Transcript Skagit Island Human Resource Management AssociationBruce L

Skagit Island Human Resource
Management Association
©Bruce L. Schroeder 2014
Summit Law Group
Bruce L. Schroeder, October 9, 2014
Effective Hiring Practices
Golden Rules
• Treat all applicants the same whenever possible
• Don’t ask for personal information unless jobrelated
• Base hiring decisions on job-related information
• Invest time and resources to hire the best
employees you can find from the beginning
• Use due diligence to protect from negligent hiring
claims
Accurate Job Descriptions
• Essential job functions
– Include timely and regular attendance?
• Job duties
– “other duties as assigned”
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Minimum requirements
Pre-conditions for hiring (e.g., drug screen)
Technical or physical requirements
Safety hazards or unusual working conditions
Application Forms
• Consistent with EEOC and HRC limits on
questions?
• No Social Security numbers
• Statement of truthfulness
• Waiver for reference checking
• Consumer report authorization form
• Applicant flow data? (e.g., religion, sexual
orientation, race)
Content of Job Announcement
• Include statement re accommodation of
disabilities
• State employment contingencies (e.g., drug
screen)
• Sell job, but include caveats
• EEO statement; but don’t specify desired traits
Hiring Process
• Avoid disparate treatment
– Don’t consider information re protected status
– Don’t ask
– Redirect to job-related information
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Provide reasonable accommodations
Use panels
Prepare for interviews
Ask job-related questions
Record impressions – job-related
Numerical scoring?
Offer and Rejection Letters
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Additional conditions?
At-will statement?
Informal versus contract
Rejection: short and sweet
Negligent Hiring
• Potential liability if employees engage in
wrongful actions
• How to avoid?
– Conduct any required background checks
– Reference or background checks appropriate to
the position
Reference Checks
• State law provides immunity if certain
procedures followed
• Best practice is to get signed authorization
from applicant for reference checking
• Reference checking is critical to defend from
negligent hiring claims
Criminal Background Checks
• HRC: prohibits denying employment for felony
unless directly relates and less than 10 years old
• New EEOC guidelines require showing
considered:
– Nature and gravity of offense
– Time passed since conviction or completion of
sentence
– Nature of job held or sought
– Should do an individualized assessment that gives
applicant opportunity to explain
Fair Credit Reporting Act
• Give notice of intent to run check & obtain
written authorization
• Certify to investigating company that will comply
with applicable laws
• Provide copy of report to applicant if considering
adverse action, including rights under FCRA.
Allow opportunity to correct mistakes.
• If take adverse action, send notice with required
contents
Polygraphs in Hiring
• In general polygraph exams may not be used
• Exceptions:
– Law enforcement
– Employees with access to controlled substances
– Employees in sensitive positions directly related to
national security
Drug & Alcohol Testing
• Pre-employment drug testing required for
employees covered by federal law (e.g., CDL
holders, transit workers)
• Employees covered by federal drug testing
laws: employers are required to seek history
of previous drug and alcohol testing at
employers during last 2 years, if covered by
federal testing laws
• Pre-employment alcohol testing discretionary
Consideration of Medical Info
• Under ADA, medical exams can only be
considered after a conditional offer
• Medical exam condition should not be
combined with other conditions
Use of Credit Checks
• Washington law prohibits consideration of
credit checks unless check is substantially
related to the job sought or is otherwise
required by law
Use of Driving Record
• Driving abstract can be obtained from the
Dept. of Licensing if:
1) Authorization signed by applicant
2) Employer attests that abstract is necessary
because driving is a necessary condition of
employment
Social Media Searches
• New Washington law, 5/22/13, prohibits:
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Requiring disclosure of log-in info
Shoulder surfing
Requiring acceptance of “friend” request
Requiring change in privacy settings to allow access
Using log-in credentials inadvertently obtained
through employer’s monitoring of corporate
electronic resources
• (Applies to applicants and employees)
• Can recover actual damages, $500 penalty, and
attorneys’ fees and costs
Immigration Law Requirements
• Complete I-9 for every employee
– New form as of May 2013
• Newly hired employees have 3 days to produce
documents
– Can terminate if no docs or receipt for replacement
docs
• Keep for 3 years after hire date or one year after
dismissal
• Accept if reasonably appear to be genuine
• If not authorized, allow opportunity to correct
Update of the Myriad of
Leave Laws
Leave Overview
• Reasons for difficulties
– Jumble of federal and state laws
– Laws written for noble purposes morph into
protections for attendance abusers
– Laws are constantly a moving target
– Unions can be roadblocks to attendance
management
Roadmap
• Primer/refresher on leave entitlements
– ADA & WLAD – leave as reasonable
accommodation
– FMLA, WFLA and related entitlements
– Miscellaneous other leave laws
• Navigating some challenging scenarios
• Do’s and don’ts of managing chronic
attendance issues
Steps in Analyzing Reasonable Accommodation
• Is employee or applicant disabled?
