HR Laws, Pitfalls, & Health Care Reform: How They Impact Your Business

1. HR Laws, Pitfalls, & Health Care Reform: How They Impact Your Business Presented by: Joseph A. Appelbaum, President

2. Agenda • HR Laws/Regulations & Pitfalls to Avoid • Employment Eligibility Verification • Family & Medical Leave Act/Military Leave • FLSA & Employee Classification • ERISA Compliance – New Enforcement Focus • Health Care Reform Under PPACA

3. HR Laws/Regs That Create Problems for Employers • Homeland Security Act of 2002 – Created DHS, USCIS & ICE - I-9 Compliance • Family & Medical Leave Act (FMLA) – Expanded Military Leave • Fair Labor Standards Act (FLSA) – Misclassification of Employees Extreme Focus for Regulators • Employee Retirement Income Security Act (ERISA) – Old Law/New Focus for Regulators

4. I-9 Compliance • ALL EMPLOYERS SUBJECT • Form I-9 used to verify IDENTITY & EMPLOYMENT AUTHORIZATION • Completed forms MUST be available for inspection by DHS, DOL, DOJ, and any other federal or state agencies • Accurately completed forms should be stored in a SEPARATE I-9 file/binder (not in personnel files) for easy access • All ER staff that verify docs & complete forms must be trained

5. I-9 Compliance Pitfalls • Incomplete forms on file – ALL sections must be completed by employee & employer • Incorrect recording of identity & employment authorization documents • Missing I-9s • Not updating forms with new verifications when employment authorizations expire • REPEATING mistakes & not completing internal audits

6. I-9 Compliance Fines & Criminal Penalties

7. I-9 Compliance • What to do… • Audit, audit, audit!!! • I-9 audit on an annual basis • Check for Form I-9 updates (www.uscis.gov – new form just released!) • Train staff • Require new employees to provide documentation & complete I-9 within 3 days of employment • Terminate EE immediately if not provided

8. FMLA – Do you have to comply? • FMLA entitles eligible employees of covered employers to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave • Covered Employers = employers who employ 50 or more employees in a 75 mile radius

9. FMLA – Expanded Military Leave Effective 3/8/2013 • The DOL has revised the regulations to implement and interpret statutory amendments to FMLA under the National Defense Authorization Act (NDAA) including: • Extended military caregiver leave • Expanded the definition of a serious injury or illness for both current servicemembers and veterans • Expanded qualifying exigency leave to eligible employees with family members serving in the Regular Armed Forces NEW

10. FMLA Pitfalls • No FMLA policies & procedures • Not Training supervisors to identify FMLA-qualifying leave • Not following notice requirements • Not designating leave as FMLA • Not continuing health benefits during leave • Wrongly terminating employees for FMLA qualifying leave • Not Returning the employee to his/her prior position

11. FMLA Compliance • Employer Liability • Employee Lawsuits – Wrongly terminating the employee or retaliating against an employee that requests FMLA – Can result in reinstatement of terminated employee with back-pay, lost benefits & any other compensation denied or a monetary judgment based on these factors • Possible liability for employee costs related to seeking reimbursement under FMLA • Complaints possible through DOL Wage & Hour Division • $100 fine for not posting required employee rights notice at each work site

12. FMLA Compliance • What to do… • Get training on the intricacies of FMLA • Establish FMLA policies & procedures • Train HR, payroll, and supervisory staff to identify FMLA-eligible leave • Provide applicable notices • Designate leave as FMLA • Continue health benefits during leave • DO NOT terminate employees for FMLA qualifying leave • Return the employee to his/her exact position or a fully equivalent position upon return

13. FLSA & Employee Misclassification • Exempt vs. Non-Exempt • Employee vs. Independent Contractor

14. Exempt vs. Non-Exempt • Pitfalls • Relying on job titles only • Inflating job titles to “make” a job exempt • Not evaluating each position individually • Assuming all “salaried” employees are exempt • Assuming all “administrative” employees are exempt • Assuming all “supervisors” are exempt (i.e., shift supervisor)

15. Exempt vs. Non-Exempt • Employer Liability • Unpaid overtime, attorneys fees, fines and penalties that can be assessed by federal and state agencies • Federal fines up to $10,000 or $1,000 per violation depending on the willfulness of the violation (in addition to back OT) • Employers subject to criminal prosecution for willful violation

