntary basis. There are two general categories of compensation:

  • Deferred compensation.

  • Goods and services other than deferred compensation.

 

Deferred Compensation

Deferred compensation is compensation where payment has been postponed beyond the date on which wages for the employee's services are normally due. Payment for these benefits:

  • Is usually deferred to a later taxable year, instead of the employee's taxable year when the services giving rise to the benefit were actually performed.

  • May be contingent on a fact or condition that will be determined later, such as retirement plans where monthly payments are made when the employee retires or turns 65, whichever is later.

Benefits in this category include qualified plans, such as:

  • Pension and profit-sharing plans (including 401(k) plans which allow employees to elect to have contributions made to a plan account instead of paid to them in cash as wages).

  • Stock bonus plans, which are similar to profit-sharing plans but are funded with employer stock.

Deferred compensation employee benefits also include plans that are not meant to be qualified plans, such as special retirement plans for executives.

 

Employee Benefits Other Than Deferred Compensation

Goods and services other than deferred compensation are generally either:

  • Coverage for certain unpredictable life events, such as illness, death, or unemployment, including:

    • insurance coverage, which usually provides cash reimbursement to the employee or a third party who provided services to the employee (for example, health insurance coverage); and

    • coverage under a program that is similar to insurance, such as a self-insured program where the employer bears the financial risk associated with the plan 

  • Goods or services for the employee:

    • at the employer's discretion, such as a holiday bonus; or

    • for the employee's convenience, such as company-paid parking 

Some goods or services-related benefits are statutory benefits, which are deferred compensation benefits required by law (for example, workers' compensation and unemployment benefits) and employer contributions to federal pension programs (for example, Social Security benefits).

 

The Two Principal Laws Affecting Employee Benefits

The two principal laws affecting employee benefits for private employers are:

  • The Code.

  • ERISA.

The Code and ERISA promote the adoption of certain types of benefit arrangements and prevent the adoption of others by different means. The Code creates financial incentives in the form of tax benefits for employers to provide certain benefits. ERISA governs employee rights and establishes an employer's and others' corresponding duties in administering employee benefit plans.

 

How the Code Affects Employee Benefits

The Code creates financial incentives for employers to provide certain types of employee benefits and to operate their benefit plans in certain ways. These incentives are usually employer tax deductions for the cost of the benefit. The employee generally does not need to include the value of the benefit in his taxes or he may postpone reporting the benefit as taxable income until a later tax year.

Sometimes the Code establishes tax penalties for operating employee benefit plans in violation of specific federal policies. The employer's incentive to follow federal policies is to avoid a penalty. Penalties allow the federal government to control benefit programs sponsored by a broad range of employers, including those that are exempt from federal income tax.

The Code has specific conditions that employers and benefit plans must meet to obtain tax advantages. So while compliance with the Code's conditions for favorable tax treatment technically is voluntary, employers would suffer needless tax burdens if they did not comply. The rules for employee benefits under the Code are enforced by the IRS.

ERISA

The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that sets minimum standards for most voluntarily established pension and health plans in private industry to provide protection for individuals in these plans.

ERISA requires plans to provide participants with plan information including important information about plan features and funding; sets minimum standards for participation, vesting, benefit accrual and funding; provides fiduciary responsibilities for those who manage and control plan assets; requires plans to establish a grievance and appeals process for participants to get benefits from their plans; gives participants the right to sue for benefits and breaches of fiduciary duty; and, if a defined benefit plan is terminated, guarantees payment of certain benefits through a federally chartered corporation, known as the Pension Benefit Guaranty Corporation (PBGC).

myHRcounsel's  ERISA Dynamic Compliance Calendar provide the most comprehensive and organized set of forms, notices and with our premium services, provides companies with legally prepared Summary Plan Descriptions, Summary of Material Modifications and Wrap/SPD documents, all requirements of ERISA.  Click below on the link to access the calendar:

Affordable Care Act (ACA): The federal Patient Protection and Affordable Care Act, signed March 23, 2010, as amended by the Health Care and Education Reconciliation Act, signed March 31, 2010, is also referred to as the Affordable Care Act (ACA), or simply as “federal health reform.” The 900+ page act contains many provisions, with various effective dates. Other papers in this series address specific topics in more detail. Key Federal Provisions included in the ACA are intended to expand access to insurance, increase consumer protections, emphasize prevention and wellness, improve quality and system performance, expand the health workforce, and curb rising health care costs.

Benefits Packages: Workers’ Compensation, Unemployment Insurance, and Disability Insurance requirements by state

Vacation/PTO Hours: Do you have a vacation or PTO policy? Do you grant hours or use an accrual system? Do hours roll over to the following year?

 

leave and accomModation

Leave and accommodation can be particularly tricky areas of compliance for employers. In some cases, an employer’s obligations to accommodate under relevant federal, state, and local laws kick in before employment even begins! Not only is leave and accommodation legally required for workers in certain situations, but proactive offerings can also add value and motivation to the workplace. Employees may need or want leave for myriad reasons, including personal, medical, and family matters, and they might require certain accommodations to perform the essential functions of their jobs. The information and documentation provided here will aid you in learning to recognize and respond to these types of employment issues so you can save time, money, and stress.

o   Family and Medical Leave Act (FMLA): Do you have a written FMLA policy? What if you receive an incomplete medical certification? Do you have to offer intermittent leave? What about light duty work?  Unsure - start by clicking here for the myHRcounsel FMLA Decision Tree

o   Paid Sick Leave: Does your state require paid sick leave for employees? How many hours or days are required? Is your pre-existing sick leave or PTO policy legally compliant?

o   Parental Leave: Does your state provide for paid leave for family and medical reasons or for school-related events and activities? How many hours must you provide to employees?

o   USERRA: What are the leave and reemployment rights of your employees in the uniformed services?

