December 2010, Issue XII Tech Flex Topics Covered in this Issue: Benefits: Transit Parity and Tuition Reimbursement Exclusion Extended Transportation Plan Debit Card Requirements Delayed Once Again 2011 Medical Mileage Rate Announced by IRS Grandfathered Plan Regulations Amended Final GINA Regulations Released Payroll: Tax Relief Act Enacted Into Law IRS Releases Guidance on Tax Relief Act IRS Releases 2011 Automobile Business Use Mileage Rate New York Wage Theft Act Enacted Colorado Increases Minimum Wage Leave: DC Issues Mandatory Leave Notice
TRANSIT PARITY AND TUITION REIMBURSEMENT EXCLUSION EXTENDED On December 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (H.R. 4853). Previously the Senate and House had passed H.R. 4853 on a vote of 81 to 19 and 277 to 148 respectively. As a result of the enactment of H.R. 4853, the transit parity and tuition reimbursement exclusion scheduled to sunset on December 31, 2010 are now extended. Extension of Transit Parity The American Recovery and Reinvestment Act of 2009 amended the Internal Revenue Code to make the combined monthly limit for transit passes and vanpooling the same as the monthly limit for parking from March 2009 until the end of 2010. Under this parity rule, the combined limit automatically adjusts to remain identical to the parking limit. For 2010, the monthly limit for both parking and transit is $230. However, absent any further congressional action, as of January 1, 2011, the monthly transit limit would be determined in the same manner as it was determined prior to enactment of the parity rule. Therefore, the transit monthly limit would revert back to $120 per month plus any inflation amount announced by the Internal Revenue Service (IRS). A provision of the Tax Relief Act extends the parity between parking and transit for one additional year through December 31, 2011. Consequently, the monthly transit limit in 2011 will match the monthly parking limit of $230 plus any adjustment for inflation announced by the IRS. Extension of Educational Assistance Programs The Tax Relief Act continues the exclusion for employer provided educational assistance under Internal Revenue Code Section 127 through 2012. This exclusion was scheduled to sunset on December 31, 2010. Currently, the maximum amount of nontaxable educational assistance an employer can provide to an individual during a calendar year is $5,250 and this will be extended through 2012. For a copy of H.R. 4853, please click on the following link: H.R. 4853 2
2011 MEDICAL MILEAGE RATE ANNOUNCED BY IRS Transportation expenses, such as automobile mileage that qualify as tax deductible medical expenses under Internal Revenue Code Section 213 generally can be paid or reimbursed on a tax-free basis by a health flexible spending arrangement, health reimbursement arrangement, or health savings account if the expense is primarily for, and essential to, medical care. On December 3, 2010, the Internal Revenue Service via Revenue Procedure 2010-51 announced that the standard mileage rate, effective January 1, 2011, for use of an automobile to obtain medical care is 19 cents. This represents an increase of two and a half cents from the 2010 rate of 16.5 cents per mile. For a copy of Revenue Procedure 2010-51 please click on the link provided below: http://www.irs.gov/pub/irs-drop/rp-10-51.pdf TRANSPORTATION PLAN DEBIT CARD REQUIREMENTS DELAYED ONCE AGAIN On December 16, 2010, The Internal Revenue Service (IRS) released guidance via IRS Notice 2010-94 which delays the date by which the provisions of IRS Notice 2006-57 are required to be implemented. Revenue Ruling 2006-57 provides guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringes. Based on this most recent guidance, the latest date by which the provisions of Notice 2006-57 must be implemented is now January 1, 2012 rather than January 1, 2011. This is the fourth time that the effective date of the Notice 2006-57 mandates have been delayed from its original effective date of January 1, 2008. However, it is important to note that IRS Notice 2010-94 specifically allows that the rules of IRS Notice 2006-57 may be implemented prior to January 1, 2012. The IRS provided the following statement in conjunction with its release of Notice 201094: Notice 2010-94 which delays the effective date of Revenue Ruling 2006-57. Revenue Ruling 2006-57 provides guidance to employers on the use of smartcards, debit or credit cards, or other electronic media to provide qualified transportation fringes under sections 132(a)(5) and (f) of the Code. This guidance is intended to provide relief to mass transit providers that have been unable to update their systems in order to comply 3
with the Revenue Ruling guidelines prior to the current effective date of January 1, 2011. The effective date of Revenue Ruling 2006-57 is further delayed until January 1, 2012. For a copy of IRS Notice 2010-94, please click on the link provided below. http://www.irs.gov/pub/irs-drop/n-10-94.pdf GRANDFATHERED PLAN REGULATIONS AMENDED On November 17, 2010, revised regulations were released by the Department of Health and Human Services (HHS), the Department of Labor (DOL) and the Internal Revenue Service (IRS) stipulating that a group health plan does not cease to be a grandfathered health plan merely because the plan (or its sponsors) enters into a new policy, certificate, or contract of insurance after March 23, 2010. The amended provision allows the group health plan to change an insurance provider, or third-party administrator, for example, as long as the plan does not make significant changes to benefits or costs. This is reversal of previous guidance released