1 HR PUBLIC POLICY / THE WASHINGTON OUTLOOK FROM THE CALIFORNIA EMPLOYER’S PERSPECTIVE Michael P....

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HR PUBLIC POLICY / THE WASHINGTON OUTLOOK

FROM THE CALIFORNIA EMPLOYER’S PERSPECTIVE

Michael P. AitkenVice President, Government

AffairsApril 25, 2014

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HR PUBLIC POLICY / WASHINGTON OUTLOOK

Environment

Americans Rate Economy as Top ProblemsOther High-Priority Issues Include Dissatisfaction with Government, Healthcare Policy

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Environment

On Economy, Americans Less Confident in Federal LeadersRecord Low for Obama, Democratic and Republican Leaders in Congress

Gallup, April 17, 2014

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Environment

Americans Are Worried About Different Things

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Environment


The Presidency

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Since WWII, President’s Party Has Lost Five of Six Attempts for Third Term

* Lost electoral vote, won popular vote

Year President Party President’s Party Election Result

2008 G.W. Bush Republican Lost White House

2000 Clinton Democrat Lost White House*

1988 Reagan Republican Won White House

1976 Nixon/Ford Republican Lost White House

1968 Kennedy/Johnson Democrat Lost White House

1960 Eisenhower Republican Lost White House

President’s party election results after two-term presidency

The President’s Second-Term JinxThe Presidency

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AnalysisThe President’s party has lost five of the last six post-World War II presidential elections which have followed two-term presidencies

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The Presidency

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Congress

No Improvement for Congress’ Job Approval Rating Approval Down Slightly from 15% in March

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CongressA House Divided and Diverging

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Congress

Source: GovTrack.US


2014 Senate Race Vulnerabilities

Breakdown of all Senate seats by Cook Political Report Rating36 total seats

Note: A Cook Political Report rating of Lean D/R or Toss Up denotes races that are currently considered to be competitive

Senate Elections: 2014 and Beyond

Democrat-held seats (21) Republican-held seats (15)

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5

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1 (Johnson, SD)

1 (McConnell, KY)

2 (Rockefeller, WV; Walsh, MT)

2 (Pryor, AR; Levin, MI)

Source: The Cook Political Report.

1 (Chambliss, GA)

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Congress

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President Obama and Congressional Democrats have initiated national conversation on “income equity,” advocating for increasing the minimum wage and passing the Paycheck Fairness Act.

Major labor and civil rights legislation unlikely to become law: Workforce Democracy and Fairness Act. The Paycheck Fairness Act. Working Families Flexibility Act.

However, agency developments and Executive Orders will ensure active 2014: Proposed 541 Regulation. Executive Order on Pay Discrimination for Federal Contractors. Final action on Proposed Persuader Regulation??? Review of use of Social Media in Employment.

2014 Public Policy Agenda – Labor and EmploymentLabor-Management/Civil Rights Issues

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2014 Public Policy Agenda – Labor and Employment

Full NLRB Board will mean increased regulatory activity: “Revised” Ambush Election Rule / Specialty Health Care / D.R. Horton.

Workplace Flexibility White House Summit on Working Families to be held June 23. Advocates continue to push expansion of FMLA/paid sick leave at state

and local level but enactment at federal level impossible. Successful efforts on “comp time” in the House unlikely to translate to

the Senate.

Labor-Management/Civil Rights Issues

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Working Democracy Act (H.R. 4320)

Introduced by Representative John Kline (R-MN), Chairman of the House Education and Workforce Committee. The bill is a legislative response to National Labor Relations Board’s (NLRB) proposed changes to the union election rule.

The bill would mandate that employers have at least 14 days to prepare their case to present before an NLRB election officer and an opportunity to raise additional concerns throughout the election hearing.

The legislation also requires that a union election cannot be held in less than 35 days following a union petition submission.

The bill would clarify the type of information and submission of evidence that can be brought up in a pre-election hearing.

