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Until very recently, employers were at risk of receiving steep fines if they reimbursed employees for non-employer sponsored medical care – the Affordable Care Act (ACA) included fines of up to $36,500 a year per employee for such an action. Late in 2016, however, President Obama signed the 21st Century Cures Act and established Qualified Small Employer Health Reimbursement Arrangements (QSEHRAs). As of January 1, 2017, small employers can offer these tax-free medical care reimbursements to eligible employees.
If an employee incurs a medical care expense, such as health insurance premiums or eligible medical expenses under IRC Section 213(d), the employer can reimburse the employee up to $4,950 for single coverage or $10,000 for family coverage. Employees may not make any contributions or salary deferrals to QSEHRAs.
The maximum amount must
be prorated for those not eligible for an entire year. For example, an employer
offering the maximum reimbursement amount should only reimburse up to $2,475 to
an employee who has been working for the company for six months. For a complete
list of medical expenses covered under IRC 213(d), see https://www.irs.gov/pub/irs-pdf/p502.pdf.
Employers may tailor which expenses they will reimburse to a certain extent,
and do not have to reimburse employees for all eligible medical expenses.
Much like other healthcare reimbursement arrangements, employees may have to provide substantiation before reimbursement. The IRS has discretion to establish requirements regarding this process, but has not yet done so. Although reimbursements may be provided tax-free, they must be reported on the employee’s W-2 in Box 12 using the code “FF.”
To offer QSEHRAs, an employer cannot be an applicable large employer (ALE) under the ACA. Only employers with fewer than 50 full-time equivalent employees can offer this benefit. Further, a group cannot offer group health plans to any employees to qualify.
Typically, an employer that chooses to offer a QSEHRA must offer it to all employees who have completed at least 90 days of work. The few exceptions to this rule include part-time or seasonal employees, non-resident aliens, employees under the age of 25, and employees covered by a collective bargaining agreement.
Employers may offer differing reimbursement amounts based on employee age or family size. However, such variances must be based on the cost of premiums of a reference policy on the individual market. It is currently unclear which reference policy will be selected or how permitted discrepancies will be calculated.
To be eligible for a tax-free reimbursement, employees must have proof of minimum essential coverage. It is uncertain how closely employers will have to scrutinize such proof, although guidance will hopefully be available soon.
Eligible employees must disclose to health exchanges the amount of QSEHRA benefits available to them. The exchanges will account for the reported amount, even if the employee does not utilize it, and will likely reduce the amount of the subsidies available. Employers should take this into account before adopting a QSEHRA.
In order to establish a QSEHRA, employers will have to set up and administer a plan. Group health plan requirements, such as ACA reporting and COBRA requirements, do not apply to QSEHRAs. But in order to properly provide reimbursements to employees, employers will likely have to establish reimbursement procedures.
Additionally, any eligible employees must be notified of the arrangements in writing at least 90 days before the first day they will be eligible to participate. For the current year, the IRS is giving employers who implement QSEHRAs an extension until March 13, 2017 to provide a notice. The notice must provide the amount of the maximum benefit, and that eligible employees inform health insurance exchanges this benefit is available to them. It also must inform eligible employees they may be subject to the individual ACA penalties if they do not have minimum essential coverage.
Businesses With 100 Or More Workers Would Be Subject To Proposed New Law Aimed At Combating Gender Discrimination
The federal government announced at the end of January 2016 its intent to gather additional pay information from larger employers, forcing all businesses with over 100 workers to provide detailed information about their pay practices in an effort to address gender discrimination. If the President’s plan moves forward as expected, employers will be subject to a heightened pay transparency standard by the end of this calendar year.
In other words, once this new law takes hold, the EEOC will have greater ease in identifying disparities and areas of potential pay discrimination to determine where it will take enforcement action.
By conducting your own gender-specific audit of pay practices, you will be able to determine whether any pay gaps exist that might catch the eye of the federal government when you turn over this information next year. You will have time to determine whether any disparities that may exist can be justified by legitimate and non-discriminatory explanations, or whether you will need to take corrective action to address troublesome pay gaps.
On October 7, 2015 President Obama signed the Protecting Affordable Coverage for Employees (PACE) Act that amends the Affordable Care Act (ACA) definition of a “small employer” for the purpose of purchasing health insurance coverage.
