First, the Small Business Health Options Program (SHOP) health insurance exchange was delayed. That was followed by a delay in the release of community ratings for small group programs. On top of that, there’s confusion about whether businesses with less than 50 employees, which are not governed by the Affordable Care Act (ACA) mandate to provide health insurance, can utilize health reimbursement accounts (HRAs) to buy individual coverage.
“The ACA places significant limitations on HRAs, and they are the only vehicle these companies have to distribute dollars employees can use to pay for premiums. The question is whether businesses that are exempt from the mandate are impacted by other aspects of the ACA. There will need to be some guidance as to whether it applies,” says William F. Hutter, CEO of Sequent.
The delays and uncertainty have left small businesses with few options for health insurance at a time when they need to finalize plans for 2014.
“That inherently creates a violation of rules because there’s a 60-day notice requirement to inform employees of any plan changes,” Hutter says. “We think the notice will be interpreted so that companies might be able to make a plan change, but not a cost change — the employer would have to pick up any difference. But that factor also has to be determined.”
Smart Business spoke with Hutter about problems with the rollout of the ACA exchanges and how reform continues to affect businesses of all sizes.
Should the 19 million people who were told their coverage was terminated have been surprised?
That was known back in 2010; it was written about. Plans were cancelled because the ACA changed requirements for insurers and the plans they provide. Plans are not only registered on a federal level but also on a state-by-state basis. Each state has a department of insurance to oversee plans and rate structures. A carrier needs to meet new requirements under ACA and state mandates, but when a plan design is changed, it is no longer grandfathered. It has to be terminated or withdrawn, and a new plan is submitted and approved. Whether this will be true going forward is uncertain.
If you are self-insured, the opportunity to keep the same plan is greater. Companies that self-insure can continue their plans as long as they don’t make significant changes.
Are self-insurance plans exempt from many ACA requirements?
Yes, that’s why companies have been exploring the option of self-funding arrangements. It’s a strange set of rules, but you can choose to cover or not cover certain things as long as they aren’t considered minimum essential coverage requirements. However, you can’t do it in a limited way; you can’t decide to cover autism, but only up to $10,000 a year. You have to choose to not cover it or cover it completely.
What self-funding does is create more predictability for companies because they purchase a stop-loss policy to limit their liability. Health insurance costs will continue to rise because of an aging demographic. The plan design can help keep increases to 4 to 6 percent annually instead of 30 or 40 percent.
Is that option also available to small businesses with fewer than 50 employees?
It can be, although you can’t do it like a big company would because a small employer doesn’t have the numbers to mitigate the risk of large claims.
Self-insurance is a design plan issue. Being self-insured with a specific stop-loss point might work. If you have 30 employees, you can have a stop-loss of $10,000 each. Then you need to figure out your actuarial funding for it and reserve that amount to pay for claims and expected losses. If you have a healthy group, it makes sense.
Small businesses also can join a pool for health insurance. That’s a service HR consultants or chambers of commerce provide, through an aggregation model, for clients or members to get health care. They don’t provide health care but establish a contractual arrangement with a company that does.
But the problem with the ACA is that new information is coming so quickly, and it takes months to rethink your health insurance strategy. This will continue to be difficult for companies to work through. ●
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At first glance, dropping health insurance for employees and sending them to the exchanges sounds like a win for everyone. Companies can give raises to make up the difference for employees, who then buy insurance for less, and everyone saves money.
But that’s not the result when you factor in all of the numbers, says William F. Hutter, CEO of Sequent.
“Drop your health insurance and give employees the same money is the mantra we keep hearing. It is not a simple decision and should not be treated as such for middle-market companies,” Hutter says.
Smart Business spoke with Hutter about the costs associated with this decision, and its potential impact on your business.
Would companies rather not worry about health insurance because of its volatility?
Companies are tired of thinking about health insurance; it’s becoming another distraction away from their business. Of course, that’s just considering cost and not taking into account the cultural issues involved with the perception of whether you’re taking care of your employees.
For example, a client was advised that it could save money by sending everyone to the exchange and just giving employees raises. That has proven to be a fallacy. When you review all of the numbers, the savings are not there.