• Is employee or applicant qualified?
• Is accommodation reasonable?
Roles in Addressing Accommodation
Requests
• Generally, employee must initiate request
• Washington obligation broader for employer if
we know disability interferes with ability to do
job
• Process is two-way interactive
• So what do you do when an employee has
unacceptable attendance that you know is
caused by disability?
Reasonable Accommodation Pointers
• Limits on accommodations:
– Undue burden
– Significant, direct threat to safety of self or others
• Priority in evaluating accommodations:
– #1 Modify current job
– #2 Temporary light duty
– #3 Leave of absence/scheduling (this is how ADA can
effectively become a leave law)
– #4 Permanent reassignment
– #5 Post-discharge notice of openings and affirmative
support
Leave as Reasonable Accommodation
• How much leave is reasonable?
– Consider burden: operational impacts, financial
impacts
– FMLA entitlement: don’t reach burden analysis until
FMLA exhausted
• What about part-time work or intermittent
leave?
– No duty to create permanent part-time job
– Consider burden
– FMLA entitlement
FMLA Overview
• Up to 12 weeks leave per 12 months for
qualifying events
• Unlike ADA, employee must be eligible
• Unpaid, except health insurance continuation
• Integration with other paid leaves
• No negative consequences for taking leave
• Absolute right to leave: burden is irrelevant
FMLA Qualifying Events
• Birth or adoption of child
• Care for child, spouse or parent with serious
health condition
• Employee’s own serious health condition
• Certain military-related leaves
FMLA Eligibility
• Employee has worked for employer for 12
months (need not be consecutive)
• Employee has worked 1250 hours during 12
months preceding FMLA request
• Employee works at location with at least 50
employees within 75 miles
New Military-Related FMLA Leave
• Military caregiver leave
– Up to 26 workweeks of leave to care for service
member with serious illness/injury who is
employee’s spouse, son, daughter, parent, or next
of kin
• “Qualifying exigency” leave
– Up to 12 weeks for leave stemming from spouse’s,
son’s, daughter’s, or parent’s active duty or
impending call to active duty involving
deployment to a foreign country
FMLA Coverage: Serious Health Condition
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Inpatient treatment
Chronic conditions (e.g., migraines, asthma)
Pregnancy, childbirth-related absences
Substance abuse treatment
More than 3 calendar days ill or incapacitated
+ 1 visit to health care provider + “regimen of
treatment”
• Can require medical certification, as well as
2nd and 3rd opinions
What Is a “Regimen of Treatment”?
• Must be doctor-directed and not generally
available
• Includes order for prescription drugs
• Does not include order for over-the-counter
medication or rest
When Is an Employee Needed to Care for a
Family Member?
• Family member must have certified serious
health condition
• Care includes basic physical care such as
feeding, bathing, transporting
• Care also includes psychological support
• Does not include care after death
Scenario
Sally has requested 4 weeks of FMLA leave, explaining
that her mother is having surgery and is expected to be
in the hospital for the first week and resting at home
for 3 additional weeks. This couldn’t come at a worse
time for your agency.
• Can we deny leave that first week, as Sally’s mom
will have ample care in the hospital?
• Since Sally is one of 5 kids, can we ask Sally to split
the care duties with her siblings?