Prior to the signing of this amendment and beginning January 1, 2016, every state was required to expand the definition of the small group market to include employers with up to 100 employees. Prior to January 1, 2016 states had the flexibility to maintain the definition of a small employer to those with up to 50 employees and most states continued to do so.
The PACE Act repeals the mandatory expansion of the small group market to employers with up to 100 employees and reverts to the prior definition of up to 50 employees, although the states maintain flexibility to define the small market as up to 100 employees if they wish.
Under the ACA, health insurance offered in the small group market must meet strict underwriting requirements and cover all essential health benefits- conditions that do not apply in the large group market. Concerns about steep price increases and loss of benefit design flexibility from many businesses with 51 – 100 employees who would be re-classified as a “small employer” prompted this bi-partisan amendment to the law.
What Happens Now?
Numerous questions surround the passage of this amendment to the ACA given the fact that the change has happened so late in 2015. Insurance carriers have already filed their small group 2016 plan rates assuming the expansion of this market space and many employers impacted by their re-classification have already secured coverage or are finalizing plans for 2016 coverage. Here are some questions that hopefully will be addressed in the near future:
Employers who are impacted by this ACA amendment should monitor the situation and determine what may be the best course of action for your employees.
President Obama has proposed expanding the availability of overtime pay, which would cause the Department of Labor to do its first overhaul of Fair Labor Standards Act (FLSA) regulations in 10 years.
The President signed a memorandum on March 13, 2014, instructing the Department of Labor to update regulations about who qualifies for overtime pay. In particular, he wants to raise the threshold level for the salary-basis test from the current $455 per week in order to account for inflation. The threshold has been raised just twice in the past 40 years. The President did not specify the exact amount the threshold should be raised though.
“Unfortunately, today, millions of Americans aren’t getting the extra pay they deserve. That’s because an exception that was originally meant for high-paid, white-collar employees now covers workers earning as little as $23,660 a year,” Obama said in his remarks on overtime pay.
The memorandum also suggests that both the primary duties and pay of some exempted employees do not truly fit in the executive, administrative and professional employees exemptions, referred to as the white-collar exemptions under FLSA.
In a fact sheet on the President’s memorandum, the White House said: “Millions of salaried workers have been left without the protections of overtime or sometimes even the minimum wage. For example, a convenience store manager or a fast food shift supervisor or an office worker may be expected to work 50 or 60 hours a week or more, making barely enough to keep a family out of poverty, and not receive a dime of overtime pay.” The FLSA’s minimum wage would not protect a salaried worker because salaried workers’ pay must satisfy the weekly salary-basis test rather than the Federal hourly minimum wage, which is $7.25 per hour. The hourly minimum wage in Florida is currently $7.93 per hour.
The memo also pointed out that “only 12% of salaried workers fall below the threshold that would guarantee them overtime and minimum wage protections.“ The fact sheet also called the current FLSA regulations outdated, noting that states such as New York and California have set higher salary thresholds.
Small businesses will be hit particularly hard by a change in the FLSA regulations.
If the regulations shrink the current white-collar exemptions, employers would have two main options to hold down costs. They would have to either increase workers’ salary above the new salary-basis threshold (to avoid paying overtime) or leave employees in the nonexempt category and pay them overtime. Companies could also hire more employees, but the other two options are more likely.
Implications for HR
Once tightened white-collar exemptions are implemented, which is not likely to happen for months now, it could result in far-reaching implications for HR, including wage and hour audits and layoffs. The money to pay for increased overtime wages has got to come from somewhere which might mean layoffs, reducing overtime and taking a fresh look at the fluctuating workweek.
When asked at a press briefing about the burden on businesses if the Obama administration succeeds in efforts to both increase the federal minimum wage and revise FLSA regulations, Betsey Stevenson, a member of the White House’s Council of Economic Advisers, said, “We think these two items are very different, but, obviously, they do feed into the same thing, which is people should be rewarded for fair work.” She suggested that some workers in the white-collar exemptions aren’t even earning minimum wage for all the work they do at low salaries.
Even though the president did not assign a number for the minimum salary-basis threshold, Stevenson said the overtime “protections have been eroded over time. This threshold in 1975 was nearly $1,000 in today’s dollars; today it’s $455.” Stevenson believes that the rule should be modernized as a matter of the “basic principle of fairness.”
We will continue to keep you abreast of any changes to FLSA as well as other regulations that can impact your business. If you have any questions about the current or proposed FLSA regulations, please contact our office.