The bill was approved by the House Education and Workforce Committee on April 9 and is expected to be on the floor of the House in May.


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The Paycheck Fairness Act (S. 2199 & H.R. 377)

Introduced in the Senate by Barbara Mikulski (D-MD) and in the House by Representative Rosa DeLauro (D-CT), the legislation would amend the Equal Pay Act (EPA) to essentially limit pay differentials in employment. On April 9, the U.S. Senate failed to muster the 60 votes needed to end debate on S. 2199.

Under the EPA, an employer can use four affirmative defenses/pay differentials to justify its compensation system from pay discrimination claims:

SeniorityMerit Production Any other factor other than sex

The bill amends the EPA to essentially limit pay differentials to seniority, merit, production or a bona fide factor other than sex such as education, training, or experience.


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Other factors such as market rates and prior salary history may be found to be discriminatory.

Shifts the burden of proof to the employer to demonstrate that the pay differential is:

i. Not discriminatory on the basis of sex,ii. “Job related” to the specific position, and iii. Consistent with business necessity.

Employees may overcome the business necessity defense if the employee presents evidence demonstrating that an alternative employment practice could have served the same business purpose without producing a gender differential, and that the employer refused to adopt that alternative practice.

Employers would be prohibited from restricting employees from disclosing or discussing the wages of other employees.


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In U.S., 85% Back Raising Minimum WageMost favor increase to $9 an hour


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The Fair Minimum Wage Act (S. 460 & H.R. 1010)

Introduced in the Senate by Tom Harkin (D-IA) and in the House by George Miller (D-CA), the legislation would amend the Fair Labor Standards Act (FLSA) to raise the hourly minimum wage by $2.85 an hour in three increments: $8.20 an hour 90 days after enactment, $9.15 an hour 12 months after enactment and, $10.10 an hour 24 months after enactment.

The minimum wage would be indexed annually to inflation based on the Consumer Price Index 36 months after enactment.

The legislation would also increase the minimum wage for tipped employees as well to $3.00 an hour 90 days after enactment, with incremental increases raising it eventually to 70 percent of the regular minimum wage.

Likely to be considered in the Senate this session.


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National Labor Relations Board Proposed Rule to Amend Representation Election Procedures Rule was reissued by the NLRB in the Federal Register on February 5. The

proposed rule is nearly identical to regulations proposed in 2011.

The proposal would revise the process for union representation elections, expediting the period of time between the filing of NLRB election petition and the election itself. The regional director could set a pre-election hearing to begin seven days after a hearing notice is served and a post-election hearing 14 days after the tally of ballots.

Provides for the electronic filing and transmission of election petitions.

Employers would be required to turn over private employee information to the NLRB and the petitioning party, including employee telephone numbers and e-mail.


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SHRM raised the following concerns to the proposed rule in its comments:

Shortened time frame between the filing of an NLRB representation case petition and election;

Failure to establish a record supporting new election rules; Detrimental changes to the Board election proceedings and; Changes to voter list rules infringe on employee privacy rights.

We were joined in its comments by 96 SHRM state councils and chapters and over 4,600 individual members submitted their own comments to the NLRB as well.

SHRM member Roger King of Jones Day testified before the NLRB on April 10 on these issues.

SHRM member Steve Browne also testified before the House Education and Workforce committee on the proposed rule in March.


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Department of Labor Proposed Rule to Amend 541 Overtime Regulations President Obama sent a presidential memorandum to the Department of Labor

(DOL) on March 13, directing the Agency to “modernize” and “simplify” the Section 541 rules.

Under the FLSA 541 Regulations, an employee qualifies as exempt from overtime if he or she satisfies a “duties test” (under the Executive, Administrative, Professional, Computer and Outside Sales regulations) and the employee is paid on a “Salary Basis.”

Although we have not seen a proposal, we understand the changes may include doubling the “Salary Basis” amount from $455 dollars a week ($23,660 annually) to $910 dollars a week ($47,320 annually).