FMLA Employee Notice Requirements
• 30 days is basic rule if foreseeable
• If not foreseeable, as much notice as is
reasonably practicable
• Employee need not specifically ask for FMLA;
need only give enough info about need for
leave to alert employer to FMLA coverage
• Area for abuse: chronic conditions
Scenario
Tom has been certified for intermittent FMLA
leave due to a migraine condition. You suspect
that Tom is abusing this entitlement, as he
seems to call in on sunny days, on Mondays and
Fridays or around his son’s sports activities. Can
we require Tom to bring in a doctor’s note each
time he is absent, given this suspicion?
Recertification
• Can require no more often than every 30 days
• If provider specifies longer duration, must wait
specified period (but six months maximum)
• Can require sooner if:
– Significant change in circumstances
– You have information casting doubt on reason
• Can use recertification to address pattern use
– Share pattern with doctor and ask if use is consistent
with condition certified (Tom example)
Intermittent FMLA Leave
• Not required to spend time with newborn
child
• Is required for medical condition where
intermittent absence is medically necessary
• Employee taking intermittent leave for
planned medical treatment must make
reasonable effort to schedule in way that
avoids disruption of employer operations
Scenario
David is a building inspector who has been
certified for FMLA due to anxiety and panic
attacks. His need for leave is unpredictable and
occurs with no advance notice. This is a huge
problem, as we often have to cancel all of his
appointments at the last minute. Can we move
David to a different position until his attendance
is more reliable?
Who Initiates Request for FMLA Leave?
• Employee may request
– Employee need not ask specifically but must give
enough information to inform reasonable employer
– Not sufficient to designate after-the-fact
– Track what employees say when they call in sick
• Even if employee does not request, start process
if you know employee out for qualifying reason
• Employer may designate even if employee does
not specifically request (but consider Escriba)
Escriba v. Foster Poultry Farms
• Awful 9th Circuit decision
– Strange context – employer actually won
– Court said employee couldn’t sue under FMLA
where she did not want to take FMLA leave
– But reasoning upends years of FMLA
interpretations that prevent stacking: says
employees can affirmatively decline FMLA
• Impact: Risky to designate absence as FMLA
over employee’s objection
Responding to Escriba
• Risk Averse: Advise employees of their right
to decline FMLA, which will allow employees
to stack leave entitlements
– In unionized workplace, advise that this right is
based on current court precedent, and is not
intended to establish past practice
• Some Risk: Continue current practice unless
employee affirmatively declines FMLA or
requests to save FMLA for later use
What Happens if Employer Fails to
Designate FMLA Leave?
• Dept. of Labor regulations used to prohibit
retroactive designation of leave as FMLA
• Now permissible, but only if no harm or injury
to employee
• Best practice: move promptly after notice of
possible FMLA absence
FMLA Integration with ADA and
Worker’s Comp
• FMLA can (and usually should) run
concurrently with L & I
• Mere exhaustion of FMLA does not
automatically exhaust ADA leave obligations
Washington Leave Laws
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Pregnancy/Childbirth Disability Leave
Washington Family Leave Law
Washington Family Care Leave Law
Workers Comp Leave and FMLA
Domestic Violence Victim Leave
Military Leave/Military Spouse Leave
Pregnancy/Childbirth Disability Leave
• Employee is entitled to unpaid leave of
absence (unless accrued leave is available)
• Health insurance need not be paid by
employer (unless also FMLA-covered)
• Length of leave is unique to each employee’s
disability phase
• Leave can exceed FMLA’s 12 weeks
• Integration with state and federal FMLA
Washington Family Leave Act
• Parallels FMLA in most respects
• Exceptions:
– In pregnancy context, WFLA entitlement does not
begin until disability phase is over
– Military-related leaves taken under FMLA cannot
count against 12-week WFLA entitlement
Normal Pregnancy/Childbirth
(FMLA/WFLA eligible)
Weeks:
0
2
4
Birth
6
8
10
12
14
16
Disability over
Pregnancy Disability Leave
FMLA
Benefits
Benefits
WA Family Leave
No Benefits (COBRA)
Sick Leave/Vacation
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Complicated Pregnancy/Childbirth
(FMLA/WFLA eligible)
Weeks:
0
2
4
6
8
Bed Rest
10
12
14
16