The company has 109 employees, and 79 are covered by the health plan. It has a high deductible, so the company contributes to a health reimbursement account (HRA) for employees.
Basic costs of the plan are:
- Total insurance premiums — $653,000.
- Company share — $522,400.
- Employees’ share — $130,600.
- Company HRA cost — $200,000.
- Total cost to company — $722,400.
Dropping insurance and giving those employees $7,500 in raises each — a total of $592,500 — would appear to save the company $129,900. But you have to consider the total cost impact, including deductible burden, taxes and penalties.
What are the tax implications under this scenario?
Because of the loss of the pre-tax deduction, employees and the company both pay more in taxes on the $592,500 in raises — $199,937 by employees and $73,395 by the company.
There’s also an Affordable Care Act (ACA) penalty of $114,000 the company would be required to pay because it would no longer be a health plan sponsor. And now the employees also are paying all of the plan deductible, so that’s another $158,000, assuming a $2,000 deductible.
When you consider all of those factors, the total cost is $779,894, or about $57,000 more to not offer health insurance. When shown the entire picture, the client was blown away.
Are there other variables to consider, even if dropping health insurance for employees made financial sense?
In addition to how it would be perceived by employees, there’s a concern about making a decision based on the short term. Organizations need to think more strategically, rather than looking just at how to fix a current problem.
No one knows how the exchanges are going to shake out. They are getting a tax subsidy for the first two years in the form of a $62 annual tax on every employee covered by an insurance carrier outside of the exchanges. In theory, that provides a pool of money carriers can draw on until the exchanges find their own balance regarding enrollees, costs and risks. That could result in a significant increase in premiums in two years when the subsidy goes away.
Also, you want to be cautious about dropping insurance and giving up the tax advantage of sponsoring a plan because it’s difficult to go back. That’s really the objective of the ACA — it’s a revenue enhancement bill rather than a health care bill. That goes back to the 2005 study by Sens. Max Baucus and Chuck Grassley, which flowed right into health care reform.
This analysis and case study is a dramatic illustration of how the changes written into health care reform are really about closing tax loopholes. Companies may be better off keeping the tax advantage of health care for themselves and their employees by providing access to predictable health care coverage. ●
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Enforcement of the employer mandate has been delayed until 2015, along with the annual limit on out-of-pocket costs a patient pays above what insurance covers, but the rest of the Patient Protection and Affordable Care Act (PPACA) is still scheduled to proceed as planned — although it’s uncertain whether that schedule will be kept.
“Right now there’s been two official delays announced. In theory, all other elements of the PPACA are coming into play. But this is so fluid and volatile that we could see the Department of Health and Human Services (HHS) announce that the federal exchange is not ready,” says William F. Hutter, CEO of Sequent.
Open enrollment for the health insurance exchanges, aka marketplace, is set to start on Oct. 1 and continue through March.
“They’re trying to build awareness through a marketing campaign but aren’t sure what to do because they haven’t seen how it is going to work,” Hutter says.
Smart Business spoke to Hutter about the upcoming timetable for PPACA implementation and what to expect regarding scheduled deadlines.
What do these delays mean to the implementation of the PPACA?
Pieces of the PPACA are already in place. The Medicare tax is increasing, the decline in flexible spending dollars have come into play, and the underwriting criteria for carriers is going to change how they underwrite and create similarities in pricing models because plans have to be pretty consistent. The age compression standard — rates can only be three times as much because of age — has been set.
Additional taxes also have kicked in, including the Patient Centered Outcome Institute fee. Employer requirements to notify employees have increased, as well.
Major changes are occurring; no one knows how they are going to pull it off. There are so many variables at this time that no one can predict what’s going to happen.
There’s also the question of whether the exchanges will be ready to go on Oct. 1. As of now, only one is ready — California. There’s also Massachusetts, if you consider that an exchange. The HHS has been quiet following a flurry of releases months ago. Something was leaked that the federal exchange might not be ready and since then there’s been no information, which means they might push it close to the deadline.
Meanwhile, companies are left to fend the best they can in anticipation of open enrollment starting.
Are repeal or defunding possibilities?
