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Social Security Payroll Tax Change Effective January 1st

In 2011 Congress enacted a “payroll tax holiday”, which reduced the employee share of the Social Security payroll tax from 6.2% to 4.2%, amounting to an annual income boost of approximately $1,000 for a typical U.S. family earning $50,000 per year. The tax holiday was renewed for the year 2012, but was not extended for the year 2013.

Beginning on January 1st, 2013 the Social Security payroll tax has been returned to the historical level of 6.2%. Note that this is not a new increase on taxes, rather the end of a nice break that we had received. The holiday is over, and the rates are now going back to normal.

So what does this mean to you and your paycheck?

As of January 1, 2013, all Americans who earn wage income will pay an additional 2% in Social Security payroll tax. Essentially, this will mean that all employees will see 2% less take-home pay starting with their January paychecks. The end of the payroll tax holiday affects all Americans equally.

Below is an example of what the end of the tax holiday means in regards to take home pay:

Income:

Was 4.2%

Now 6.2%

Difference

Bi-Wkly

$20,000

$840

$1240

$400

$15

$30,000

$1260

$1860

$600

$23

$40,000

$1680

$2480

$800

$31

$50,000

$2100

$3100

$1000

$38

$60,000

$2520

$3720

$1200

$46

$70,000

$2940

$4340

$1400

$54

$80,000

$3360

$4960

$1600

$62

$90,000

$3780

$5580

$1800

$69

$100,000

$4200

$6200

$2000

$77

$110,000

$4620

$6820

$2200

$85

$113,700

$4775

$7049

$2274

$87


Important FUTA Tax Change Notice

Over the last several years unemployment claims have been on the rise. As a result, many states have depleted their Unemployment Insurance (UI) Trust Funds and have had to take Federal Unemployment Trust Fund loans in order to pay the residents of their states UI benefits.

The Federal Unemployment Tax Act (FUTA) levies a federal tax on employers covered by a state’s UI program, with the standard being 6.0% on the first $7,000 of wages subject to FUTA. Generally, employers then receive a credit of 5.4% when they file their Form 940, resulting in a net FUTA tax rate of 0.6% (6.0%-5.4%=.6%).

The FUTA tax creates the Federal Unemployment Trust Fund, administered by the United States Department of Labor. When states deplete their own UI Trust Funds due to high unemployment they must then borrow from the Federal Unemployment Trust Fund. As with any “loan”, these funds must be repaid.

Georgia has relied on a federal loan to pay regular Unemployment Insurance (UI) benefits for more than two straight years. All employers in the state of Georgia will now see an increase in their FUTA taxes filed on Form 940 in January 2013 for wages paid to their workers in 2012. The total .6% reduction of credit on the FUTA rate will result in a total net FUTA tax rate of 1.2% [5.4% credit - .6% credit reduction= 4.8% credit; thus 6.0% FUTA tax – 4.8% credit = 1.2% total FUTA rate after credit rather than the traditional .6%] thus resulting in an additional $42 being paid in FUTA taxes per employee, with the total amount jumping up from $42 to $84. The .3% increase may continue per year until the loans by the state are repaid to the Federal Government.

Georgia is not the only state with the outstanding loans and FUTA tax credit reductions to repay loans, as shown below.

State

Credit Reduction

Total

FUTA Rate

After Credit

Annual $ Amount Per EE

2011

2012

Arizona

0.3%

.9%

42

63

Arkansas

0.6%

1.2%

42

84

California

0.6%

1.2%

42

84

Connecticut

0.6%

1.2%

42

84

Delaware

0.3%

.9%

42

63

Florida

0.6%

1.2%

42

84

Georgia

0.6%

1.2%

42

84

Indiana

0.9%

1.5%

42

105

Kentucky

0.6%

1.2%

42

84

Missouri

0.6%

1.2%

42

84

Nevada

0.6%

1.2%

42

84

New Jersey

0.6%

1.2%

42

84

New York

0.6%

1.2%

42

84

North Carolina

0.6%

1.2%

42

84

Ohio

0.6%

1.2%

42

84

Rhode Island

0.6%

1.2%

42

84

Vermont

0.3%

.9%

42

63

Virgin Islands

1.5%

2.1%

42

147

Wisconsin

0.6%

1.2%

42

84

As a client of HR Strategies, what does this mean for you?