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Proposal will also modify the “duties test” making changes to definitions and possibly changing key terms and elements, particularly in the “primary duty” area.

DOL will be holding a series of listening events in the months leading up to the announcement and SHRM anticipates that we will be part of those sessions.


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Department of Labor Executive Order on Non-Retaliation for Disclosure of Compensation Information Announced by the President on April 8, prohibits a federal contractor from

discriminating against or discharging an employee or applicant who “has inquired about, discussed, or disclosed the compensation of the employee or applicant or another employee or applicant.”

The executive order directs the DOL to propose regulations to implement these requirements within 160 days.

The order is effective immediately and applies to contract entered into on or after the effective date of the DOL rule.


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Department of Labor Presidential Memorandum on Advancing Pay Equality through Compensation Data Collection Announced by the President on April 8, it directs the DOL to propose, within 120 days,

a rule requiring federal contractors and subcontractors to submit to DOL summary data on the compensation paid to employees, including information by race and sex.

In 2011, SHRM submitted comments to the Office of Federal Contract Compliance Programs (OFCCP) on a similar proposed rule.

SHRM’s comments raised several concerns with the proposal including the need to protect proprietary employer information on compensation systems.


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2014 – 2015 Federal Budget Process Federal Government funded through September 30, 2014 with a $1.012 trillion

dollar budget. Congress has already agreed through the budget resolution passed in December,

to a $1.014 trillion dollar budget for 2015. President Obama released his $1.1T budget on March 4. Senate has passed an extension of expired UI benefits.

Federal debt still looms large Better than anticipated deficit outlook in 2013 and 2014 but current federal

deficit is $17 trillion dollars. December budget resolution staves off $45 billion of sequestration cuts in 2014

and $20 billion in 2015 in both discretionary and mandatory spending. Debt ceiling extended through March 2015.

2014 Public Policy Agenda

Tax and Benefits Issues

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Tax Reform Chairman of the House Ways and Means Committee Dave Camp (R-MI)

introduces tax reform discussion draft but unlikely to move forward in 2014. Significant changes to employer sponsored benefits. Momentum on tax reform likely after elections and with new congress. Tax “extender package” will move before the end of the year.

2014 Public Policy Agenda


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Budget Primer: Spending


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Tax Reform Act of 2014 (H.R.1772)

Released by House Ways and Means Chairman, David Camp (R-MI), the bill is aimed at reforming the U.S. Tax Code. The bill would make changes to both personal and corporate tax rates and would have broad implications for the workplace. Key provisions of interest to HR professionals and the workplace include:

Repealing Section 127, Employer Provided Education Assistance. Repealing Section 117, Tuition Reduction Agreements for education

institutions. Repealing fringe benefit exemptions, including adoption, housing and

moving expenses. Modifying retirement plans, including lowering the tax deferred amount

allowed to (401(k) 403(b) and 457(b)) retirement accounts from $17,500 to $8,750 per year.


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Eliminating income limits for Roth 401(k) and 403(b) plans and allow plan participants to contribute up to $17,500 on an after tax basis.

Requiring employer sponsored plans to offer a Roth 401(k) and 403(b) plans if they offer a traditional tax deferred plan.

Freezing inflation indexing on all retirement plans for 10 years, effectively reducing amounts that can be contributed to retirement accounts.

Repealing the employer-provided child care credit. Repealing the credit for employee health insurance expenses for small

employers. Repealing the Work Opportunity Tax Credit. Modifying executive compensation provisions.

Chairman Camp plans to hold hearings and possibly move the bill through the Committee later this session.