18
Birth
WA Family Leave
No Benefits (COBRA)
Pregnancy Disability Leave
FMLA
Benefits
Sick Leave/Vacation
No
Benefits
(COBRA)
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Washington Family Care Law
• Allows employees to use their choice of
accrued leave to care for ill family members
• Care for child with health condition requiring
treatment or supervision
• Care for spouse, registered domestic partner,
parent, parent-in-law or grandparent with
serious health condition or emergency
condition
• “Serious health condition” broader than FMLA
Domestic Violence/Sexual Assault Leave
• Leave available for victims of domestic
violence, sexual assault, or stalking
• Also covers employees with a family member
(child, spouse, registered domestic partner,
parent, parent-in-law, grandparent, or dating
relationship)
• Use leave for legal assistance, treatment,
shelter, counseling, relocation
• No maximum length
Military Leave (State Law)
• Up to 21 days at normal pay per year (up from
15 days until recently)
• Tracking year is October 1 – September 30; no
longer calendar year
• Days are measured midnight – midnight
• Public sector only
Military Spouse Leave (State Law)
• Leave for Spouses or Registered Domestic
Partners of Military Personnel
– 15 days per deployment to spend time before
deployment or while on leave during deployment
– Unpaid leave (only employee can elect for use of
paid leave)
– Employee’s only eligibility test is working 20 hours
per week
– Must give notice within 5 business days of military
notice
Military Leave (Federal Law)
• Federal law
– Protects employees’ jobs for much longer periods
– No requirement to pay employees while away
– “Escalator” concept
– For probationary employees, freeze status at
departure and continue remaining probation upon
return
Case Study
Mary has been diagnosed with fibromyalgia, and
her unpredictable and excessive absences over
the last couple of years have been a significant
source of frustration within her department.
The City has received numerous constituent
complaints due to Mary missing meetings and
deadlines, and co-workers have resigned or
threatened to resign due to the burden of
carrying Mary’s workload. What can the City do?
Case Study (cont.)
• Ensure all absences attributable to FMLAcovered condition(s) are applied toward 12week entitlement. We cannot address burden
until FMLA is exhausted.
• Be prepared to act as employee approaches
exhaustion of FMLA entitlement
– Can be tricky with rolling year, as leave usage rolls
off
– Timing is critical
Case Study (cont.)
• As employee approaches exhaustion of FMLA
leave, attempt to determine need for additional
leave as reasonable accommodation
– Understand applicable policies and contracts re leave
entitlements
– Ask employee’s doctor about ability to maintain
regular/reliable attendance after FMLA exhaustion.
See sample letter and questionnaire in Appendix.
– If doctor says employee’s attendance is not likely to
improve, consider medical separation
Case Study (cont.)
• Steps to medical separation
– Exhaust accommodation discussion
– Consider transfer to vacant position that could
accommodate unreliable attendance
– If employee has just cause protection, provide
notice of intent to implement medical separation
and offer to meet (Loudermill process). See
sample letter in Appendix.
– Post-separation duty to advise of job openings
Do’s and Don’ts In Dealing with Chronic
Attendance Issues
• DON’T express frustration over protected
leave, but DO document impact
• DO get FMLA process going
– Ensure eligibility
– Consider second opinion
– Designate as FMLA
– If for planned treatment, alternative position?
Do’s and Don'ts (cont.)
• DO track all absences
– Use system to document reason for absences
– Apply FMLA leave to annual entitlement
• DO hold employees accountable for failure to
follow leave policies (e.g., call-in
requirements, notice, scheduling)
• DON’T ignore attendance issues
• DON’T be inconsistent
Do’s & Don’ts as Employee Approaches
FMLA Exhaustion
• DO attempt to determine need for more leave
– Can contact the employee’s doctor (with release)
– Understand policies/CBA
– If learn that need for additional leave would be an
undue hardship, consider medical separation
– Otherwise, following FMLA exhaustion, actively
manage attendance and consider medical
separation if attendance remains an issue
– Must consider transfer to vacant position before
medical separation
Do’s & Don’ts as Employee Approaches
FMLA Exhaustion
• DO conduct pre-termination (Loudermill)
meeting if employee has just cause protection
• DON’T throw in the towel!
