HR Watchdog

New Guidance on COBRA Subsidy

We do not have the model notice yet, but the federal Department of Labor has issued some additional guidance on the COBRA subsidy. As soon as we have a model notice, we will post it.

Commuter Benefits Increased by Stimulus

According the the Bay Area Rapid Transit (BART): Stimulus bill increases transit tax benefit for commuters

The Emergency Economic Recovery Act signed into law by President Obama provides significant tax savings, up to $1,000 or more a year, to working Americans who commute by transit. The law raises the amount of pretax income that workers enrolled in employer-sponsored commuter benefits programs can use to pay for mass transit -- from $120 per month to $230 per month.

"This law nearly doubles the savings workers can enjoy by using mass transit and sets us on a path to a future that’s both economically and environmentally sustainable,"  said Larry Filler, president and CEO of TransitCenter, a nonprofit that promotes mass transit use in order to reduce traffic congestion and improve air quality.

"The support of public transit by the Congress and the President, evidenced in the new Economic Recovery Act, again demonstrates that win-win solutions can be found to answer both our economic and environmental needs," said BART's General Manager Dorothy W. Dugger.  "Mass transit has become an important part of life for commuters seeking to trim their budgets, and make the smart choice for our environment."

Economic Impact

The cap increase is projected to boost both employee and employer savings.  Employees can now save up to $1,000 a year or more on their transit commute, representing a potential $440 a year increase in what they can save if their commuting expenses exceed the current monthly cap of $120 per month. Employers will benefit as well. Companies offering the benefit can save up to an additional $100 per employee per year in payroll taxes.

Besides providing relief to commuters who already use the benefit, the legislation will increase the number of employees offered the benefit as a result of the increase in employee and employer savings under the new law. Recent TransitCenter surveys indicate that as many as one-third of employers not currently offering the benefit would do so if the monthly transit benefit were increased significantly, as it now has been. Further, 53 percent of employees would take advantage of the benefit if offered to them. This represents a significant increase in participation across the country bringing much needed financial relief to a greater number of commuters.

The new provision is expected to be particularly helpful to commuters looking to offset fare hikes put into effect by mass transit operators struggling to address budget shortfalls.

"We know that transit operators across the country are being forced to raise fares, and in some cases significantly, to offset operating deficits resulting from the downturn in the economy," said TransitCenter’s Filler. "The new higher transit benefit will not only protect commuters from the full impact of any fare increase, but for most, keep the cost of their monthly commute below what they are currently paying."

How the commuter benefit works

The commuter benefit allows employees to deduct up to $230 per month from their gross income to pay for their mass transit commutes.  Employees whose monthly mass transit fees are less than the $230 cap are allowed to deduct the full amount from their paychecks. The measure helps employers save money by lowering their payroll taxes.  Additionally, employees are allowed to deduct up to $230 per month for eligible commuter parking expenses.

Tax-free commuter benefits can be structured as an employee-funded tax-free payroll deduction; as an employer-funded benefit; or the costs can be shared by employer and employee. The benefit can be delivered in the form of transit provider-specific passes, universally accepted vouchers and terminal-restricted debit cards, or through a reimbursement model under specific conditions defined by the IRS.

Previously, employers were allowed under Section 132(f) of the Internal Revenue Service (IRS) Code to let their employees use up to $120 per month of their pre-tax income to pay for their transit or vanpool commuting expenses and up to $230 per month for commuter parking. The new legislation amends the IRS Code to set the monthly tax-free contribution limit for transit/vanpool to a maximum of $230 per month.

More information on tax benefits to consumers, including an outline of pros and cons for the various options, can be found in BART's Rider Guide. This will also impact San Francisco's commuter benefits requirements.

IRS Assistance - Preparing for Audits

The IRS issued the following announcement:

March 10 Tax Talk Today Program Illuminates the IRS Audit Process for Small Businesses

Although no phrase may strike more fear in a taxpayer than the dreaded, “IRS audit”, the prospect of an IRS audit need not paralyze small businesses and the tax professionals who assist them. They can learn how to prepare for and what to expect during an audit by tuning in to the Internal Revenue Service March Tax Talk Today program, “Surviving the IRS Audit,” on Tuesday, March 10, at 2 p.m. Eastern time.

The program will include what happens before, during and after the audit as tax professionals and IRS staff talk about audits from both sides of the desk. To access the Web cast at no charge, viewers can register online at Tax Talk Today. They can view the show with Windows Media Player or an Adobe Flash Player. Go to the Tax Talk Today Web site at http://www.taxtalktoday.com/for complete information.

For more information on March's tax Talk Today, go to IRS Partner Headliner 259 at http://www.irs.gov/businesses/small/article/0,,id=204382,00.html. To get the latest IRS information and learn about IRS products and services as they become available, start a FREE subscription to e-News for Small Businesses; just go to IRS.gov at http://www.irs.gov/businesses/small/content/0,,id=154826,00.html, type in your e-mail address and submit.