The repeal votes are all pomp and circumstance. Defunding is possible, but unlikely. The real problem is that no one can figure out how to make the PPACA work. That includes insurance agents and carriers, enforcement entities and employers.
What difference does delaying the employer mandate a year make?
All it means is that employers don’t have to worry about fines or penalties for a year. We’re recommending that companies proceed based on what they think is the best course of action. Companies need to design solutions to fix some of the exposures of the PPACA; it doesn’t matter what type of business you have, what makes a difference is your financial wherewithal. It’s a matter of coming up with a basic solution to address PPACA requirements and deciding how much you want to spend — like getting a combo meal and choosing between small, medium and large. That decision will be based on factors such as company culture and environment.
One emerging tactic is to seek early renewal of plans because of the uncertainty surrounding the PPACA. If you can get your carrier to renew starting Dec. 1, 2013, then you don’t have to worry about the PPACA and its impact until December 2014.
Right now, there’s no breathing room for companies. What happens if you anticipate that the federal exchange will be ready and the HHS announces on Sept. 10 that it will be delayed? Then there are all of the challenges associated with technology, billing and verification of wages. There’s going to be a whole new system that will handle protected health information, is it going to be secure?
There are so many things to be considered; it makes sense to try to schedule your plan year to avoid the inevitability of the PPACA until there is more certainty.
William F. Hutter is CEO at Sequent. Reach him at (888) 456-3627 or email@example.com.
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2013 Healthcare Reform Seminar
In mid-July, Smart Business held the 2013 Healthcare Reform Seminar, presented by SummaCare, and sponsored by Rea & Associates, Sequent, Roetzel & Andress, The Greater Akron Chamber, and hosted by Firestone Country Club. More than 200 people heard insight, advice and strategy from a panel of experts on what employers need to know about healthcare reform.
Contact these insightful panelists to learn more:
Some leaders take an “old school” approach to change management — employees get a paycheck, so they’ll deal with any changes without a need for much explanation. But that sets the organization on a path toward failure.
“The biggest problems are when leadership does not account for the fact that resistance is definitely an option,” says Mark Deans, practice leader in Organizational Development & Change Management at Sequent.
“You could build a perfectly streamlined business process, or add the most efficient tool, but if employees don’t understand how to execute it to meet your expectations, it’s not going to succeed. Try as you might, you can’t make people do things,” Deans says.
Smart Business spoke with Deans about ways to ensure successful implementation of a change process.
What is involved in change management?
It’s supporting a change in business processes or systems, technology, etc. The practice of change management applies to any significant change in an organization, including leadership change as part of an acquisition or divestiture. It’s about how employees are supported through the change process.
The methodology is that there is a journey the organization, departments and individuals go through, and each has a completely different time path. Two people might do the same job, but each has his or her own change capability, and it’s a matter of identifying and managing all of those within an organization to make the change as seamless as possible.
How does the change process work its way through an organization?
First and foremost, leadership must be on the same page. Start with getting leaders aligned so they can be the driving force behind the change, helping each individual understand his or her part.
Organizations are taking a more holistic view nowadays. A change might mean more work for some departments but provides an overall net benefit for the organization. It used to be that each silo fought for its own interests. Now, it’s about how departments operate together, and some teams taking a hit if necessary to ensure the overall organization is as successful as possible.
One of the first steps is acknowledging the need to change, and the benefits. There should be some compelling reason, whether it’s regulatory changes, an attempt to improve market share or boost the bottom line. If the overarching goal is to improve margins, explain what that means for each group, and ultimately for each individual. You have to manage change upfront and get everyone onboard at the start rather than waiting for problems. It’s analogous to going to the dentist. If you see your dentist on a regular basis, keep your teeth clean and get X-rays, you can catch cavities when they start and are easier to fix, instead of not going for a long time and having major damage. The same holds true for change management, if you start a project and haven’t thought about how to communicate it to employees, going back and fixing it is much more difficult.
Is it important to state a desired outcome?
Absolutely. That is where some companies fail as well. They make a change and aren’t sure why. A company buys hundreds of iPads as part of a mobile technology strategy without addressing the intended use. So people are updating their Facebook status or playing Angry Birds because they don’t have a burning business reason to utilize these tools. That might be a ridiculous example, but there are plenty of cases in which companies want to hurry up and do something because it’s a shiny, new object.