Health Insurance and the
ACA: Time for Strategic
Thinking
Goals for Today
• Familiarize you with the geography of the
Affordable Care Act landscape
• Assist you in anticipating issues/problems with
coming ACA requirements
• Help you think strategically about labor
negotiations in light of health care changes
• Remind (?) you about needed changes in the
treatment of same-sex spouses
• Reveal your exceptional command of complex
employment laws through the use of pop
quizzes . . .
The Affordable
Care Act
Health Care Reform:
The Big Picture
What Has Happened So Far . . .
• Annual/lifetime maximums eliminated (some
lasted through 2013)
• Preventive coverage expanded
• Dependent coverage extended to children up
to age 26
• FSA cap reduced to $2500 per year
• Medicare taxes added for high income earners
• And much, much more . . . .
Coming Attractions for 2014
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Employer mandate (DELAYED until 2015)
Individual mandate
Exchanges begin (sort of)
Pre-existing condition exclusion prohibition
Cost-sharing limits take effect for all group health plans
– Copays, Rx copays, deductibles apply to out-of-pocket max
• Employer reporting of health insurance information to
government and participants (DELAYED until 2015)
• Waiting periods reduced to 90 days or less
• New HRA integration rules take effect
• Transitional reinsurance fees & insurer fees begin
The Affordable
Care Act
2015 Employer Mandate
Pop Quiz! Question #1
The employer mandate to provide insurance or pay
a fine under the Patient Protection and Affordable
Care Act (PPACA) applies:
a. To all employees of the agency
b. To employees working 30 or more hours per
week
c. Only to “full-time” employees working 40
hours per week
d. I signed up because I thought you would
know
Employer Mandate Simplified
• Applies to covered employers (50+ employees)
• Requires that the employer either:
– Play: offer “affordable” coverage providing a
minimum benefit level to substantially all “full-time”
employees and their dependents (children)
OR
– Pay: pay one of two different penalties depending on
whether the employer offers no coverage or offers
inadequate/unaffordable coverage
POLLING QUESTIONS . . .
What Employers Are Covered?
• Employer mandate applies only to “applicable
large employers,” i.e., those with at least 50
full-time employees or full-time equivalents
• For eligibility purposes, full-time, part-time
and seasonal employees count
• “Employee” is defined using a common law,
right-to-control test
Counting Noses
• Employees working 30 or more hours per week count as
full-time employees
• Part-time employees are counted on an aggregate FTE
basis:
– Total hours worked in a month by all part-time employees
divided by 120 gives the number of FTEs for a given month
• Calculations are month-by-month to determine if the
average employee count is 50 or more
• There are special exemptions when seasonal employees
cause the employer to exceed 50 employees for 120 or
fewer days
Failing to Play – the Pay Penalties
1. No Coverage Penalty: employer must offer minimum
essential coverage to 95% of full-time employees (and
their dependent children) or potentially face $2,000
penalty per full-time employee (less the first 30 fulltime employees)
2. Affordability Penalty: if coverage is not “affordable,”
employer potentially faces $3,000 penalty for each fulltime employee obtaining subsidized coverage
Both penalties are triggered by a full-time employee
obtaining subsidized coverage through the Exchange
Defining the Terms
• “Full-time” employees are employees who
average 30 or more hours per week
• Coverage is considered “minimum essential”
if it covers 60% of total allowed costs
• Coverage is considered “affordable” if the
employee’s cost for employee-only coverage
on the lowest plan option does not exceed
9.5% of the employee’s household income
Pop Quiz! Question #2
Employees who work variable hours may qualify as
“full-time” employees under the PPACA if:
a. They exceed 30 hours in any work week
b. They average at least 30 hrs/week during a
measurement period
c. They are defined as full-time employees in a
CBA
d. No one can tell I skip the quizzes during
webinars
Employee Categories
• Ongoing Employee: full-time or part-time.
• New Employee, Full-Time: hired with reasonable
expectation of full-time status. Must be offered coverage
within three months to avoid “play or pay” penalty.