Additional Unemployment Insurance Money

According to the EDD's Web site, federal legislation - signed into law on February 17, 2009 - allows for a weekly $25 stimulus payment. This $25 stimulus payment will be added to each week of Unemployment Insurance (UI) benefits paid to eligible workers in California. The federal legislation states that these $25 stimulus payments are only payable for weeks of unemployment that start February 22, 2009, and after.

The EDD has been continuously working to update the necessary programming to issue the $25 stimulus payments. Once the programming is completed, EDD will automatically issue payments for all eligible weeks of unemployment that start February 22, 2009, and after.

Since the $25 stimulus payments are added to your regular UI benefits, the $25 stimulus payment will not reduce your available UI claim amount.

You do not need to contact EDD to apply for the $25 stimulus payments.

WHO IS ELIGIBLE FOR THE ADDITIONAL $25 STIMULUS PAYMENTS?

The $25 stimulus payment is available for weeks that start February 22, 2009, and after. You may be potentially eligible to receive the additional $25 stimulus payments each week if you:

    * Have a regular, Disaster Unemployment Assistance (DUA), or federal extension claim that began on or before December 31, 2009.
    * Submit a continued claim form the weeks beginning February 22, 2009, or after,
    * Meet all other eligibility criteria,

      AND
    * Are eligible for at least $1 in UI benefits.

FUNDING

The additional $25 stimulus payments are entirely funded from the federal general fund, which means employers’ reserve accounts will not be charged for any additional $25 stimulus payments paid to claimants.

New State Budget = Alternative Workweek Flexibility

Or, at least some flexibility. As part of the budget deal, Labor Code 511 is amended to allow employers to include in the proposed menus of work options a regular schedule of 8-hour days that are compensated outside the scope of the alternative week, or normally. Further, employees who adopt a menu of work schedule options may, with employer consent, move from one schedule option to another on a weekly basis.

The bill also defines "work unit" as a division, a department, a job classification, a shift, a separate physical location, or a recognized subdivision thereof. A work unit may consist of an individual employee as long as the criteria for an identifiable work unit in this section is met.

Gov. Arnold Schwarzenegger signed the budget deal this morning. These amendments will be effective 91 days from yesterday, or on May 22, 2009.

9th Circuit Withdraws Oracle Case

On February 17, 2009, the 9th Circuit Court of Appeal issued an order requesting the California
Supreme Court to answer three certified questions of California law presented in Sullivan v. Oracle case we reported on last year. The questions are as follows:

1. Does the California Labor Code apply to overtime work performed in California for a California-based employer by out-of-state plaintiffs in the circumstances of this case, such that overtime pay is required for work in excess of eight hours per day or in excess of forty hours per week?

2. Does Business and Professions Code § 17200 apply to the overtime work described in question one?

3. Does § 17200 apply to overtime work performed outside California for a California-based employer by out-of-state plaintiffs in the circumstances of this case if the employer failed to comply with the overtime provisions of the FLSA?

The 9th Circuit has therefore with drawn its opinion in this case and is awaiting a response from the California Supreme Court as to whether it will address these questions. So, stay tuned! In the meantime, this case should not be relied upon.

COBRA Notification Updates with Stimulus

It is not often you hear stimulus and COBRA in the same sentence but consider that a gift from the federal government. President Obama signed the American Recovery and Reinvestment Act of 2009 yesterday. It is a 600 + page new law intended to stimulate growth and jobs in light of the economic downturn. Part of the law directs the creation of Recovery.gov - a Web site that will be updated in accordance with the new requirements, including issuance of contracts needing new employees.

For employers and HR professionals specifically, Title III of the Act - Health Insurance Assistance for the Unemployed - provides offsets for COBRA coverage to employees who have been involuntarily terminated (fired or laid off, unless terminated for gross misconduct) between September 1, 2008 and December 31, 2009. Some of the specifics:

1. Employers must either amend or include an additional notice with COBRA notifications to employees. The law specifies the content of this notification but requires the Department of Labor and other agencies to coordinate efforts to prepare model notifications within the next 30 days. The Chamber will track these notices and ensure our forms are updated accordingly.

2. The bill provides COBRA payment assistance for up to 65% of the premium for employees involuntarily terminated by their employers, starting March 1, 2009. The payment will be offset through payroll taxes. The law outlines which entities are eligible for reimbursement by the federal government:- If an individual had paid the full COBRA premium for the first 60 days after February 17, 2009 (the date of the bill's enactment), employers must reimburse the individual for any premium paid in excess of 35% or provide a credit to the individual to reduce one or more of the individual's premium payment. These employers will be reimbursed by the federal government.

3. Employers with 2-19 employees covered by Cal-COBRA are impacted by this new law as well. However, the premium repayment will be handled through your insurance carrier instead of through your payroll system.

These new requirements implicate the Internal Revenue Code, ERISA and other federal laws that are complex with detailed requirements. In addition, a full analysis of these new requirements is not yet complete so there is significant confusion in this area. As such, it is imperative that you consult with a specialist in this area to fully understand your obligations under this new law.