You also need to accept it if a change didn’t work. Evaluate the success of the change, including what happened and didn’t happen as planned. Change projects always take longer and cost more than expected. Organizations that handle change well go back and figure out what they did well, and what could have been done differently. Then they remediate anything that did not get executed as well as planned. They learn from the experience so the process can be improved next time.
Mark Deans is a practice leader in Organizational Development & Change Management at Sequent. Reach him at (614) 410-6028 or firstname.lastname@example.org.
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Many aspects of the Patient Protection and Affordable Care Act (PPACA) become effective Jan. 1, 2014, but preparing for that date is difficult for businesses because not all of the rules and regulations have been written.
“As of last month, there were still 1,200 regulations yet to be written by the end of the year. I don’t think anybody has it figured out yet — that’s the biggest problem,” says William F. Hutter, president and CEO of Sequent.
Nonetheless, there are steps businesses can take now to be ready for 2014. “The first thing to do is to understand the PPACA. Unfortunately, there is no definitive source of information on how it will impact companies because of the yet-to-be written regulations. So you need to read a variety of materials, starting in July — that’s when we should see those rules and regulations start to manifest,” says Hutter.
Smart Business spoke with Hutter about strategies small and midsize businesses can take to deal with the uncertainty surrounding health care reform.
Is there a chance that the effective date of PPACA provisions might be delayed?
Some factors already have. The Small Business Health Options Program (SHOP), an exchange for small businesses to purchase health insurance, has been delayed for a year. Also, nothing has been presented showing how the federal health care exchange, a marketplace for individuals to purchase insurance, is going to work.
Since everything is in flux, what can companies do in preparation?
A number of strategies are going to emerge, and many might have questionable structure. If someone presents an opportunity too good to be true, it probably is. Be careful about vetting companies offering creative strategies to avoid some of the impact of health care reform.
One legitimate strategy on the increase is the use of cell captives. Companies will self-insure, but with minimal exposure. There are good self-insurance options for businesses in the 60- to 70-employee range that will exempt them from certain aspects of the legislation, such as unlimited rehabilitative services. An employee can go to rehab for 30 days, come back and four months later have another drug problem that sends him or her back to rehab — there’s no limitation and it’s covered under the Family and Medical Leave Act. A company can design a plan that doesn’t allow that because it’s not required in a self-funded plan, even though it is part of the minimum essential coverage required under the PPACA in the fully insured environment.
All of these self-funded plans will become high deductible health plans with three layers of risk. The first is the employee deductible, which will pay the first layer of claims. The second layer will be an amount of self-retained insurance risk a company insures. The insurance company will pay the third layer. That setup protects insurance companies from a lot of the smaller claims. In Ohio, about 70 percent of claims are less than $8,000.
What impact will reform have on health care costs?
It will not bring down the cost of insurance because there’s nothing health care reform can fix relative to the aging demographics of the workforce. There’s been a dramatic increase in recent years in the use of medication and cost of defensive medicine. As baby boomers continue to age, those costs will only increase. There are not enough 20-somethings coming into the workforce to compensate for the aging demographic in the state of Ohio.
If anything, the cost of regulation just keeps increasing. A recent study stated that fines and penalties are expected to total $88 billion. All kinds of alternative strategies are being considered, not to avoid the intent of providing good coverage for employees, but because of uncertainty with the legislation. If you can create certainty by having a new health care plan design, that’s good for business. At least you know what you have.
We’re not going to see the conclusion of how health care reform is going to be implemented for a decade. It’s going to be a really long time.
William F. Hutter is president and CEO at Sequent. Reach him at (888) 456-3627 or email@example.com.
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Business owners understand the need to go to dentists to get their teeth cleaned and to mechanics for car repairs, but yet they attempt to manage their employees internally instead of getting help.
“Managing the business of employment requires a completely different discipline and skill set from what is needed for the core business activity,” says William F. Hutter, CEO of Sequent. “Just because you are in the business of making widgets doesn’t mean you understand what it takes to be an employer in today’s environment. Rules and regulations relative to being an employer have changed a lot during the past 10 years.”