• New Employee, Part-Time: hired with reasonable
expectation of working less than 30 hours per week. There
is no required coverage and no penalty.
• New Employee, Variable Hour: cannot be determined
whether employee will be reasonably expected to work an
average of at least 30 hours per week because of variable
hours or other uncertainties.
• New Employee, Seasonal: similar to variable hour, but with
annual breaks in employment.
Pop Quiz! Question #3
Employees can be treated as “seasonal” under the PPACA
if:
a. They have a minimum break of 13 weeks between
periods of employment
b. They are performing functions not needed by the
agency during periods of the year
c. They work approximately six months or less per
year and are rehired annually in the same season
d. The employee works in a role consistent with the
agency’s traditional use of seasonal employees
Measurement Periods: Summarized
• Calculate the average weekly hours worked
during the Initial/Standard Measurement
Period.
• The average determines full-time employee
status for subsequent Stability Period, regardless
of hours worked during stability period.
• Repeat for next measurement and stability
period. The process is ongoing, similar to rolling
FMLA calendar.
• Different rules apply to ongoing employees
versus new employees.
Measurement Periods: Visualized, Simplified
Measurement
Period
• Initial or standard.
• 3-12 months.
• Used to determine
full-time status.
• Employer has
flexibility over start
dates for standard
measurement
periods.
Administrative
Period
• Optional period.
• Up to 90 days.
• Used to calculate
hours, process
paperwork, enroll
employees in
coverage.
Stability Period
• “Locks” employee
status for purposes of
coverage, regardless
of change in hours.
• Variable length,
generally matches
measurement period
(3-12 months), with
exceptions.
Measurement and stability periods varying in length or starting/ending dates can be applied
to different employee groups: (1) union and non-represented employees; (2) employees in
different unions; (3) salaried and hourly employees; and (4) employees in different states.
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Leave During Measurement Period
• Paid leave is counted as regular working hours
• Unpaid leave includes FMLA, USERRA, and
jury duty
• Two options for unpaid leave:
– Exclude the unpaid leave when calculating the
average weekly hours
– Credit the employee with the average weekly
hours from the weeks that were actually worked
during the measurement period
Hours of Service for Salaried Employees
• Employers can measure hours of salaried employees in
one of three ways:
– Actual hours worked and/or paid (if documented)
– 8 hours credited for each day worked
– 40 hours credited for each week worked and/or paid
• Different methods permitted for different classes of
salaried employees
• Cannot select method that substantially understates
actual hours
– Example: cannot apply “8 hour credit” rule to employee
who works 12 hours per day, 3 days per week (only 24
hours of credit compared to 36 hours of work)
Terminated Employees
Employees who resign/retire/terminate are no
longer subject to measurement and stability
periods and need not be offered health
insurance except for COBRA requirements.
Variable Hour Employees
• “Seasonal” employees who work other positions during nonseasonal periods are not actually seasonal employees.
• Variable hour employees without an annual break in employment
must be carefully managed.
• 12 month measurement period = 1550 maximum annual hours.
– 1550 hours/52 weeks = 29.8 hours
• 6 month measurement period = 775 maximum hours every 6
months.
– 775 hours/26 weeks = 29.8 hours
• Once a variable hour employee is determined to be a full-time
employee during a measurement period, the employee will be
treated as a full-time employee for the entire stability period. A
subsequent decrease in hours will not cause the employee to lose
full-time employee status during the stability period because the
employee is “locked in.”
Seasonal Employees
• Seasonal employees who average at least 30 weekly
hours over a sufficient number of weeks (depending on
the length of measurement period) will be considered
full-time employees for purposes of “play or pay”
obligations.
– Exception #1, No Hours of Service: seasonal employees
with breaks in service of at least 26 weeks may be treated
as new employees upon re-hire. Measurement periods
are reset and “play or pay” obligations are avoided.
– Exception #2, Rule of Parity: seasonal employees with
breaks in service of at least 4 weeks and as long as their
previous period of employment may be treated as new
employees upon re-hire. Measurement periods are reset
and “play or pay” obligations are avoided.