Tax Included in TaxExcluded from Tax

Capital-Gains Income

Select 401(k) Contributions to Roth IRAs

Alternate Minimum Tax

Carried Interest from Investment Partnerships

Tax on Bank Assets Over $500 Billion

Income from Foreign-Based Subsidiaries

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Many Deductions, Tax Structures, Would Be Cut Under Camp PlanChanges to Tax Code in Camp Plan

Sources: Michael Crittenden, “Tax plan has something for everyone (to hate),” Wall Street Journal, Feb. 26., 2014; Bernie Becker, “Reform plan targets popular tax breaks,” The Hill, Feb. 26, 2014; House Committee on Ways and Means.

Provision Increased Decreased Ends

Individual Taxpayer

Child Tax Credit

Individual Standard Deduction

Earned-Income Tax Credit

Mortgage-Interest Deduction

Home-Upgrade Deduction

Medical-Expense Deduction

State & Local Tax Deduction

Corporate Taxpayer

R&D Tax Credit

Asset Depreciation Period

Advertising-Expense Deduction

Deduction for Stock Options

Oil-Percentage Depletion Allowance Analysis

• Chairman Dave Camp’s (R-MI) proposal targets a number of deductions and tax structures, simplifying the tax code and cutting overall tax expenditures• The plan is not expected to pass in 2014, given strong Democratic opposition in the Senate and Republican unwillingness to take on popular deductions• Nonetheless, the plan could serve as a framework for future attempts at tax reform, particularly if Republicans take the Senate in the 2014 midterm

elections

Changes to Deductions Changes to Tax Base


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Exclusions from Taxable Income Account for Most Tax Expenditures

Analysis • The top 10 most expensive tax expenditures will cost the federal government roughly $900B in

FY 2013• Both Republicans and Democrats have recently considered eliminating or limiting these tax

breaks as a way to generate revenue

Exclusions from Taxable

Income

FY 2013 Cost of Major Tax Breaks

Tax Deductions

Preferential Rates on Capital Gains and

Dividends

Tax Credits

Employer-sponsored

health insurance

$248B

Pension contribution

s and

earnings$137B

Capital gains on assets

Social Security and

other benefits

State and local taxes

$77B

Mortgage interest$70B

Charitable contribution

s

$161B

$39B

$43B

$33B

Earned income tax

credit$61B

Child tax credit$57B

Total$461B

Total$186B

Total$118B

Total$161B


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One of President Obama’s top priorities is comprehensive reform and it was a focus during the State of the Union on January 28.

House Republican “standards” were released in February.

Senate passed the comprehensive Border Security, Economic Opportunity and Immigration Modernization Act in June.

House of Representatives may move a series of “focused” bills (border security, enforcement, “DACA Lite, high-skilled). If action occurs it will be late in congressional term possibly during a Lame Duck session.

The SHRM/Council for Global Immigration partnership is part of the dialogue and advocacy effort.

Immigration Reform Issues

2014 Public Policy Agenda – Immigration Reform

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SHRM/Council are focusing our advocacy efforts on three major areas: Increase system efficiency through, among other improvements, creating a

“Trusted Employer” system; Provide access to highly educated and skilled talent by leaving intact green

card provisions and further improving H-1B and L-1 visa provisions to ensure the temporary high-skilled visa system works for employers and;

Give employers certainty in hiring through enabling a single, federal, entirely electronic employment verification system that protects against identity theft through knowledge-based authentication.

Proposed legislation will have a “significant impact” on HR and immigration professionals business practices.

.


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Source: SHRM Employment Verification Survey


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The Border Security, Economic Opportunity, and ImmigrationModernization Act of 2013 (S. 744) / The Legal Workforce Act (H.R.1772)

Introduced in the Senate by the “Gang of Eight,” the legislation is a comprehensive overhaul of the nation’s immigration laws. The bill includes provisions covering border security, legalization procedures for unauthorized aliens, employment-based legal immigration and enhanced employment verification requirements.

The Legal Workforce Act was introduced in the House by Representative Lamar Smith (R-TX) and Chairman of the Judiciary Committee Bob Goodlatte (R-VA). The bill is focused principally on worksite enforcement.