Smart Business spoke to Hutter about government regulations, employee retaliation and other issues involved with the business of managing people.
Why should companies pay more attention to employee management?
So many companies spend time on their communications budget for things like high-speed Internet and phones; that’s an insignificant portion of the total budget. For service companies, people represent 40 to 70 percent of the total cost of operations. It’s such a big segment, but no one seems to approach it appropriately because it requires a separate discipline. Issues relating to employees have a risk tail — it’s a contingent liability that can last three to five years after an event occurs. How many companies really know how to manage that liability? Small to midsize businesses don’t have the resources or expertise to do that and protect their biggest asset, which is their company.
What is involved in employee management?
There are common responsibilities that come with being an employer — compliance, wage and hour, health care reform, retirement plan fiduciary liability, workers’ compensation management, proper forms, reporting, employee file maintenance, etc. In professional practices, there are also issues regarding licenses, accreditations and certification; those are business drivers that contribute to your business success.
The hiring process, however, has nothing to do with what you’re passionate about and the business you opened; the business drivers for your specific discipline. Each new piece of legislation, each government-required form, each legal precedent set because of a lawsuit filed by a employee begins to change how you need to think about managing the business of employment.
In 2010 and 2011, retaliation charges became the most frequent complaints filed with the Equal Employment Opportunity Commission, surpassing race discrimination. An employee filed a complaint of some sort — harassment, hostile work environment — and then was terminated and filed a claim of retaliation. That retaliation claim is pursued by the government at no cost to the former employee. And 41 percent of all federal discrimination claims are charged against companies with 15 to 100 employees.
One of the newest areas for claims is in absenteeism and attendance. The Department of Labor has developed a free app employees can download to their smartphones and keep track of hours worked to see if they’re due overtime pay, which in essence is wage and hour enforcement at the employee level.
What can companies do to prevent claims?
Make sure employees are properly classified as exempt or nonexempt under wage and hour law. For example, to be exempt you must have hire or fire authority, supervise two or more people and be able to affect company policy. Not all professionals are exempt; it depends on the actual job task. For computer programmers, they have to be paid 6.5 times minimum wage per hour to be considered exempt. But fruit and produce delivery truck drivers are exempt because they are involved in interstate commerce.
Most companies don’t want to keep track of time because it requires monitoring by managers. But it’s a major liability and all it takes is one complaint to create problems.
Think about how to keep track of hours and reporting requirements of health care reform and look-back periods, or just one required form, the I-9 — there are 40 different fines that can be levied for that form alone. This shift in focus toward compliance and away from innovation has great cost to the business. That’s a cost of doing business and you need to move those tasks elsewhere because you never get that opportunity back.
William F. Hutter is the CEO of Sequent. Reach him at (888) 456-3627 or firstname.lastname@example.org.
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Business leaders understand the value of employee engagement, yet many have been slow to implement plans within their organizations.
“It’s interesting that 75 percent of leaders have no engagement strategy, even though 90 percent say it has a positive impact on business success. So while they think it’s important, they’re not actively engaged in affecting change. I think they don’t fully understand the impact it can make on the bottom line,” says Beth Thomas, executive vice president and managing director of consulting services at Sequent.
She says employee engagement is about creating an environment where employees understand the company’s values and what is expected of them, and are committed and dedicated to their work.
“Employee engagement is probably the biggest reason why companies are successful. Engaged employees generate 40 percent more revenues than disengaged ones and are 87 percent less likely to leave an organization,” says Thomas.
Smart Business spoke with Thomas about ways to boost employee engagement and the impact it can have on an organization.
What can companies do to foster employee engagement?
There are five keys to creating conditions for thriving, engaged employees:
- Empowering employees. No one wants to be micro-managed; they want to feel that what they bring to the table is valued. They were hired for a reason — let them do that job.
- Sharing information. People get anxious and disconnected when there are a lot of closed-door leadership meetings. Create a connection by bringing employees into the growth of the company with quarterly or town hall meetings.
- Minimizing toxic behavior and negative feedback. Hire the right talent that will fit the culture and bring positivity. Then hold employees accountable to the values and expectations of the organization.