which stipulated that if a group health plan entered into a new policy, certificate, or contract after March 23, 2010, the plan would lose its grandfathered status. As a way of background, one of the provisions of health care reform was the mandate that insurers and plan sponsors alter health coverage to meet the requirements of specified insurance market reforms. These insurance market reforms are effective as of the first plan year that commences on or after September 23, 2010. For calendar plan years, the effective date would be January 1, 2011. However, the health care reform legislation provided that a grandfathered plan would be exempt from certain provisions of the insurance market reform mandate. A grandfathered plan is defined as a group health plan (self or fully insured) that is in effect on March 23, 2010. A grandfathered plan retains grandfathered status even if (i) family members of a participant who was enrolled in the grandfathered plan on March 23, 2010, are permitted to enroll in the Plan after March 23, 2010; and (ii) new employees and their families are permitted to enroll in the plan after March 23, 2010. A grandfathered plan also includes any health insurance coverage maintained pursuant to one or more collective bargaining agreements between employee representatives and one or more employers that was ratified before March 23, 2010. If a plan qualifies as a grandfathered plan, it is exempt from certain health care reform provisions. For more information on grandfathered plans, please see the June 2010 Tech Flex [LINK]. The HHS, IRS and DOL provided the following reasons for making the adjustment to the regulations. 4
Why did HHS, Labor and Treasury make this change? The Departments received many comments on the provision in the original grandfather rule stating that a group health plan would relinquish grandfather status if it changed issuers or policies. This change was made in response to those comments for the following reasons: 1. There are circumstances where a group health plan may need to make administrative changes that don t affect the benefits or costs of a plan. For example, an insurer may stop offering coverage in a market. Or a company may change hands. In those cases, the employer can maintain grandfathered status for their employee s plan under this amendment. 2. Comments expressed concern that the original provision could have the inadvertent effect of interfering with health care cost containment. If an employer has to stay with the same insurance company to keep the benefits of having a grandfathered plan, the insurance company has undue and unfair leverage in negotiating the price of coverage renewals. Allowing employers to shop around can help keep costs down while ensuring individuals can keep the coverage they have. 3. Some employers buy coverage from insurance companies; others self-insure, meaning that they pay claims themselves but usually hire a third-party administrator (TPA) to handle the paperwork. Usually only large companies can self-insure. Before this amendment, self-insured plans could change the company hired to handle the paperwork without losing grandfathered status as long as the benefits and costs of the plan stayed the same, while an employer that just changed insurance companies while maintaining the same benefits under their plan could not do so. Under this amendment, all employers have the flexibility to keep their grandfathered plan but change insurance company or third-party administrator. Note: The change to the regulations applies only to changes that are effective on or after November 15, 2010 and the amendment does not apply retroactively to changes effective before this date. Consequently, a group health plan that enters into a new policy, certificate, or contract of insurance after March 23, 2010 that is effective before November 15, 2010 ceases to be a grandfathered group health plan. For a copy of the amendment to the grandfathered plan rules, please click on the link below. http://edocket.access.gpo.gov/2010/pdf/2010-28861.pdf 5
GINA FINAL REGULATIONS RELEASED On November 9, 2010, the Equal Employment Opportunity Commission (EEOC) issued final regulations implementing Title II of the Genetic Information Nondiscrimination Act (GINA). The final regulations, which take effect January 10, 2011, generally follow the proposed regulations, with some new additions and important clarifications. Background: As reported in the June 2008 Tech Flex [LINK], the Genetic Information Nondiscrimination Act (GINA) was signed into law by President Bush on May 21, 2008. GINA establishes a national, uniform, basic standard to protect individuals from discrimination in health care and employment practices based on genetic information. In addition, GINA generally eliminates, with limited exceptions, access to genetic information by health plans, health insurers and employers. GINA consists of two parts: (1) genetic nondiscrimination in relation to health insurance; and (2) employment discrimination based on genetic information. The provisions related to health insurance were effective for plan years beginning on or after May 8, 2009. The provisions related to employment nondiscrimination were effective as of November 8, 2009. Some highlights of the final regulations include the following: GINA Title I Coordination: The final regulations include provisions intended to create a "firewall" between GINA Titles I and II in order that health plan or issuer actions are addressed and remedied exclusively though Title I and employer actions are remedied exclusively through Title II. Clarification of Exception for Voluntary Wellness Programs: Under Title II an employer is prohibited from requesting, requiring, or purchasing the genetic information of an employee or an employee's family member, with certain exceptions, including where "health or genetic services are offered by the employer, including such services offered as part of a wellness program." The proposed regulations stated that such a wellness program must be voluntary, meaning that the employer must neither require an individual to provide genetic information nor penalize those who choose not to provide it. The final regulations elaborate, explaining that the entity may not offer a financial inducement for individuals to provide genetic information, but may offer financial inducements for completion of health risk assessments that include questions about family medical history or other genetic information, provided the assessment clearly states that the inducement is available whether or not the individual answers the questions regarding genetic information. Specific Intent Not Required: The final regulations stipulate that a specific intent to acquire genetic information is not necessary for an employer to violate the "request, require or purchase" prohibition. The final regulations also broaden the definition of an 6
employer's "request" for genetic information to include actions such as targeted Internet searches, eavesdropping on third-party conversations, and searching personal effects. However, they retain the exception for "inadvertent" acquisition of genetic information and add a helpful safe harbor to ensure its application. Under the safe harbor, if an employer requesting employee medical information from a third party (for a permissible reason such as to verify a request for accommodation) includes a statement that genetic information should not be provided, the employer will not be in violation if the third party nonetheless provides genetic information. For a copy of the final GINA regulations, please click on the link provided below. http://edocket.access.gpo.gov/2010/pdf/2010-28011.pdf TAX RELIEF ACT ENACTED INTO LAW As previously noted, President Obama on December 17, 2010, signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (H.R. 4853). As a result, the income tax rates enacted under the Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA), scheduled to sunset on December 31, 2010, are extended for two more years. In addition, all wage earners will pay 2% less in Social Security Taxes in the 2011 tax year. Extension of EGTRRA Tax Rates through 2012 Under EGTRRA, the income rates for individuals were decreased to 10%, 15%, 25%, 28%, 33% and 35% through December 31, 2010. As of the January 1, 2011, the rates were scheduled to move to 15%, 28%, 31%, 36%, and 39.6%. The enactment of the Tax Relief Act extended the lower EGTRRA rates through December 31, 2012. 7
Temporary Employee Payroll Cut for 2011 Prior to the enactment of H.R. 4853, employees were scheduled to pay a 6.2% Social Security Tax on all wages earned up to $106,800 for 2011. The enacted legislation provides a payroll holiday of 2% during 2011. Consequently, employees will only pay a 4.2% Social Security Tax instead of 6.2% during 2011. For example, an employee earning $70,000 will pay $2,940 rather than $4,340 in Social Security taxes in 2011. For a copy of H.R. 4853, please click on the following link. H.R. 4853 IRS RELEASES GUIDANCE ON TAX RELIEF ACT As noted in the previous article, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (H.R. 4853) which impacts the 2011 tax rates as outlined above. As a result of the enactment of H.R. 4853, the Internal Revenue Service (IRS) has released instructions via Notice 2010-36 to assist employers in implementing the 2011 2% cut in Social Security Taxes along with the new income-tax withholding tables that employers will use during tax year 2011. In conjunction with the release of Notice 2010-36, the IRS stated in part the following. Employers should start using the new withholding tables and reducing the amount of Social Security tax withheld as soon as possible in 2011 but not later than Jan. 31, 2011. Notice 1036 contains the percentage method income tax withholding tables, the lower Social Security withholding rate, and related information that most employers need to implement these changes. Publication 15, (Circular E), Employer s Tax Guide, containing the extensive wage bracket tables that some employers use, will be available on IRS.gov in a few days. The IRS recognizes that the late enactment of these changes makes it difficult for many employers to quickly update their withholding systems. For that reason, the agency asks employers to adjust their payroll systems as soon as possible, but not later than Jan. 31, 2011. For any Social Security tax over withheld during January, employers should make an offsetting adjustment in workers pay as soon as possible but not later than March 31, 2011. For a copy of Notice 2010-36 please click on the link provided below. http://www.irs.gov/pub/newsroom/notice_1036.pdf 8
IRS RELEASES 2011 AUTOMOBILE BUSINESS USE MILEAGE RATE On December 3, 2010, the Internal Revenue Service issued via Revenue Procedure 2010-51 the 2011 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, and moving purposes. As of January 1, 2011, the standard mileage rates for the use of a car (including vans, pickups or panel trucks) will be: 51 cents per mile for business miles driven; 19 cents per mile driven for moving purposes; and 14 cents per mile driven in service to a charitable organization. The new rate for business miles compares to a rate of 50 cents per mile for 2010, an increase of 1 cent per mile. The new rate of 19 cents per mile for moving purposes compares to 16.5 cents in 2010, an increase of 2.5 cents per mile. The standard mileage rates for business and moving purposes are based on an annual study of the fixed and variable costs of operating an automobile. The mileage rate for charitable miles is set by statute and remains at 14 cents per mile. For a copy of Revenue Procedure 2010-51 please clink on the link provided below: http://www.irs.gov/pub/irs-drop/rp-10-51.pdf 9
