Current State of Affairs

1. Current State of Affairs Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

2. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

3. ACA – It’s All About the Numbers Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

4. WHAT is ObamaCare? ObamaCare (AKA The Affordable Care Act) is a US law aimed at reforming the American health care system. ObamaCare's main focus is on providing more Americans with access to affordable health insurance improving the quality of health care and health insurance, regulating the health insurance industry, and reducing health care spending in the US. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

5. What makes an ACA compliant health plan in 2014? • Out of Pocket Maximums capped at $6,350 for individuals ($12,700 for families) • Guaranteed Eligibility for ALL individuals – No Pre-Existing Condition Limitations • Preventative Care must be covered 100% • No lifetime or annual limits in 2014 • Stand Alone HRAs are GONE. • Maximum Wait period – 90 days in 2014 upon plan year renewal. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

6. Which Sandbox is yours Mid-Size ALE? Small group? Large ALE? Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

7. Who has to “Pay or Play”? Applicable Large Employers “ALEs” are those with 50 or more FTEs and have to offer Affordable and Minimum Value healthcare to all Eligible Full-Time Employees. Employers with fewer than 50 FTEs are Small Group Employers and are NOT mandated to offer coverage. Formula: FT (30 hrs+ a wk) + (Total part-time hours worked in a month/120) = FTE (Full-Time Equivalents) Example: 93 FTs + (960 hrs/120 = 8) = 101 **RUN FORMULA FOR 6 Consecutive Months in 2014. For 2015, only ALEs with 100+ FTEs are required to offer coverage. Those ALEs with between 50 and 99 FTEs must certify numbers. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

8. Counting your Workforce- All of them • Control Group Rules – multiple EINs equate to one ALE. • Affiliated Service Group Rules – Management Company. • Misclassification of independent contractors. • Common Law Employer and co-employment relationships. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

9. Common Ownership and Control Group Tests • Internal Revenue Code’s controlled group rules under IRC §§414(b), (c), (m) or (o). • All count for determination of Pay or Play. • Penalties of non-compliance are entity specific. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

10. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

11. Individual Mandate Fines and Penalties • FOR NOW, INDIVIDUALS STILL SUBJECT TO THE FOLLOWING: $95 – 2014 $325 – 2015 $695 - 2016 Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

12. Small Group Employer Obligations and OptionsFewer than 50 FTEs for 2014. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

13. Insured Small Group Requirements • Essential Health Benefits (not Self-Insured Plans) • Ambulatory Patient Services • Emergency Services • Maternity & Newborn Care • Pediatric Services • Prescription Drugs • Laboratory Services • Mental Health & Substance Use Disorder • Preventive & Wellness Services • Chronic Disease Management • Hospitalization • Rehabilitative/Habilitative Services & Devices (devices tax) Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

14. Insured Small Group Requirements Guarantee Issue and No Medical Underwriting 3:1 Modified Community Rating • Age • Community • Smoking (5:1) • Family Size Potential Liability – be careful that you have a justifiable business reason for hiring someone younger aside from ACA. Deductibles cannot exceed $2,000/$4,000 unless carrier obtained a waiver from HHS. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

15. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

16. Large Group Employer Obligations and Options Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

17. What do You have to do in 2015? FT + (PT monthly hrs/120) = Perform for 6 consecutive months; add; divide by 6; round down. Have to comply with ALE rules in 2015. FTE 100+ Be careful – if you have over 100 FTEs as of 2-9-14, and your numbers drop later in the year, make sure there are sound business reasons for the drop unrelated to ACA. FTE 50-99 Do not have to comply in 2015 but have to certify numbers to IRS. Offer A/MV Coverage to all Eligible employees or face potential fines/penalties. This means TRACKING. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

18. Mid-Size ALEs 2015 (1) Limited Workforce Size. The employer must employ on average at least 50 full-time employees (including full-time equivalents) but fewer than 100 full-time employees (including full-time equivalents) on business days during 2014. (2) Maintenance of Workforce and Aggregate Hours of Service.  During the period beginning on Feb. 9, 2014and ending on Dec. 31, 2014, the employer may not reduce the size of its workforce or the overall hours of service of its employees in order to qualify for the transition relief. However, an employer that reduces workforce size or overall hours of service for bona fide business reasons is still eligible for the relief.  Maintenance of Previously Offered Health Coverage.  During the period beginning on Feb. 9, 2014 and ending on Dec. 31, 2015 (or, for employers with non-calendar-year plans, ending on the last day of the 2015 plan year) the employer does not eliminate or materially reduce the health coverage, if any, it offered as of Feb. 9, 2014. Certification through Form 6056 of the above. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

19. Large ALE (100+ FTEs in 2014) – Compliance in 2015, when? Fiscal Date hasn’t changed Offered coverage to at least 1/3 Full-time employees or ¼ Full-time employees on coverage as of 2-9-14….. If on 12-27-12, had a fiscal year plan…. Changed fiscal plan year After 12-27-12 Have to offer coverage to comply with ACA on January 1, 2015. Compliance at beginning of Fiscal Plan year in 2015. UNLESS, ALE did not know if over or under 100 FTEs and performs 6 month calculation for last 6 months of 2014 – then does not have to offer ACA compliant plan to all eligible until 4-1-15 BUT. This ONLY applies to those ALEs unsure of their Large or Mid-size status. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