Since HR Strategies files your Form 940, you will be receiving an invoice during the month of January for the additional amount due with Form 940, as stated in your Client Service Agreement.

As always, we are here to consult and help manage our clients’ UI claims. By doing so, as partners, we are helping reduce the number of eligible unemployment claims, thus reducing UI taxes.

For questions regarding the change in FUTA taxes, please do not hesitate to contact your client service representative at 770-339-0000. Information may also be found at The IRS Website


EEOC Onsite Investigations Multiply

By Allen Smith, written on September 26, 2012

Increasingly, the U.S. Equal Employment Opportunity Commission (EEOC) is coming onsite to expand investigations of single charges to identify possible class actions, according to Neshesba Kittling, an attorney with Fisher & Phillips in Chicago. As a result, she says, too many employers are handing the agency way too much information in response to its requests. Kittling told SHRM Online that she is seeing an increase in the number of onsite interviews for “plain vanilla single employee cases.” To her, this shows that the agency is trying “to get additional information not just about the case, but anything else it can get its hooks into.” Kittling recounted one case that involved a single plaintiff’s claim of age harassment that morphed into a class-action lawsuit charging age discrimination in hiring. She claims that an EEOC investigator told her that there had been a directive to do more onsite investigations.

In the past, EEOC investigations were conducted usually over the phone and without any interviews of employees, Kittling recalled. There would be the charge, the employer’s position statement and requests for additional information. Not anymore. Now, the agency is asking for personnel files and policies, as well as contact information of employees other than the one who filed the charge. Some employers are handing over piles of documents for the EEOC to pick through. Some employers, she says, are responding: “You want our policy? Here’s the handbook. And personnel files? Here you go.”

If the agency sees that credit checks run on job candidates have a disparate impact on minorities, then it may bring a class-action lawsuit against that employer. Kittling advises employers to respond to EEOC requests for information in the narrowest terms possible. If it asks for policies about harassment, she says, give it only those policies, not the whole handbook. She warns, also, about handing over personnel files that may be the perfect place for the agency to go on a fishing expedition, and raise issues not relevant to the initial case. When personnel files are requested, Kittling sends only “acknowledgment of receipt of handbook policies and disciplinary documents if they are relevant.” If a claim is against a national company, she added, then the employer should provide materials pertinent only to the company facility involved in the case, not every facility it owns. Of course, if the agency has knowledge of alleged systemic discrimination already and submits a subpoena, the company may have to respond more broadly, but, she says, employers shouldn’t make the mistake of volunteering too much.

Onsite Interviews

HR should consider how onsite interviews will be conducted, also. “Based upon my experience and my colleagues’ experience, there is not a minimum size” for an employer to be subject to an onsite interview by the EEOC, Kittling said. “We’ve had onsite interviews for companies with 20 employees, such as restaurants—picture a breakfast restaurant in the middle of nowhere—and at facilities with a large number of employees.” The interviews with EEOC investigators may raise a red flag with other employees who know nothing about the EEOC charge. Co-workers might notice the investigators and suspect that something is going on, and then want to volunteer information, Kittling said. “They might think, ‘Oh, I have a claim, too.”

Often, she says, employers fail to prepare management and third-party employees for EEOC interviews, even if the agency advances a list of interviewees to the employer. Kittling prepares management for these interviews as she does for depositions, by sharing personal experiences, possible agency questions, and examples of answers that are too broad. She reminds employers to stick to the facts of the case. “People get nervous” during interviews and “sometimes respond to more than they were questioned about,” Kittling remarked. A day or two before the interview, she may meet with employees to hear their experiences, things they’ve witnessed and whether anyone has complained that they were treated differently. This gives her “a sense of what they may say,” she said.