- Offering performance feedback. Everyone wants to know how he or she is doing, and it shouldn’t be just once a year. Empower them and let them know they’re in charge of their careers, and can move forward if they are motivated and dedicated.
- Appreciating employee value through reward and recognition. Have an employee of the month award and profile that person because people will want to emulate what they are doing. Make it very clear what is needed in order to be successful and profile those behaviors, characteristics and performance standards so everyone knows what is valued. That includes recognizing all the qualities that are valued; it doesn’t have to be based on the same performance. An employee might not be a high-powered salesperson bringing in six-figure deals every month, but might be the most positive person in the office and contributes to the organization’s culture.
Does employee engagement start with the hiring process?
Absolutely. When you are hiring people, it’s just as important to assess their ‘soft skills’ as their knowledge, skills and abilities. It’s more difficult to train people to be team players. Having the personality to go above and beyond to meet a customer’s needs or to be a trusted adviser is a soft skill that is largely innate and takes a lifetime to build. It’s important to evaluate those qualities to ensure they match the organization’s culture beyond the skills they bring.
Is it the workplace culture that promotes engagement?
Yes, it’s about the culture, but also all the employees and the leaders. It’s important for employees to ‘hang with the gang that gets it’ — those people at work who are successful — steal shamelessly and emulate what they do. Conversely, when employees hang with the people who are negative and contribute to toxic behavior, leadership sees them as being one of them, even if they’re not participating in those activities.
Engagement goes hand in hand with happiness. In a work context, happiness is about finding what in your career makes you happy. While it may sound trite, happiness leads to engagement in your work, which motivates you to give 110 percent or more discretionary effort. This is what contributes to business success, not only boosting your own career but at the same time increasing the company’s bottom line. Who wouldn’t want that?
Beth Thomas is an executive vice president, managing director of Consulting Services and author of “Powered By Happy” at Sequent. Reach her at email@example.com.
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Employers are scrambling to figure out the impact of the Patient Protection and Affordable Care Act (PPACA) on their business and whether it makes sense to “pay or play” when it comes to providing health insurance coverage for employees.
“Pay or play regulations were released Dec. 28, so we’re all trying to digest this. Employers want to know what the rules mean for them,” says Dwight Seeley, vice president of Employee Benefit Programs at Sequent. “I have several meetings scheduled to review the math of the penalty phase with companies so they know where they stand.”
Smart Business spoke with Seeley about the pay or play provisions under PPACA and what employers need to do in preparation for the Jan. 1, 2014, start of health care exchanges.
How do companies prepare?
They need to determine answers to these questions:
- Do they have a general understanding of pay or play?
- Are they considered a large employer?
- Will any employees receive federally subsidized exchange coverage?
- Does the company plan offer minimum essential coverage?
- Does the plan provide minimum value?
- Is the plan affordable?
- What penalties could apply and what is the potential cost?
First off, pay or play applies to employers with at least 50 full-time or full-time equivalent (FTE) employees, so you have to determine if that applies to you. PPACA rules are different from those of the IRS. Under PPACA, a full-time equivalent is considered 120 hours per month, 30 hours per week. There’s a fairly detailed structure for measuring FTEs based on employees with variable hours, seasonal employees, etc. Companies that have variable schedule employees, part-timers or a lot of seasonal employees are going to be challenged to determine how many FTEs they have.
If you have 50 or more FTEs, what do you need to do to avoid penalties?
Businesses can avoid penalties by providing minimum essential coverage with a plan that offers at least minimum value and is affordable. No guidance has been given on minimal essential coverage but there’s a general idea of what it’s going to look like based on industry standards.
Once you’ve established that a plan provides minimal essential coverage, you then look at whether it meets the minimum value requirement and if it’s affordable. It’s considered poor if it pays less than 60 percent of total benefits under the plan. To be affordable, it has to cost less than 9.5 percent of an employee’s household income.
What are the potential penalties?
If you do not offer coverage and at least one full-time employee receives a federal subsidy, the tax is $2,000 per the number of full-time employees minus the first 30. An employee can get a subsidy if their income is between 100 to 400 percent of the federal poverty level — about $92,000 for a family of four.