16. Exempt vs. Non-Exempt • What to do… • Again….Audit on a regular basis • Have current, accurate job descriptions & job titles • Define how you will handle OT for salaried employees that are non-exempt (or pay them hourly) • Evaluate EVERY position individually • Determine if a “supervisor” should actually be exempt

17. Employee vs. Independent Contractor • The DOL states: Misclassified employees are often denied access to critical benefits and protections—such as family and medical leave, overtime, minimum wage and unemployment insurance—to which they are entitled. Employee misclassification also generates substantial losses to the Treasury and the Social Security and Medicare funds, as well as to state unemployment insurance and workers compensation funds. • Cross auditing between DOL & IRS • Employers & workers may be subject to stiff criminal and civil penalties and fines if the IRS determines that the employment relationship has been misclassified

18. Employee vs. Independent Contractor (IC) • Pitfalls • Letting the worker choose to be an IC without evaluating true status • Hiring ICs to do the same work as other regular employees • Controlling when, how, where, or in what way an IC performs work • Reimbursing ICs for job-related expenses separately • Not requesting/verifying IC’s EIN, State Registration, Licensing, etc.

19. Employee vs. Independent Contractor (IC) • Employer Liability & Lawsuit Examples • Back wages & corresponding payroll taxes • Federal Judge Orders Firm to Pay $1.3 Million in Back Wages; Company Misclassified Employees as Independent Contractors - Following an investigation by the DOL, Pennsylvania based kgb USA Inc. was deemed to have misclassified workers as ICs instead of employees, and subsequently failed to pay minimum wage to current and former employees in violation of the Fair Labor Standards Act. • A recent court case highlights the risks of staffing firms placing ICs at client sites. Arise Solutions, a supplier to companies including AT&T and Apple, reportedly settled a class action lawsuit for $1.25 million having misclassified more than 200 service providers as ICs when they should have been employees.

20. Employee vs. Independent Contractor (IC) • What to do… • Audit current worker classifications • Develop procedures for classifying status going forward • Follow guidance & “tests” provided by the DOL & IRS • Obtain an IRS Determination when truly in doubt about a particular worker or class of workers

21. ERISA Compliance • Employee Retirement Income Security Act (ERISA) was enacted in 1974, but many (if not most) small and medium sized employers are out of compliance with the requirements of Title I of the Act. However, compliance with Title I of ERISA is not an option – it is the law. • Until recently, the DOL only applied limited enforcement of ERISA and related regulations – primarily targeting larger organizations and organizations in which employees reported violations. This leniency is over!

22. ERISA Compliance • Pitfalls • Lack of awareness by employers • Thinking carrier documents are compliant (i.e., certificates of coverage) • Confusion due to the complexity of the regulations • Complacence due to prior limited enforcement of the regulations • Not understanding the extensive penalties that may result from non-compliance

23. ERISA Compliance • Penalties • EBSA has authority under ERISA Section 502(c)(2) to assess civil penalties for reporting violations up to $1,000 per day against plan administrators who fail or refuse to comply with annual reporting requirements • Section 502(i) gives the agency authority to assess civil penalties against parties in interest who engage in prohibited transactions with welfare plans ranging from 5% to 100% of the amount involved in a transaction

24. ERISA Compliance • What to do… • Have a written Plan Document(s) • Follow Plan terms strictly under fiduciary standards • Furnish Summary Plan Description(s) (SPDs) automatically to plan participants • Furnish Summary of Material Modifications (SMMs) when necessary • File Form 5500 annually for each plan (exception for plans with less than 100 participants) • Furnish Summary Annual Reports • Furnish Summary of Benefits & Coverage (SBCs) as required to all plan participants (PPACA addition)