Leave and accommodation often go hand-in-hand. Are you prepared to navigate the complex legal system and smoothly transition employees between work, leave, and workplace accommodation, as needed?

o   Americans With Disabilities Act (ADA): When should you begin the interactive process? Have you identified all the essential functions of the job? What about light duty work? What if no reasonable accommodation exists?

o   Pregnancy Accommodation: Pregnancy Discrimination Act (PDA), FMLA, and ADA intersection

 

FAQS

Q. When should I classify an employee as exempt versus non-exempt?

A. Exempt employees are not entitled to overtime pay as guaranteed by the Fair Labor Standards Act (FLSA), whereas non-exempt employees are entitled to overtime pay at one and one-half times their regular rate of pay for hours worked over 40 in a given pay week. Some states also have wage and hour laws with additional requirements to the FLSA. It is imperative that employers comply with both the state and federal employment laws. In general, to be considered an “exempt” employee, an employee must be paid a salary (not hourly) and must perform executive, administrative or professional duties.

The FLSA recognizes three main categories of exempt workers:

·       Executive

·       Professional

·       Administrative

The job duties and responsibilities, not the title alone, determine exempt vs. non-exempt status. Administrative, executive and professional employees, outside salespeople and STEM (Science, Technology, Engineering, and Math) employees can be classified as exempt and, therefore, ineligible for overtime pay if they meet the following criteria:

·       Employees are paid a salary as opposed to being paid on an hourly basis.

·       Employees earn at least $455 per week.

·       Employees are paid a salary for any week they work.

For additional information, see the myHRcounsel Exempt Status Checkup:

 

Q. What is the minimum wage?

A. The current federal minimum wage is $7.25 per hour, but some states, cities, and counties have established higher minimum wages for their workers.  See the following chart for a breakdown by location:

              Jan. 2018 State Minimum Wage Rates

 

Q. How do I calculate overtime?

A. Under federal law, non-exempt employees must be paid one and one-half times their regular rate of pay for all hours worked over 40 in a given pay week. For hourly employees, employers should generally follow these steps to calculate overtime:

1.       Determine whether the employee is eligible for overtime.

2.       Determine the employee’s regular rate of pay, which is the total amount paid in the period divided by the number of hours worked, and cannot be less than the minimum wage.

3.       Multiply the regular rate of pay by 1.5x.

 

See the FLSA overtime calculator here: https://webapps.dol.gov/elaws/whd/flsa/otcalc/i2.asp

Individual state laws on overtime may vary. Check with a myHRcounsel attorney if you are unsure about your situation.

 

Q. Is compensatory time a legal substitute for overtime?

A. No. You cannot provide compensatory (“comp”) time in lieu of overtime pay. According to the FLSA, employers are required to pay non-exempt employees one and a half times their regular rate of pay for hours worked over 40 in a single work week.

 

Can my employees work “off the clock?”

“Off the clock” labor generally refers to uncompensated work time and, therefore, is usually illegal. Under the FLSA, non-exempt employees must be paid for all hours worked. The FLSA states that “hours worked” includes all time an employee must be on duty, or on the employer’s premises, as well as any additional time the employee is allowed to work. Where an employer requires or allows workers to work, the employee is owed compensation.

 

Q. Can I pay all employees via direct deposit?

A. On a federal level, the Electronic Fund Transfer Act (EFTA) protects employers and employees who use direct deposit. Federal law allows for direct deposit as long as one of the following conditions is met:

·       The employee must be able to choose the bank for direct deposit

·       If the employer chooses the bank, they must offer another form of payment for the employee, such as a paper check

 

Individual states also have laws regarding the manner in which employers can pay employees, many of which are more restrictive than the federal law. Check with a myHRcounsel attorney if you are unsure about your situation.

 

Q. How soon must I pay a terminated employee?

A. This varies from state to state, and often depends on whether an employee is fired, laid off, or quits. Some states require immediate payment of all wages due when an employee is fired, some indicate employees must be paid by the next regular payday, and some states do not have laws specifically on point. Find state by state guidance here:

https://myhrcounsel.zendesk.com/hc/en-us/articles/215831318-Final-Pay-Laws-by-State

 

Q. What happens to accrued, but unused vacation hours upon termination?

A. This varies from state to state, and often depends on whether the employer and employee have previously agreed to an arrangement in writing. Some states consider accrued vacation hours to be earned wages, and therefore payable upon termination, some indicate whether accrued vacation hours are due upon termination depends on a written agreement or policy, while other states are silent on the matter. Check with a myHRcounsel attorney if you are unsure about your situation.

  

Q. Is my organization an Applicable Large Employer (ALE) under the Affordable Care Act (ACA)?

A. Q. Whether you are an ALE is determined each calendar year, and generally depends on the average size of your workforce during the prior year.  

If an employer has at least 50 full-time employees, including full-time equivalent employees, on average during the prior year, the employer is an ALE for the current calendar year, and is therefore subject to the employer shared responsibility provisions and the employer information reporting provisions. To determine workforce size for a year, an employer can add the total number of full-time employees for each month of the prior calendar year to the total number of full-time equivalent employees for each calendar month of the prior calendar year and divide that total number by 12.

 

Q. How do I calculate full time employees for purposes of the ACA?

A. A full-time employee for any calendar month is an employee who has on average at least 30 hours of service per week during the calendar month, or at least 130 hours of service during the calendar month.

A full-time equivalent employee is a combination of employees, each of whom individually is not a full-time employee, but who, in combination, are equivalent to a full-time employee. An employer determines its number of full-time-equivalent employees for a month in the two steps that follow:

1.       Combine the number of hours of service of all non-full-time employees for the month but do not include more than 120 hours of service per employee, and

2.       Divide the total by 120.

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