NEW YORK ENACTS WAGE THEFT PREVENTION ACT On December 13, 2010 Governor Patterson signed the New York State Wage Theft Prevention Act (Act) into law. The new statute, effective April 12, 2011, provides further protection to employees and misclassified workers from minimum wage, off-the-clock, and overtime violations, by requiring more stringent pay notice requirements and increasing penalties for wage payment, notice, and recordkeeping violations. New Hire/Yearly Notice Requirements The new law increases the existing notice requirements in relation to the amount of information to be provided and how often notices must be provided. New Hire Notices Currently the law only requires employers to provide written information to employees at the time of hire regarding the employees regular rate of pay, regular pay day, and overtime rate of pay (if the employee was eligible for overtime). Under the Act, employers will also be required to disclose to the employee (both in English and in the language identified by the employee as his or her primary language) whether the employee is paid by the hour, shift, day, week, salary, piece, commission or otherwise, and whether the employer intends to claim allowances, such as tips, meal, and/or lodging allowances against the minimum wage. Yearly Notices The Act requires that that employers must provide the information outlined above to all existing employees no later than February 1, 2012 and every subsequent year. In addition, the employer must obtain a signed and dated written acknowledgment from each employee confirming that this notice was provided each and every year. Copies of these records (including the employee acknowledgment) must be maintained for a minimum of six years. The Act requires that the applicable state agency is required to create templates that employers can use to meet its obligations in relation to both the New Hire and Yearly Notice. 10
Notice Requirements Per Pay Period The Act requires employers to furnish employees covered by the Minimum Wage Law with a wage statement every pay period identifying the employee s wage rate and whether the employee will be paid by the hour, shift, day, week, salary, piece, commission, and allowances; the amount of gross wages; any wage deductions; and the net wages paid and the employer maintain these payroll records for a minimum of six years. The Act has special rules regarding those paid on a piece rate basis. Increased Penalties Currently, an employer who violated New York s wage payment laws faced liability for all unpaid wages due employees, plus interest at the prevailing rate as prescribed by the banking law (up to a maximum of 16 percent per year) plus attorney s fees. Under the new law, in addition to the aforementioned penalties, liquidated damages for nonpayment or underpayment of wages are now increased to 100 percent of wages due (as under the federal law) unless the employer can prove a good faith basis for believing that its underpayment of wages was in compliance with legal requirements. The Act also allows employees or the labor commissioner to recover prejudgment interest in any civil action to recover unpaid wages as well as to collect attorneys' fees and costs incurred in enforcing any court judgment. The state labor commissioner will also have the authority to assess up to 100 percent liquidated damages in an administrative action and will be able to bring any legal action necessary, including an administrative action, to collect on claims. Also, if the commissioner finds that an employer has engaged in willful or egregious violations, or the employer previously has been found in violation of the New York wage laws, the commissioner shall direct payment to the commissioner [in other words, the New York Department of Labor] of an additional sum... in an amount not to exceed double the total amount of wages, benefits, or wage supplements found to be due." In addition, an employee who does not receive the mandatory notice of wages within 10 business days of his or her first day of employment may bring a civil action to recover damages of $50 for each workweek that the violation occurred, plus costs and reasonable attorneys fees. These damages are capped at $2,500. Similarly, with respect to existing employees, if any do not receive the mandatory wage statements, described earlier, the employer may be subject to a civil action and damages of $100 per week, per employee, for each week the violation occurred but not to exceed a total of $2,500, plus costs and reasonable attorneys' fees. Employers who are found liable and have penalties levied against them face additional penalties. For example, employer who defaults on paying a judgment for more than 90 days, after the judgment is final, must pay an additional 15 percent of damages to defray the cost to the employee of collecting on the judgment. 11