Managing Variable Hour/Seasonal Employees
• Scale back hours: reduce weekly workload of seasonal employees
to under 30 hours per week
• Adopt long measurement periods: extended periods dilute the
average hours worked
• Mandate breaks in service: require breaks in service of at least 26
weeks before re-applying (or apply the Rule of Parity)
• Be prepared to monitor the hours of variable hour/seasonal
employees
• State maximum hours on job descriptions
• Document and enforce variable hour/seasonal worker policies
• Consider splitting seasonal positions or hiring full-time employees
as replacements for core functions
• Watch for seasonal employees assuming other work
Urgent Matters
• Sort your workforce to determine who is
impacted by Play or Pay rules
• Formulate your plan for addressing
“unintended” full-time employees
– Changes to hiring/scheduling practices
• Determine the measurement periods you will
use to determine 2015 eligibility
• Make sure your managers know the plan
The Affordable
Care Act
2018 Cadillac Tax
The Cadillac Tax, an Overview
• Effective January 1, 2018, the Affordable Care Act
imposes a tax on plans offering premium coverage
– Goal of tax is to discourage overuse/abuse of healthcare
system and help finance uninsured coverage
• The tax is NOT limited to large employers
• 40% excise tax on amount that the value of insurance
exceeds preset ceilings:
– $10,200 annual limit for individual plans
– $27,500 annual limit for family plans
– $11,850/$30,950 for retirees and high-risk professionals
(police, fire, emergency medical)
Pop Quiz! Question #4
Once a variable-hour employee meets the definition of
full-time employment for the duration of an initial or
standard measurement period, the agency has to:
a. Offer affordable coverage for the stability period
or risk paying penalty
b. Add the employee to the bargaining unit
c. Both “a” and “b”
d. Neither “a” nor “b”
The Cadillac Tax, an Overview
• Tax calculated based on actual premiums for insured
plans; COBRA methodologies for self-funded plans
• Calculation includes:
– Both employer and employee contributions to premiums
– Health plans, prescription drug plans, administrative fees
– Contributions to FSAs, HSAs, and HRAs
• Dental and vision plans are not subject to tax unless
bundled with a health plan
• Taxable value ceilings increase after 2018 based on
inflation
An Example of the Cadillac Tax
2013 rates for full family coverage
$1,650 employer share
+ $150 employee share
= $1,800 per month total cost
$1,800 x 12 months = $21,600 annual cost
Growth of $21,600 at 8% per year (current projected market growth rate)
2014
$23,328
2015
$25,194
2016
$27,210
2017
$29,387 (maximum value of $27,500 exceeded)
2018
$31,737
In 2018, $4,237 of “compensation” subject to 40% excise tax.
Total tax owed: $1,695!
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Principles to Guide Planning?
1. Incurring the tax is the worst outcome for the employer and
for employees
• Getting past the economic vs. social justice debate
2. Avoiding the tax will require reductions in benefit levels
• Shifting premiums to employees does not work
3. Reducing benefit levels will put upward pressure on wages
that will have to be addressed in bargaining
4. We cannot wait to address the tax
• No certainty (likelihood?) that tax will be changed
• Reducing the growth of benefits will be far easier than
cutting them
93
Making the Case at the Table
• Expect that you will be starting from scratch,
especially with employees
• Show the math
• Include all elements of coverage subject to the
tax
• What growth rate should we use? National
experts say 8% per year; regional experts say
11%
Taxable Value
Employee + Family
$39,368
$40,000
$36,326
$1,335
$3,222
$30,000
$20,000
$23,410
$ 27,500
$25,415
$1,118
$2,272
$1,476
$2,272
$31,769
$10,000
$1,762
$3,222
$20,020
$34,383
$21,667
FSA
Dental
Medical
$Group Health
Regence PPO
2012
Group Health
Regence PPO
2018
95
Taxable Value
Employee Only
$14,444
$15,000
$1,164
$12,067
$1,217
$862
$1,217
$ 9,434
$ 10,200
$10,000
$ 7,874
$722
$858
$975
$858
$12,063