To keep a lid on the rumor mill, place the EEOC’s interviews at a location near the entrance and conduct all of the interviews there. “You bring the person to be interviewed to the room,” Kittling said. Don’t let the EEOC investigator “walk through the entire facility.” Limit how much the investigator is seen by others, and request, but don’t require, that the interviewed employee keep the investigation confidential, she added. An attorney may be present when management is interviewed; however, the investigator needn’t allow an attorney to be present when third-party employees are interviewed, Kittling said. Sometimes, she noted, she isn’t asked to leave, especially if she’s flown in for the interviews. She listens carefully to what the investigator is told, which can help her decide whether the company needs to file a supplemental position statement. She also may write a letter to the investigator and note that he or she inquired about X, Y and Z, and state that if the EEOC investigates one of those topics, the company would like an opportunity to respond.

Tough Settlement Terms

According to Kittling, the EEOC is being more aggressive not only in how it conducts investigations, but also in settlement negotiations. A recent settlement term that she finds troubling is that the agency asks companies to track and provide the ages of all applicants and send these stats to the agency, so that it can, in her opinion, evaluate whether companies are hiring enough old people. This is a new part of many settlement agreements and consent decrees, yet Kittling pointed out that the EEOC website discourages employers from gathering the age of applicants. Gathering applicants’ ages can “discourage older workers from applying,” she reminded; or older applicants may refuse to provide their age, which can skew the company’s numbers lower. Kittling said that the EEOC is requesting such information, so it can look over an employer’s shoulder and threaten to take action unless the employer raises its number of older workers.

In addition, the EEOC’s monetary demands for settlement, particularly the settlement of age claims, can be “extremely high,” she noted. Employers should push back against these agency demands, Kittling said, adding: “I do think there are ways to reach a compromise.” “Like never before, HR should take time in responding to EEOC requests and charges, and be as narrow as possible,” she said. If there are going to be onsite interviews, then Kittling urges employers not to send employees into interviews unprepared.

Allen Smith, J.D., manager, workplace law content, for SHRM.


Analysis of the Health Care Reform, Patient Protection and Affordable Care Act (PPACA): To provide some clarity and guidance.

This analysis includes a timeline of applicable changes, which are dependent upon the number of employees (eligibility requirement) and additional guidance.  Some of the PPACA provisions will apply to all employers, regardless of size; we have also identified those requirements separately. Legal Disclaimer: This site is not intended to contain legal advice, and its contents do not constitute the practice of law or provision of legal counsel.

Thanks to the National Association of PEOs (NAPEO), when PPACA was being reviewed in Congress language was included in a colloquy record indicating Congressional intent that in a PEO arrangement, the small business tax credits, employer mandates, and non-discrimination testing will all apply at the client level.  We are pleased to provide you with the opportunity to view the colloquy as provided by NAPEO… Click Here to Read More from NAPEO

Important Factors/Elements of PPACA Effective 1/1/2014

  1. Eligibility factor:  Some of the provisions of the health reform are based on the number of employees.  Companies with fewer than 50 employees will not be subject to the “Play or Pay” Mandate. The IRS has issued proposed regulations that provide for calculating the number of employees as follows:

Employees who work 30 hours per week are considered full-time employees.  Part-time employees are “converted” to full time equivalent, based on a 30 hrs work-week. For example, a company that has 35 full-time employees and 50 part-time employees who work 15 hrs per week, would produce the following equation:  total full-time employees (35 regular FT) + 25 full time equivalents (50 part-time@15 hrs. week) = total of 60 employees.  Therefore, the “Play or Pay” mandate would apply to the company.

Bear in mind, there are lookback and stability periods, which means that the determination is based on a lookback period of time (typically the prior 12 months before plan year effective date) and a stability period, which is based on volume or spikes in hiring within a set time.  Temporary and seasonal employees will typically count against the total number of full-time equivalents, especially if those positions are on-going.  There are exceptions to this rule:  if the spike in hires is truly due to seasonal increases in volume, i.e., agriculture (harvest season), tourism (high-season), and after season is over the number again falls below the 50 employee threshold, then the “Play or Pay” mandate may not apply.  All of these variables are still under consideration and await clarification from the appropriate agencies.  Also, the IRS may revise its guidance in final regulations.