25. Health Care Reform Under PPACA • The Affordable Care Act is here to stay & employers must continue to prepare

26. 2012 2013 2014 2015-18 Health Care Reform Under PPACA • Initial MLR Reporting (for CY2011) and Rebate issuance in August • Women's Preventive Services expanded (plans renewing on or after 8/1/2012) • Summary of Benefits and Coverage (SBC) and 60-day advance notice of material modifications (plans renewing on or after 9/23/12) • W-2 reporting of aggregate value of employer-sponsored coverage on 2012 W-2 • Patient Centered Outcomes Research Institute (PCORI) Fee (plans renewing on or after 11/1/2011 through 2018) • FSA contributions limited to $2,500 • Medicare payroll tax rate increase for high income earners • Notice to inform employees of Exchange provided by employer (delayed) • Employer "Play or Pay" Mandate • Individual Mandate to purchase insurance or pay a penalty • Federal and State Insurance Exchanges, including Individual subsidies • Guaranteed issue: Pre-existing conditions prohibited • Essential Health Benefits (EHB) Coverage standardized for small group plans • No Annual dollar limits on Essential Health Benefits (EHB) in any plan • 90-day limit on Waiting Periods • Employer annual reporting of employee coverage • Annual Insurer industry fee for fully-insured plans through 2018 • Reinsurer Fees through 2016 • Wellness Incentives • Deductible caps of $2k for individual and $4K for family for small group plans • Increased penalties on individual mandate begin • Excise Tax on high cost coverage (Cadillac Tax) • States have the option to open Exchanges to all employers by 2017

27. Employer Mandate – “Pay or Play” • Complying with the PPACA Employer Mandate is the most significant piece of the Act for employers at this time • Compliance is required as of January 1, 2014 (or the beginning of the plan year if not on a calendar year and assuming the plan was in place prior to the end of 2012) • Analysis should start now!!

28. Employer Mandate – “Pay or Play” • Basic questions you need to answer… • Do you have 50 or more FTEs (full time equivalent employees)? • If yes, do you offer coverage to all full time employees (working 30 or more hours per week)? • If yes, does the plan provide Minimum Essential Coverage (at least 60% actuarial coverage)? • If yes, is the plan “Affordable” to all full time employees (i.e., employee contributions for single coverage less than 9.5% of each employee’s annual income)?

29. Other PPACA Items of Note • Notice of Exchange – Employers must provide existing employees and new employees on their hire date information about the existence of state insurance Exchanges (Originally effective 3/1/2013 but has been delayed by the DOL; guidance to be provided by summer or fall 2013) • Nondiscrimination Requirements – Non-grandfathered fully insured group health plans must comply with IRC §105(h) rules that prohibit discrimination in favor of “highly-compensated individuals.” (Delayed indefinitely, but important to consider now)

30. Other PPACA Items of Note • Individual Mandate – Affordable Care Act requires individuals to maintain health insurance for themselves and their dependents (some exemptions available). Penalties for individuals will be: • 2014: $95 per adult and $47.50 per child, up to a family maximum of $285 or 1 percent of family income, whichever is greater • 2015: $325 per adult and $162.50 per child, up to a family maximum of $975 or 2 percent of family income, whichever is greater • 2016: $695 per adult and $347.50 per child, up to a family maximum of $2,085 or 2.5 percent of family income, whichever is greater • Federal Subsidies – Subsidies available to lower-income individuals enrolling in state-based Exchanges. Subsidy amounts depending on income, age, and family size

31. Other PPACA Items of Note • State or Federally-Facilitated Exchanges – Every state must establish a health insurance Exchange (or allow one to be federally facilitated) • Automatic Enrollment – Employers with 200+ employees who offer group health plans must automatically enroll all FT employees as soon as they are eligible for coverage

32. PPACA Next Steps for You… • Define the group (individual or controlled group) • Determine the number of Full Time Equivalent (FTEs) employees now & projected for 2014 – 50+ FTEs must comply • Identify any seasonal workers, contingent workers, and/or temporary workers – seasonal workers as defined by the DOL are excluded, but depending on hours worked, contingent and temporary workers may need to be covered • Perform a qualitative analysis to determine if existing plans meet qualifying eligibility and affordability standards

33. PPACA Next Steps for You… • Determine the true organizational costs of either offering or not offering health coverage after 2013 (i.e., pay or play) – for many organizations, this is not the "no-brainer" that it may first appear • Verify plan waiting periods are in compliance • Prepare and distribute Employer Exchange notices (pending further guidance) • Verify plans meet non-discrimination requirements (pending further guidance)

34. Resources • Employment Verification – www.uscis.gov • FMLA - http://www.dol.gov/whd/fmla/ • FLSA & Misclassification - http://www.dol.gov/whd/flsa/ • ERISA Compliance - http://www.dol.gov/ebsa/compliance_assistance.html • PPACA – www.healthcare.gov, http://www.dol.gov/ebsa/healthreform/

35. Questions? Thank you! Joseph Appelbaum President Potomac Companies, Inc. ja@potomacco.com 301-840-0770