Skagit Island Human Resource Management AssociationBruce L. Schroeder, October 9, 2014

©Bruce L. Schroeder 2014 Summit Law Group

Effective Hiring Practices

Golden Rules

• Treat all applicants the same whenever possible• Don’t ask for personal information unless job-

related• 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”

• 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

• Provide reasonable accommodations• Use panels• Prepare for interviews• Ask job-related questions• Record impressions – job-related• Numerical scoring?

Offer and Rejection Letters

• 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 applicant2) Employer attests that abstract is necessary

because driving is a necessary condition of employment

Social Media Searches

• New Washington law, 5/22/13, prohibits:– 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

• 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

• 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:

Birth Disability over

FMLA

WA Family Leave

0 2 4 6 8 10 12 14 16 18

Pregnancy Disability Leave

Benefits Benefits

Sick Leave/Vacation

No Benefits (COBRA)

Complicated Pregnancy/Childbirth(FMLA/WFLA eligible)

Weeks:

Bed Rest Birth

WA Family Leave

FMLA

0 2 4 6 8 10 12 14 16 18 24 26

Pregnancy Disability Leave

Benefits

No Benefits (COBRA)

Sick Leave/Vacation

No Benefits(COBRA)

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 FMLA-covered condition(s) are applied toward 12-week 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

• 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 . . .

Goals for Today

The Affordable Care Act

Health Care Reform:The Big Picture

• 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 . . . .

What Has Happened So Far . . .

• 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

Coming Attractions for 2014

The Affordable Care Act

2015 Employer Mandate

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 agencyb. To employees working 30 or more hours

per weekc. Only to “full-time” employees working 40

hours per week d. I signed up because I thought you would

know

Pop Quiz! Question #1

• 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

Employer Mandate Simplified

POLLING QUESTIONS . . .

• 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

What Employers Are Covered?

• 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

Counting Noses

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 full-time employees)

2. Affordability Penalty: if coverage is not “affordable,” employer potentially faces $3,000 penalty for each full-time employee obtaining subsidized coverage

Both penalties are triggered by a full-time employee obtaining subsidized coverage through the Exchange

Failing to Play – the Pay Penalties

• “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

Defining the Terms

Employees who work variable hours may qualify as “full-time” employees under the PPACA if:

a. They exceed 30 hours in any work weekb. They average at least 30 hrs/week during a

measurement period c. They are defined as full-time employees in a

CBAd. No one can tell I skip the quizzes during

webinars

Pop Quiz! Question #2

• 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.

Employee Categories

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

Pop Quiz! Question #3

• 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: Summarized

Measurement Periods: Visualized, Simplified

• Initial or standard.

• 3-12 months.• Used to

determine full-time status.

• Employer has flexibility over start dates for standard measurement periods.

• Optional period.• Up to 90 days.• Used to calculate

hours, process paperwork, enroll employees in coverage.

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.

80

• 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

Leave During Measurement Period

• 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)

Hours of Service for Salaried 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.

Terminated Employees

• “Seasonal” employees who work other positions during non-seasonal 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.”

Variable Hour 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.

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

Managing Variable Hour/Seasonal Employees

• 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

Urgent Matters

The Affordable Care Act

2018 Cadillac Tax

• 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)

The Cadillac Tax, an Overview

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”

Pop Quiz! Question #4

• 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

The Cadillac Tax, an Overview

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An Example of the Cadillac Tax2013 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 $23,3282015 $25,1942016 $27,2102017 $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

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%

Group Health Regence PPO Group Health Regence PPO $-

$10,000

$20,000

$30,000

$40,000

$20,020 $21,667

$31,769$34,383

$2,272$2,272

$3,222

$3,222

$1,118$1,476

$1,335

$1,762

FSADentalMedical

$ 27,500$25,415

$36,326

$39,368

Taxable ValueEmployee + Family

2012 2018

$23,410

95

Group Health Regence PPO Group Health Regence PPO $-

$5,000

$10,000

$15,000

$6,294$7,602

$9,988

$12,063$858

$858

$1,217

$1,217

$722

$975

$862

$1,164

FSADentalMedical

$ 10,200$ 9,434

$12,067

$14,444

Taxable ValueEmployee Only

2012 2018

$ 7,874

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2012 2013 2014 2015 2016 2017 2018$20,000

$25,000

$30,000

$35,000

$31,769

$27,500

$34,383

Group HealthGHC AlternateRegence PPORegence Al-ternate

4.05%

5.43%

8.00%

Projected Market Growth RateEmployee + Family

8.00%

2012 = Actuals2013 – 2018 = Projections

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2012 2013 2014 2015 2016 2017 2018$18,000

$21,000

$24,000

$27,000

$30,000

$33,000

$36,000

$19,923

$23,019

$31,317

$27,500

$23,617$24,845

$33,801

Group HealthGHC AlternateRegence PPORegence Al-ternate

3.09%

6.65%

8.00%

Projected Market Growth RateEmployee + Family

8.00%

• Projections98

19992000

20012002

20032004

20052006

20072008

20092010

20112012

2013$0

$50

$100

$150

$200

$250

$300

$350

$400

$100 $108 $117$129

$142$165

$183

$214

$241$261

$276 $285

$314

$343

$374

$100 $104 $102$90 $94

$106$128

$162 $156 $164 $164$177

$202$224 $223

Regence

Group Health

Change in Medical RatesValue of $100

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Strategies Going Forward

1. Unbundle dental insurance from health insurance2. 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

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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 pre-retirement

• Need to notify unions and address immediately– Illegal subject of bargaining rules

The Defense of Marriage Act

2013 To-Do List

The “Cadillac” or excise tax on high-value health insurance plans under the ACA:

a. Is a worry for the 1 Percenters on Wall Streetb. Can be avoided by shifting premiums to

employeesc. Will likely be changed before it takes effect d. Is a major concern for public employers in

Washington

Pop Quiz! Question #5

• In U.S. v. Windsor, the Supreme Court ruled that the provision of DOMA preventing the federal government from recognizing same-sex marriages was unconstitutional

• The portion of the law permitting states to deny recognition of same-sex marriages from other states remains in place

The Supreme Court’s DOMA Ruling

• 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

The Implications of Windsor

• 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 over-collected FICA taxes, use Form 941-X to claim a refund, and file a corrected W-2

DOMA and the Year-End To-DO List

• 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 over-paid income taxes for prior years

Refunds for Prior Years

Thank You