Posting Requirement An employer who violates the wage payment law may now be required by the commissioner to post a notice of the violation in the workplace, for up to one year, in an area visible to employees summarizing the violations found. If the violation was willful, the employer must post the notice in an area visible to the general public for up to 90 days. Criminal Penalties An employer, its officer or agent, who fails to pay minimum wages or overtime compensation as required may be convicted of a misdemeanor and assessed a penalty ranging from $500 to $20,000. In lieu of the fine, offenders may be imprisoned for up to one year. In the event the employer is found guilty of a second or subsequent offense within six years of the conviction for a prior offense, the employer will be guilty of a felony. Retaliation The Act also increases penalties against employers for retaliation against employees who make complaints regarding conduct the employee reasonably and in good faith believes is in violation of the wage payment laws. If retaliation is found, the employee is entitled to reinstatement, back pay, and front pay. Liquidated damages are now also available against the employer or person, though they are capped at $10,000. Similarly, if the commissioner finds that an employer or person engaged in retaliatory conduct, the commissioner may also levy a civil penalty of up to $10,000. For a copy of the Act, please click on the link provided below: New York Wage Theft Protection Act 12
COLORADO INCREASES MINIMUM WAGE Effective January 1, 2011, Colorado's minimum wage will increase to $7.36 per hour, up from the 2010 rate of $7.24 per hour. Also, the tipped employee wage will rise to $4.34 per hour, up from the current $4.22 per hour. Article XVIII, Section 15, of the Colorado Constitution requires the Colorado minimum wage to be adjusted annually for inflation, as measured by the Consumer Price Index used for Colorado. No more than $3.02 per hour in tip income may be used to offset the minimum wage of tipped employees. In accordance with the constitutional inflation adjustment requirement, the Director of the Division of Labor has adopted Colorado Minimum Wage Order Number 27 to reflect the new state minimum wage. If an employee is covered by federal and Colorado state minimum wage laws, then the employer must pay the higher minimum wage. Federal minimum wage is currently $7.25 per hour, which is lower than the Colorado state minimum wage of $7.36. Therefore, based upon current information, covered employers in Colorado will have to pay their employees the higher value of $7.36 per hour under Colorado law beginning January 1, 2011. Also, if an employee is covered by federal and Colorado state minimum wage laws, then the employer must pay the higher minimum wage for tipped employees. Federal tipped minimum wage is currently $2.13 per hour, which is lower than the Colorado tipped minimum wage of $4.34 per hour. Therefore, based upon current information, covered employers in Colorado will have to pay their tipped employees the higher value of $4.34 per hour under Colorado law beginning January 1, 2011. If an employee s tips combined with the employer s cash wage of at least $4.34 per hour do not equal the minimum hourly wage, the employer must make up the difference in cash wages. DC ISSUES MANDATORY LEAVE NOTICE The District of Columbia (DC) Department of Employment Services (DOES) has published the requited notice detailing the pertinent provisions of the DC Accrued Sick and Safe Leave Act (SSLA) of 2008. Employers covered by the SSLA (any employer with at least one employee within DC) must post the notice in a conspicuous location where it can be easily read by employees. An employer who willfully fails to post the required Notice can be assessed a civil penalty of $100 for each day, up to $500, for the violation. A summary review of the SSLA requires employers in DC to provide paid leave to eligible employees for absences occasioned by illness, stalking or domestic violence. 13
The amount of leave to be provided to eligible employees varies depending on the size of the company. Companies with at least 100 employees must provide up to seven paid leave days per year. Companies with 25-99 eligible employees must provide up to five days per year. And companies with fewer than 24 eligible employees must provide up to three paid leave days per year. An employee s accrued paid leave carries over annually. However, the SSLA does not require that accrued leave be paid upon termination of employment. Employees eligible for SSLA benefits include regular, temporary and part-time employees. To become eligible to access leave under the SSLA, an employee must work for the employer for one year and work at least 1,000 hours during the year. Employees may take leave for their own medical care or to aid or care for family members as defined by the SSLA. For a copy of the notice, please click on the link provided below: http://www.does.dc.gov/does/frames.asp?doc=/does/lib/does/info/asslaposter_final1 0_7_10.pdf Please contact ADP National Account Services for further information at: 21520 30th Drive SE Suite 200 Bothell, WA 98021Phone: (425) 415-4800 Fax: (425) 482-4527 ADP National Account Services does not make any representation or warranty that the information contained in this newsletter, when used in a specific and actual situation, meets applicable legal requirements. This newsletter is provided solely as a courtesy and should not be construed as legal advice. The information in this newsletter represents informational highlights and should not be considered a comprehensive review of legal and compliance activity. Your legal counsel should be consulted for updates on law and guidance that may have an impact on your organization and the specific facts related to your business. **Please note that the information provided in this document is current as of the date it is originally published.** 14