The Senate passed S.744 by a vote of 68 to 32 on June 27. The House Judiciary Committee approved the Legal Workforce Act by a vote of 22 to 9 on June 26.


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Senate Bill (S.744) Federal Contractors would be required to use the system immediately. Participation

by other employers would be as follows: employers deemed “critical infrastructure employers,” 1 year after enactment; employers with 5,000 or more employees, 2 years after enactment; employers between 500 and 4,999 employees, 3 years after enactment; and employers between 0 and 499 employees, 4 years after enactment.

House Bill (H.R. 1772) Federal Contractors would be required to use the system 30 days after enactment.

Participation by other employers would be as follows: employers with 10,000 or more employees,6 months after enactment; employers between 500 and 10,000 employees,12 months after enactment; employers between 20 and 500 employees,18 months after enactment; and employers between 1 and 10 employees, 24 months after enactment.

Time Frame For Employment Verification System Immigration Reform Issues

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Employment Verification Process

Senate Bill (S.744) Employers would be required once the offer of employment is accepted and ending

the third business day after the employee has been hired, to verify the employment status of the individual.

Employers would attest on a new “form” that they had verified the new hire’s employment and identification status by examining specific documents. The form may be integrated electronically with the verification system and employers would have the choice of completing the form in paper, electronically, or telephonically.

Once the attestation process is completed, employers would then be required to verify the new hire’s name, Social Security number or work authorization number through the employment verification process.

The bill would also require employers to verify the identity of each individual hired using either the “photo tool” program or other identity authentication program.


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Employment Verification Process

House Bill (H.R. 1772) Employers would attest through the electronic verification system that they had

examined the new hire’s employment and identification documents to ensure authenticity. The bill also allows employers to do the attestation on paper as well.

Employers would be required on the date the offer of employment is extended and ending at the end of the third business day after the employee has been hired, to use the employment verification system. The offer of employment may be conditioned on passing the verification system.

Employees would be required to attest they are authorized to work legally in the U.S. and would face criminal sanctions of up to two years in jail and civil penalties for violations of the attestation provisions.

Creates a knowledge based authentication pilot program to address the issue of identity theft and the use of fraudulent documents in the employment verification process.


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Preemption Senate Bill (S.744) The legislation would allow federal immigration law to preempt any state or local

law in regard to criminal or civil fines: 1) hiring or continued employment, or 2) status verification for employment eligibility. States could, however, continue to award business license on the basis of compliance with the federal system.

House Bill (H.R. 1772) The legislation would allow federal immigration law to preempt any state law in

regard to: 1) employer fines for immigration-related issues or 2) requiring employers to verify work status or identity for work authorization purposes. States could, however, continue to award business license on the basis of compliance with the federal system. However, state law enforcement would be allowed to enforce the federal provisions and collect the fines.



2014 Public Policy Agenda – Health Care Reform

Inaugural PPACA enrollment for exchanges closed on March 31, with over 8 million individuals enrolled through the exchanges to obtain health care coverage.

Many PPACA requirements have been delayed including effective dates and coverage requirements.

Congressional oversight and regulatory guidance continues.

Tax-deferred status of health care benefits could become a target in tax reform.

While repeal of PPACA is “off the table,” modest changes will be considered.

Health Care Reform Issues

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ACA Enrollment by State

Source: Department of Health and Human Services, 2014. 45


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In U.S., Uninsured Rate Lowest Since 2008

Gallup, April 7, 2014



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Delays Continue to Disrupt Full ACA Implementation

Analysis• Originally, the Affordable Care Act opened health insurance exchanges in Oct. 2013 and enacted most provisions in 2014, but delays have plagued the law’s rollout• In addition to the delays listed above, the administration extended the exchanges’ open enrollment period for those who wanted coverage to begin in Jan. 2014 for

nine days in December after repairing the faulty HealthCare.gov • Although the administration does not foresee further ACA delays or extensions, Republicans have seized on delays to suggest the law does not work