  1. Considering impact of “Play or Pay”: By the time certain provisions of PPACA go into effect, on 1/1/2014, the state sponsored exchanges (health insurance plans offered by the states and funded by Medicaid and employee taxes) may be a strong source of medical plan options for all employees.  In theory, the exchanges would provide the employees alternatives in selecting health care plans.  However, it is important that the employer calculates the cost to offer group health care or not.  If the company is clearly under the 50 employees threshold, as explained in the preceding scenario, the employer is not “obligated” to provide insurance within the “adequate and affordable” requirements of the “Play or Pay” mandate.  However, employers who are at or above the threshold must consider the following:
    1. Adequate: In general, the actuarial value of coverage provided in the group health plan must pay for a minimum of 60% of the benefit cost.  Bear in mind that preventative services must now be covered at a 100% basis; there will be no pre-existing condition limitations and no annual or lifetime maximum benefits on essential benefits.  Plans will also have to maintain coverage available to dependents up to age 26, regardless of dependent status.  A company may choose to offer higher coverage and charge more for it, yet in order to do so, the minimum coverage option must be provided. 
    1. Affordable:  PPACA requires that the employee contributions towards coverage cost of employer sponsored health insurance cannot exceed 9.5% of the household income.  However, the concept of “household income” has yet to be clarified by the IRS and other departments.  For example:  an employee makes $10.00/hr. for annual gross earnings of $20,800.00/yr.  If we take the gross earnings (some experts are inclined to use net earnings, not gross) as listed on box 1 from the W-2, 9.5% of the household income would be $1,976.00. If the cost of employee only coverage is $400.00 per month and the employer pays 80% of the premium, or $320.00, the employee pays the remaining $80.00 per month premium, or 20%; then using the employee contribution/cost per month and gross wages annual calculation, the employee contribution would fall below the 9.5% of household income calculation ($960.00/yr.), satisfying the “affordable” requirement.  Again, if we were to assume a net income of approximately 30% less than gross earnings, or $14,560, then the 9.5% of the w2 wages would equal $1,383.20.  If the company contributed 50% of the premium, rather than 80%, the employee portion of the premiums would far exceed the 9.5% household income threshold.  That means, the plan would not satisfy the “affordability” requirement. 
    1. “Pay” factor: If we use the latter example, then the group health coverage does not satisfy the “play” requirement, and thus the employer will have to “pay”.  Employers will need to evaluate the impact of these penalties, and whether it makes more financial business sense to try to meet the “adequate and affordable” requirements, or simply pay the penalties.  An employer will pay an excise tax in each one of the following scenarios:

                                               i. An employer chooses not to offer a group health plan, and at least one full-time employee enrolls in an exchange and receives the premium tax subsidy:  The excise tax is applied by full-time employee, not by full-time equivalent.  Therefore, the employer will be required to pay $2,000 per full-time employee, excluding the first 30 employees.  In the example used to explain eligibility, we identified 35 eligible full time employees.  Thus, the employer would have to pay $10,000 in excise tax for the 5 employees after the first 30 are excluded.  Keep in mind, however, that the proposed regulations on how to count employees may change.

                                             ii. An employer’s plan is deemed “not affordable” (as shown in 2(b) above) and one or more employees qualify for Federal subsidy to purchase exchanges:  The employer will be required to pay $3,000 per employee who qualifies for a Federal tax subsidy.  An employee qualifies for this subsidy if the employee’s annual household income is at or below 400% of the Federal poverty level.  To put it in perspective, a family of four whose household income is at or below $88,000/yr. would qualify for Federal subsidy.