20. Large ALE’s Failure to Offer CoverageSec. 4890H(a) Penalties “Sledgehammer Penalties” for 2015 only Does ALE offer coverage to “substantially all” eligible employees? Eligible EE seeks coverage through Marketplace and receives premium tax credits. No 2015 - Substantially all = All but 30% of eligible EEs CAUTION: Employer still potentially subject to other fines and penalties for the 30% not offered coverage** yes Employer must pay $2,000 per annum for all eligible EEs (minus 80) regardless of whether Eligible EEs have coverage. No 4980h(a) penalty payment owed by employer. **Please see 3-1-14 ETC Newsletter for more on the other penalties. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

21. SLEDGEHAMMER PENALTY Example: 103 FTs + (960 hrs/120 = 8) = 101 = ALE Penalty: 103 FTs – 80 FTs = 23 X $2,000 = $46,000 You need TRACKING. Example: 500 FTs and WE DO NOT OFFER COVERAGE TO 151 FTs. 349 FTs are on plan. Penalty: 500 FTs – 80 FTs = 420 X $2,000 = $840,000 You need TRACKING. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

22. SLEDGEHAMMER PENALTY We offered to all 500 FTs but did not keep proof of when and how it was offered so it looks as though no one was offered coverage. ONE employee seeks coverage and subsidies: You need TRACKING and Record Keeping. Penalty: 500 FTs – 80 FTs = 420 X $2,000 = $840,000 Remember – burden of proof is ON EMPLOYER always! Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

23. A/MV Failures and PenaltiesSec. 4890H(b) Penalties “TackHammer Penalties” You need TRACKING. A = affordable (9.5% or less of employee income) Does employer offer A/MV coverage to all FT EEs? No and Employee seeks Marketplace Coverage: MV = minimum value (the plan’s share of the total allowed costs of benefits is at least 60% of such costs ) YES Employer must pay $3,000 penalty for all employees who buy coverage through Marketplace and receive premium tax credits. No penalty owed by employer. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

24. Figuring out Affordability 9.5% of Employee ONLY income compared to lowest cost option of ACA compliant plan: • Box 1 of W2 (taxable wages) • Federal Poverty Line • $11,490 (100%) up to $45,960 (400%) for one individual. • $15,510 (100%) up to $62,040 (400%) for a family of two. • $23,550 (100%) up to $94,200 (400%) for a family of four. • Hourly Rate (Rate of Pay) BUT *Can’t use this for tipped or commission employees. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

25. TackHammer PENALTY Who is not eligible for premium tax credits even if coverage is deemed not AFFORDABLE? Medicaid Eligible Medicare Eligible Earnings over 400% FPL Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

26. Legal Challenges and Solutions Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

27. Legal Risks?? • Adjusted Community Rating – based on age brings potential ADEA discrimination claims. • Offer of coverage to 70% of eligible employees could subject employers to ERISA liabilities in 2015. • 90 days means 90 days, or does it?? Private lawsuits $100 a day per affected employee. Potential 4980H(b) $3,000 penalty. Possible discrimination lawsuit. Violations of PHS 2708 if use 4th month to offer coverage. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

28. What are Variable Hour (VH) Employees? • It cannot be determined if employee is going to work full-time on hire date. • Track hours worked and if average 30+ a week, offer coverage effective no later than 90 days after eligible. • Seasonal Employees can be considered variable hour but.. Consider putting a Measurement Period/Stability Period (MP/SP) Safe Harbor in place. ADMINISTRATIVE NIGHTMARE Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

29. Variable Hour Rules • Measurement Period 3 months to 12 months. • Stability Period must be not less than 6 months – equal to MP. • New hires if eligible for coverage must be offered within 13 months. • Hours counted are PAID hours not only hours worked. • FMLA, USERRA, Jury Duty absences are ignored. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

30. REMEMBER: 90 Day Eligibility Period 90 days MEANS 90 days • Calendar days not business days • Holidays and weekends COUNT 2 Year Extension for Canceled Health Plans – still cannot have a wait period longer than 90 days. Orientation Period – hmmmmm - no longer than 30 days - have to have a justified business reason (not ACA avoidance) Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

31. Participation Rules 2-27-13 & 2-10-14 Regs (Small Group up to 100): - Guaranteed coverage regardless of Participation. - Limitation on Open Enrollment Periods. 2-27-13 HHS Final Regulations, p. 13416; 2-10-14 Department of Treasury Regulations, pg. 90-91; 45 CFR 147.104(b)(1) 2-10-14 Regs (Large Group): “ In the large group market, a minimum participation requirement cannot be used to deny guaranteed issue.” What about rating the group for lack of participation? Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

32. Non-Discrimination Rules • IRC 105(H) Plans – Self Insured Plans • Fully Insured Plans • Not yet decided • Carve Out Issues • How do we handle these 2 Prong Test Eligibility Benefits Analysis Legal Analysis Needed. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

33. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

34. I GIVE UP - but wait?? No offer of coverage Offer coverage of some sort Can use MP/SP safe harbor for variable hour workers Employer premium – tax deductible Build something they want – you have options Build a MEC plan or alternative – inexpensive down to maybe $50 a month per employee • Fines assessed for entire eligible workforce • Fines are NOT tax deductible • Employees leave b/c no coverage • Offering NOTHING means no value Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

35. The Playgrounds – just to name a few HSAs/FSAs Critical Illness Plans Excepted Benefits Self-Insured Plans Integrated HRAs Fixed indemnity Plans Accident Plans Minimum Essential Coverage Plans Stand alone Pharmacy benefits Supplemental Medical (Gap) Insurance- Voluntary Products – add ons Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

36. Helpful Hints • Figure out Your Sandbox. • Is current plan ACA Compliant? • Participation Challenges?? – look at alternative plan and MP/SP options TODAY. • Figure out what benefits employees want. Most Importantly, START MEASURING NOW. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

37. Recordkeeping, Tracking and Reporting • Forms 6055/6056 – for 2015 (voluntary for 2014) • Mid-Size ALE Safe Harbor 2015? • October 1, 2013 Notice • Use of independent contractors • Texas Workforce Commission • Federal agencies Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

38. Interplay of ACA – and Other Governmental Regulatory Initiatives Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

39. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

40. Governmental Compliance • More than 180 federal laws enforced by DOL • Most common laws that result in lawsuits: • Age Discrimination in Employment Act (ADEA) • American With Disabilities (ADA) • Consolidate Omnibus Budget Reconciliation Act (COBRA) • Employment Retirement Income Security Act (ERISA) • Fair Labor Standards Act (FLSA) • Family and Medical Leave Act (FMLA) • Genetic Information Non-discrimination Act (GINA) • Health Insurance Portability & Accountability Act (HIPAA) • Immigration Reform and Control Act (IRCA) • Occupational Safety & Health Act (OSHA) • Personal Responsibility Work Opportunity Reconciliation Act (PRWORA) • Harassment & Discrimination • Title VII of Civil Rights Act • Uniformed Service Employment/Re-employment Rights Act (USERRA) Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

41. ACA – What is the US Department of Labor Doing? Wage & Overtime and EBSA Audits Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

42. DOL EBSA Audits • Plan Compliance Audits • Large Group (Grandfathered; fully insured) • Small Group (Tax credits; no 5500 filing) • The DOL has estimated that three out of four plans they audit have an ERISA violation. • DOL has also estimated that about 70% of audits with violation have resulted in $$$$$ FINES. Take away: We need to audit Client SPDs, plan documents, and wrap documents NOW to ensure compliance. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

43. Wage and Hour Enforcement Efforts in 2013….…. A Quarter Billion Dollars in Back Wages • benefited more than 269,250 workers who recouped $249,954,412 in back wages. • Since the beginning of 2009, the Wage and Hour Division has closed 145,884 cases nationwide, resulting in more than a billion dollars in back wages for 1,238,589 workers. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

44. Fair Labor Standards Act Harris Health System – • To pay over $4 million in back wages/fines • To 4573 employees • Failed to include incentive pay in overtime wages. Take away: Perform internal w Wage and Overtime Audit and correct deficiencies. San Francisco Giants pay employees $545,000 in back wages, damages. December 2013, Hibachi Grill & Supreme Buffet sued by US Labor Department to recover nearly $2 million in unpaid wages and damages for 84 employees. Take away: Educate employers on what they can and cannot do before the regulators educate them and charge $$. Norwood Commercial Contractors agrees to pay nearly $400,000 in back wages and damages to 96 workers Misclassified as independent contractors. Houston Ear, Nose & Throat Clinic required to pay more than $17,000 in back wages for FMLA violations to ONE employee – went back to work in a part-time position.

45. Wage and Overtime issues • Perform Exempt v. Non-Exempt analysis (salary v. hourly). • Track hours – useful for ACA as well. • Pay for training time. • Do not charge employees for uniforms. • Consider the true “regular rate of pay”. • Allowing hourly folks to work “off the clock”. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

46. FLSAExemption Tests – avoiding Overtime Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

47. FLSA“White Collar” Exemptions Apply to: 1. Executives 2. Administrative Employees 3. Professionals – learned and creative 4. Outside Sales Employees 5. Computer Employees 6. Highly Compensated Employees Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

48. Use and Misuse of Independent Contractors Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

49. Advantages to Independent Contractor Relationship • Employer does not pay: • their share of Social Security and Medicare taxes; • unemployment taxes; • workers compensation premiums; • Employee benefits • Worker not entitled to make Discrimination Claims. DOL quotes one study which estimated employers can cut labor costs by 20-40% by misclassifying employees as independent contractors. Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.

50. Employee v. Independent Contractor Tests • Economic Realities Test (FLSA) • IRS Control Tests • Common law 12 Significant Factors – ERISA for benefit determination • EEOC Guidance for applicability of discrimination laws Updated: 8-2014. Disclaimer: The materials and information contained herein are intended only to provide general information and in no way constitute legal advice. If you have specific questions or concerns, please consult legal counsel.