Employer MandateRequires employers with 50 or more employees to provide health insuranceDelay Announced: July 2013

Pre-ACA CoverageAllows individuals to keep or buy pre-ACA plans if their state insurance regulators permitDelay Announced: November 2013

Small Business Health Options ProgramAllows small businesses to enroll employees in health exchanges Delay Announced: November 2013

2013 2014 2015 2016 2017

Employer MandateRequires companies with 50-100 employees to provide employees health insuranceDelay Announced: February 2014

Pre-ACA CoverageAllows individuals and small businesses to buy pre-ACA coverage for an additional year, if state insurance regulators permitDelay Announced: March 2014

c

c

c

c

c

Businesses with more than 100 employees must comply with employer mandate by providing coverage to 70% of full-time employees or pay a penalty

Holders of pre-ACA plans received cancellation notices, compromising the administration’s previous promise to allow individuals to keep pre-ACA plans

Delayed ACA Provisions and Expected Dates of Implementation

Original start date New start date Potential extension

Small businesses may enroll employees in health exchanges via paper, but must wait one year to enroll employees online

Cancellation notices will arrive in Oct. 2016, but plans that offer early renewals could be extended into 2017


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CBO Triples Projected Loss of Workers Under ACA

Analysis• In 2010, CBO projected that implementing the Affordable Care Act would reduce the labor force by 800,000 FTE by 2021; in February 2014, the CBO

predicted the ACA would contribute to a reduction of 2.3 million FTE by 2021, about triple the original projection• Before the ACA, most Americans relied on employers for health insurance; with the ACA in effect and exchange enrollment expected to rise in the next few

years, employment is no longer a prerequisite for health insurance, and this may disincentivize full-time employment• Employers may also contribute to the decrease in FTEs by reducing work hours, hiring fewer workers, and lowering wages to avoid employer-mandate

penalties under the ACA

Projected Loss in Full-Time Employees (FTE) Under the Affordable Care Act*

800,000

In 2010, the CBO forecast a loss of 800,000 household employees in the labor force by 2021

Reasons for Projected Loss of Full-Time Employees

Design of Policy Under the Affordable Care Act, work is not a prerequisite for health insurance, which may disincentivize full-time employment

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Employers May Cut Hours Employers may cut working hours to reduce the number of full-time employees required to receive insurance

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Employers May Hire Fewer Workers Employers may hire fewer workers to avoid employer-mandate penalty

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Employers may lower wages to avoid or compensate for employer-mandate penalty

4 Employers May Lower Wages

* CBO’s recent projections take into account additional studies published since 2010 and the impact of the employer mandate penalty on wage reduction and labor supply; CBO’s 2014 estimate of decreased working hours translates to a decrease in full-time equivalent employment



Save American Workers Act (H.R. 2575)Small Business Fairness Act (S. 2205)

Legislation introduced in the Senate by Mike Enzi (R-WY) and in the House by Todd Young (R-IN), the legislation would amend the Internal Revenue Code to:

Modify the definition of “full time” for the hours worked requirement for health care coverage under the Patient Protection and Affordable Care Act from 30 hours a week to 40 hours.

Clarify that the number of hours counted toward a "full-time equivalent" employee to be 174 hours per month as opposed to 120 hours per month under current law.

The House passed H.R.2575 by a bipartisan vote of 248 to 179 on April 3. SHRM advocated on the bill during our SHRM Employment Law and Legislative Conference in March and sent a letter to the House in support of the measure. President Obama has threatened to veto the legislation if it reaches his desk. 49



Michael P. AitkenVice President, Government Affairs

[email protected]

+1-703-535-6027

1800 Duke StreetAlexandria, VA 22314Twitter: @SHRMVPAitken

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1 HR PUBLIC POLICY / THE WASHINGTON OUTLOOK FROM THE CALIFORNIA EMPLOYER’S PERSPECTIVE Michael P....

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