  1.  Other PPACA Changes and Timeline

Change

Effective Date

Employer Size

Comments

New Flexible Spending Account Limit

1/1/2013 for  calendar year plans

All Employers sponsoring FSAs

Employees may contribute up to $2,500.00 to their health FSAs.  In the case of both spouses working, the limit is applied by employee, not to exceed $5,000 if filing jointly.

Reporting Cost of benefits on W-2s

Due 1/31/2013 for Tax Year 2012

Employers issuing 250 or more W-2s

Since HR Strategies clients receive their W-2 from us, cost of benefits will be included in the 2012 W-2s.  The reported cost will include group health plan premiums (employer and employee contributions) that are COBRA eligible.

Uniform Summary of Benefits and Coverage

Open Enrollment and plan year effective date on or after 9/23/2012

All Employers with group health plans

HR Strategies is working with our carriers to develop these SBC.  If an employer is not part of the HR Strategies Master Plan, it is imperative that the client coordinates with their carrier and broker to ensure the SBC is prepared timely.

Auto-Enrollment

1/1/2014 or later (pending guidance)

200+ employees

Employers will be required to automatically enroll their employees into the group health plan within 90 days of employment. Further guidance is expected. 

Non-Discrimination Testing

TBA

TBA

This requirement will probably meet the same guidelines of retirement plan reporting via 5500 (100+ employees)

1.     4. PPACA – Section 4207: Reasonable Break Time for Nursing Mothers

This section of PPACA amends section 7 of the Fair Labor Standards Act, applies to employers with 50+ employees, and entails the following:

  General Requirements

  • Employers are required to provide “reasonable break time for an employee to express breast milk for her nursing child for 1 year after the child’s birth each time such employee has need to express the milk.”
  • Employers are required to provide “a place, other than a bathroom, that is shielded from view and free from intrusion from coworkers and the public, which may be used by an employee to express breast milk.”

Time and Location of Breaks

  • Employers are required to provide a reasonable amount of break time to express milk as frequently as needed by the nursing mother.
    • The frequency of breaks needed to express milk as well as the duration of each break will likely vary.
  • A bathroom, even if private, is not a permissible location under the Act.
    • The location provided must be functional as a space for expressing breast milk. If the space is not dedicated to the nursing mother’s use, it must be available when needed in order to meet the statutory requirement.
    • A space temporarily created or converted into a space for expressing milk or made available when needed by the nursing mother is sufficient provided that the space is shielded from view, and free from any intrusion from co-workers and the public.

Coverage and Compensation

  • Only non-exempt employees are entitled to breaks to express milk.
    • While employers are not required under the FLSA to provide breaks to nursing mothers who are exempt, they may be obligated to provide such breaks under State laws.
  • Employers with fewer than 50 employees are not subject to the FLSA break time requirement if compliance with the provision would impose an undue hardship.
    • Whether compliance would be an undue hardship is determined by looking at the difficulty or expense of compliance for a specific employer in comparison to the size, financial resources, nature, and structure of the employer’s business.
    • All employees who work for the covered employer, regardless of work site, are counted when determining whether this exemption may apply.
  • Employers are not required under the FLSA to compensate nursing mothers for breaks taken for the purpose of expressing milk.
    • However, where employers already provide compensated breaks, an employee who uses that break time to express milk must be compensated in the same way that other employees are compensated for break time.
    • In addition, the FLSA’s general requirement that the employee must be completely relieved from duty or else the time must be compensated as work time applies.
Please note that many of these processes will require further clarification and interpretation from agencies, such as the Department Of Labor, The IRS, and Health and Human Services.  Rest assured, HR Strategies will keep you both updated and in compliance every step of the way.

Please feel free to reach out to your HR Strategies representative with any questions or concerns. You may also directly contact our VP of HR & Client Services, MariaElena (M.E.) Ayala, at meayala@hr-strategies.com, or at 770-339-0000, ext. 109, for further interpretation, technical support, and applicability of PPACA regarding your business. In addition, Jim Beesley is also available at jbeesley@hr-strategies.com, or 770-339-0000.