For employers covered by Cal-COBRA (2-19 employees) - be sure to get assistance from legal counsel regarding how these changes may impact your business.

Cal/OSHA Announces Meeting About Heat Illness Regulations and Enforcement

CalOSHA Special Counsel, Amy Martin, issued the following announcement:

To interested parties of Cal/OSHA Heat Illness Prevention Programs and Regulations:

A special public advisory meeting concerning CalOSHA’s Heat Illness Prevention Programs and Regulations is planned for Friday, February 27, 2009.  This meeting is intended to discuss ways in which the enforcement of Title 8 of the California Code of Regulations section 3395 can be made more specific, uniform and effective:

Details for this special advisory meeting are as follows:

Date:         February 27, 2009, Friday
Time:        10:00 a.m.
Place:        Elihu Harris State Building
                 1515 Clay Street, Training Room, Suite 1304
                 Oakland, California 94612

We anticipate that this meeting will conclude by 2:00 p.m.  However, it will continue until 3:00p.m., if needed for complete discussion.

For employers concerned about compliance with and enforcement of the heat illness regulations, this is an opportunity to be heard.

Layoff and Downsizing Questions and Answers

In the current economic climate, employers struggle everyday with difficult decisions designed to keep the company afloat. In a recent Web seminar hosted by CalChamber/Calbizcentral, we received questions from attendees that highlight some of the major issues.

Q: Can a company reorganize a department, change someone's job description and post their job, lay them off and replace them with another employee who makes less money?

A: A critical concern with laying off employees, especially if you are replacing them, is to be sure the reason for layoff is nondiscriminatory. If your company can accomplish the work it needs to accomplish by restructuring and hiring employees at a lower pay grade, then be sure you have the documentation to support that. If you are terminating someone, for example, who is over 40 and replacing them with someone younger than 40, you could expose yourself to an age discrimination claim.  California law specifically prohibits consideration of salary as a determining factor in making a decision to lay off someone.

Q: How do the California courts view the difference between terminating employment for performance and at times raising the bar on what constitutes poor performance, as opposed to laying off for lack of work?
A: At will employers may terminate or layoff employees for any legal reason. Whether it is for poor performance or due to lack of funds or work, you may end the employment relationship if it is consistent with company policy or practice and it is not because of the employee’s protected status (pregnancy, filing a workers’ comp claim, etc.)  Whether you are terminating on the basis of performance or laying off for lack of work, good documentation is critical.

Q: Just say a company loses significant business in January that would justify a layoff. To avoid layoffs, the company tries alternatives. In March, it is determined that the alternatives are not working out. Even if there is little change in the financial situation from January to March, can the company still use financial justification to layoff?
A: The law does not address this specifically. The company needs to be able to codify how the layoff determination was made and why should an employee later challenge the layoff decision. A company should not be dissuaded from attempting alternatives to layoffs.

Q: If a company decides to offer an alternative position as an alternative to layoffs, are there any considerations related to how long we need to commit to the employee in the new position? If they are not suited or perform poorly in their new role, can we layoff immediately?
A: That would depend on your discipline/termination policy and any other promises/commitments you may have made to the employee.

Q: Can you pay a now ex-employee the bonus via 1099?
Q: Are you allowed to pay a sales commission or bonus after term if policy requires a receipt of pay from customer as trigger for bonus pay?
Q: What about sales incentive plans and quarterly quota bonuses?  LTIP and shares?  Are any of these due the last day of employment?
Q: What if bonuses are paid out after the customer pays their invoice in full?  Can we pay the employee bonus after layoff if the customer has not yet paid?
A: Bonuses are considered wages, so they must be run through payroll with all proper deductions. The schedule for payout of a bonus is directly tied to how the bonus is earned and if there are conditions precedent to the earning of the bonus, which may delay the due date of the bonus payment. The safest way is to issue the bonus payment upon termination or consult legal counsel.

We are considering another Web seminar to address these issues and more. If this is something that would help your company, let us know!

Reminder - Give Employees Required EITC Notice with W2

Since Jan. 1, 2008, California employers who are required to provide unemployment insurance must notify all employees that they may be eligible for the federal Earned Income Tax Credit (EITC) within one week before or after, or at the same time, the employer provides an annual wage summary, including but not limited to a Form W-2 or Form 1099.

Posting this notification on a bulletin board or sending it through office mail is insufficient, but such notification may be used in addition to individual notifications as required under this new law. The notification must be handed directly to the employee or mailed to the employee's last known address. CalChamber members may access the notification form, AB 650 Employer required Notification - Earned Income Tax Credit in English or Spanish online.

What Should You Do?

    * Maintain a copy of the required notification and ensure each employee receives a copy within one week of receiving their W-2 or 1099.

    * Consult with your accountant, payroll service and/or legal counsel to assure compliance with federal and state tax laws.

    * Make sure you have current addresses for all employees, particularly if you mail tax information instead of handing it to employees.