If you offer coverage that’s considered unaffordable and at least one full-time employee receives a federal subsidy, the annual tax is the lesser of $3,000 per subsidized full-time employee or $2,000 for all full-time employees.
Should some employers drop health care coverage and pay the penalties?
Studies corroborate the fact that a lot of employers feel they still need to offer health insurance as a differentiator and as a recruitment and retention strategy. What they want is to get the numbers straight in order to make an informed decision. That means going through the penalty scenarios and working out the math. Any penalties will not be deductible or tax favored, whereas the health insurance you’re providing is tax favored, so you have to calculate the impact from pre-tax and post-tax perspectives.
One other challenge that’s not being talked about is the cost companies are going to incur to implement the administrative changes required by the law. They’re going to have to put in new processes to allow easy access to data the way it is defined by the PPACA, such as an ongoing way to monitor the number of FTEs.
The published regulations contain many detailed examples so there has been an attempt to provide direction. Still, the sheer volume and complexity make it a lot to absorb.
Dwight Seeley is a vice president, Employee Benefit Programs, at Sequent. Reach him at (614) 839-4059 or firstname.lastname@example.org.
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Whether it’s a major event such as Hurricane Sandy or simply a snow day, businesses need to be aware of the wage and hour implications of weather-related absences.
“It is important to have clearly defined policies in place that address the many pay-related issues that are involved with a weather-related closing,” says Jenny Swinerton, general counsel at Sequent. “In addition, it’s always a good idea to implement a contingency plan that identifies essential personnel who are vital to the continued operations of the company and establish procedures for communicating with employees regarding emergency closures.”
The same issues apply in cases when businesses close because of an outbreak of the flu.
“This is expected to be one of the worst flu seasons we’ve had in years, so it’s a good time for businesses to review their existing policies to ensure that they address all of the various issues that arise when an employer is forced to close for any reason.”
Smart Business spoke with Swinerton about weather-related absences and how the Fair Labor Standards Act (FLSA) dictates pay requirements.
What happens to employees’ pay when a business closes because of weather?
Employees are treated differently under the FLSA depending on whether they are classified as nonexempt or exempt. Briefly, nonexempt employees are those who are entitled to overtime pay. Exempt employees are those who are paid on a salaried basis and also meet specific legal requirements to be exempt from the overtime pay requirements.
The FLSA requires employers to pay their nonexempt or hourly employees only for those hours that the employees have actually worked. As a result, if a nonexempt employeed are unable to come to work or the office is closed, the employer is not required to pay them.
Exempt employees generally must be paid their full salary for any week in which they perform work. So, if an employer closes the office because of inclement weather or other disasters for less than a full workweek, the employer must pay the exempt employee’s full salary for the week. The employer may, however, require the exempt employee to use vacation or paid time off.
Does the length of a shutdown determine how you handle absences?
It really doesn’t matter for nonexempt employees because they’re paid only for hours worked. So if you shut down for a week, you don’t have to pay nonexempt employees during that time. With salaried employees, unless an employer suspends operations for an entire workweek, they must be paid their regular weekly salary regardless of the number of hours they worked. This becomes tricky with telecommuting because an exempt employee is often going to be checking email or responding to phone calls even while stranded at home during a storm. If exempt employees work for a small portion of the workweek, they must be paid for the entire week.
If you make deductions from exempt employees’ compensation for absences attributed to inclement weather, you may jeopardize the employees’ exempt status and incur liability for any overtime they may have worked.
What happens if an employer’s business is open, but exempt employees don’t show up?
If the employer remains opens during or after a natural disaster and an exempt employee cannot report to work, the Department of Labor considers this to be an absence for personal reasons. But deductions may only be made from the exempt employee’s salary in full day increments. However, it is important to remember that if a salaried employee performs even a little bit of work during the day, employers are still required to pay the employee’s full day salary.
What else should be considered?
Employees who are instructed to remain on call during inclement weather and who cannot use the time for their own personal benefit must be compensated for this time. Additionally, if employees are performing job duties outside their normal scope, such as sweeping the floor, they may be considered a volunteer and do not need to be paid for that time.
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Jenny Swinerton is general counsel at Sequent. Reach her at (614) 410-2362 or email@example.com.
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