$9,988
$5,000
$6,294
$7,602
FSA
Dental
Medical
$Group Health
Regence PPO
2012
Group Health
2018
Regence PPO
96
Projected Market Growth Rate
Employee + Family
2012 = Actuals
2013 – 2018 = Projections
$35,000
$34,383
8.00%
$31,769
8.00%
$30,000
$27,500
4.05%
Group Health
$25,000
GHC Alternate
5.43%
Regence PPO
Regence Alternate
$20,000
2012
2013
2014
2015
2016
2017
2018
97
Projected Market Growth Rate
Employee + Family
$36,000
$33,801
$33,000
8.00%
$31,317
$30,000
8.00%
$27,000
3.09%
$27,500
6.65%
$24,000
$23,617
Group Health
$24,845
GHC Alternate
$23,019
$21,000
Regence PPO
$19,923
Regence Alternate
$18,000
2012
• Projections
2013
2014
2015
2016
2017
2018
98
Change in Medical Rates
Value of $100
$400
$374
$343
$350
$314
$300
$261
$214
$200
$224 $223
$183
$165
$150
$50
Regence
$241
$250
$100
$276 $285
$100 $108
$117
$100 $104 $102
$129
$202
$142
$162 $156 $164 $164
$177
Group
Health
$128
$90
$94
$106
$0
99
Strategies Going Forward
1. Unbundle dental insurance from health insurance
2. Introduce reduced benefit plans to hold down growth of plan
value
• Shift premiums for high benefit plans to employees to
encourage sustainable plans?
• Introduce and promote high deductible/HSA plan
3. Push for approach that limits cost increases to a growth rate
that will avoid the tax
4. Prepare to address wage pressures at the bargaining tables
100
Political Choices and Challenges
•
Employees are not ready for needed changes to combat
Cadillac Tax – are we?
• Bargaining needed changes will require clear direction and
substantial perseverance
• Expect protests from unions/employees about benefit
reductions
• Expect substantial pressure on wage negotiations because
of benefit changes
• Cannot make changes absent support from elected bodies
• Duration of agreements will have significant strategic
implications
101
Urgent Matters
• Do you have a standalone HRA/VEBA?
– Standalone HRAs are those that do not require
participation in a health plan as a condition of
receiving funds
• Beginning in 2014, standalone HRA/VEBA plans
are essentially illegal if benefits are available preretirement
• Need to notify unions and address immediately
– Illegal subject of bargaining rules
The Defense of
Marriage Act
2013 To-Do List
Pop Quiz! Question #5
The “Cadillac” or excise tax on high-value health
insurance plans under the ACA:
a. Is a worry for the 1 Percenters on Wall Street
b. Can be avoided by shifting premiums to
employees
c. Will likely be changed before it takes effect
d. Is a major concern for public employers in
Washington
The Supreme Court’s DOMA Ruling
• In U.S. v. Windsor, the Supreme Court ruled
that the provision of DOMA preventing the
federal government from recognizing samesex marriages was unconstitutional
• The portion of the law permitting states to
deny recognition of same-sex marriages from
other states remains in place
The Implications of Windsor
• Implications going forward:
– No disparate tax treatment (or disparate access to
federal benefits) for same-sex married couples
– No changes in the treatment of domestic partnerships
• Implications looking backward:
– Under DOMA, employers who provided benefits to
spouses and dependents in same-sex marriages were
required to withhold taxes on the value of the benefits
provided.
• Employers and employees are entitled to refunds
DOMA and the Year-End To-DO List
• Two ways to square the books for 2013:
– Adjustment Method – On or before December 31,
2013, the employer must repay employees for
over-collected FICA and income tax in 2013, and
make adjustments on Q4 Form 941 to omit
applicable wage amounts for each affected
employee
– Refund Method – Repay employees for overcollected FICA taxes, use Form 941-X to claim a
refund, and file a corrected W-2
Refunds for Prior Years
• The Windsor ruling is being applied
retroactively to all tax years within the statute
of limitations
• Over-paid FICA taxes may be reimbursed by
the employer, and claimed as a refund using
form 941-X (and a corrected W-2)
• Employees will have to pursue refund of overpaid income taxes for prior years
Thank You