President Orders DOL to Expand Overtime Eligibility

By Brian O'Laughlin, Esq.

How does a little extra money in your pocket each week sound? If President Obama's new proposal to expand overtime eligibility goes through, between five million and 10 million people could be finding more money in their pockets, according to researchers at the Economic Policy Institute.

On March 13, President Obama announced his intention to order a rule change that would require employers to pay overtime to a larger number of salaried workers. His directive would require the Department of Labor (DOL) to revise its Fair Labor Standards Act (FLSA) regulations to require overtime pay for several million executive, administrative, and professional employees.

The FLSA exempts business owners from paying overtime to individuals classified as executive, professional, or administrative under the white-collar exemption. These types of employees include salaried workers earning more than $455 a week. Some examples include fast-food managers, computer technicians, and loan officers. Under the existing regulations, employers must pay time-and-a-half overtime pay to employees earning less than $455 a week. A White House fact sheet indicates that this $455 threshold was last updated in 2004; this amount is the equivalent to $561 a week in today's dollars.

The President will also attempt to change the rules allowing employers to classify workers as exempt from overtime pay based on their duties. White House officials have stated that employers sometimes abuse these rules in an attempt to avoid paying overtime. The new rules could require that employees perform a minimum percentage of executive, administrative, or professional work before they can be classified as exempt from overtime pay.

A few states have already started making changes to their overtime rules. According to White House officials, employers in California cannot deny overtime pay to a salaried worker earning less than $640 a week, with the threshold scheduled to rise to $800 a week in 2016. In New York, salaried workers earning less than $600 a week cannot be denied overtime, with that threshold scheduled to rise to $675 a week in 2016.

The President's overtime proposal, which falls in line with his overarching goal to show his support for the middle class during this mid-term election year, continues to draw criticism from Republicans. In February, the President announced his intention to raise the federal minimum wage for federal contractors and subcontractors from $7.25 to $10.10 per hour. See Payroll Currently, Issue No. 3, Vol. 22 and PayState Update Issue No. 4, Vol. 16 for more information on the President's minimum wage hike order.

Changes to the regulations will be subject to public comment before final approval by the DOL. If changes to the regulations are made, the DOL's Wage and Hour Division will be responsible for implementing them.

IRS Explains New ACA Regulations at Capital Summit

By Curtis Tatum, Esq.

On February 12, the IRS released its final regulations under IRC section 4980H regarding the employer shared responsibility (ESR) provision, also known as the "play or pay" mandate, of the Affordable Care Act (ACA). On March 10, the IRS released its final regulations implementing the ACA's information reporting requirements under section 6056 (applicable large employers) and section 6055 (insurance providers and self-insured employers), respectively.

The regulations were a hot topic at the APA's Capital Summit, held on March 10-11 in Washington, D.C. Two panels were devoted to the regulations:

  • Alan Tawshunsky, Special Counsel, Office of the Benefits Tax Counsel, U.S. Department of the Treasury, and Kathryn Johnson, Attorney Advisor, Health & Welfare Branch, IRS Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), outlined the ACA's employer shared responsibility provisions
  • Later, Stephen Tackney, Deputy Division Counsel/Deputy Associate Chief Counsel, Office of Division Counsel/Associate Chief Counsel (Tax Exempt and Government Entities), IRS, and Ligeia Donis, Senior Technician Reviewer, Employment Tax, Tax Exempt and Government Entities, Office of Chief Counsel, IRS, explained the employer reporting requirements
'Play or Pay' Provision
Tawshunsky and Johnson outlined the "play or pay" provision of the ACA, which generally requires Applicable Large Employers (ALEs), those with more than 50 full-time employees or full-time equivalents (FTEs), to offer health plans that provide minimum essential coverage (MEC) to their full-time employees. ALEs may be subject to a penalty for not offering MEC to their full-time employees, or, if plans are offered, a penalty may be assessed if the plans do not offer minimum value or are unaffordable for employees.

Transition Relief
The panelists noted that several provisions included in the final regulations provide transition relief for ALEs for 2015. ALEs that have between 50 and 99 FTEs were given an additional year to comply with the requirements of Section 4980). ALEs with at least 100 FTEs may offer MEC to 70% of their FTEs (reduced from 95%) and avoid a penalty. Additionally, an ALE that does not offer MEC to its FTEs will be subject to a penalty of $2,000 per FTE with an exemption for the first 80 employees (increased from 30).

FTEs - Hours Difficult to Count
The panel discussed some of the employment categories that present difficulties in counting hours for purposes of determining who is a full-time employee, including:
  • Volunteers for a government or tax-exempt entity (e.g., firefighters): hours do not count toward the FTE determination
  • Students on Federal Work Study: hours do not count toward the FTE determination
  • Religious orders: hours do not count for FTE determination
  • Adjunct faculty: reasonable calculation is expected (e.g., 2-1/4 hours worked per class hour taught to account for grading and class preparation plus any additional hours spent performing required duties such as meeting attendance or holding office hours)
  • Layover hours: reasonable accommodation is expected (e.g., if employer pays for the layover, the hours count toward FTE determination)
  • Work performed outside the United States: hours do not count toward the FTE determination
Minimum Value and Affordability
To determine whether a plan provides minimum value, the panel suggested using the minimum value calculator developed by the Department of Health and Human Services. Safe harbor provisions are built into the regulations for employers to utilize in determining the affordability of their health plans. For each of these methods, the employee cost is based on the lowest-cost self-only plan that provides MEC. If the amount the employee would have to contribute toward coverage does not exceed 9.5% of W-2 wages, then the plan will be deemed affordable. A second option involves the hourly rate of pay. A plan will be deemed affordable if the required monthly contribution does not exceed 9.5% of the employee's hourly rate multiplied by 130 (or 9.5% of the monthly wage of a salaried employee). Finally, if the employee contribution is less than 9.5% of the federal poverty level, the plan will be deemed affordable.

Employer Reporting
Tackney and Donis discussed the recently released final regulations on employer reporting. They noted that section 6055 requires insurers (including self-insured employers) to report who was covered and for which months, while section 6056 requires ALEs to report the lowest cost of employee-only coverage offered. Tackney noted that this information will be used to determine if a person is eligible for a tax credit. ALEs also will have to report other employee-specific information to both the IRS and the employee.

New Forms
ACA reporting will require new IRS forms. Donis explained the forms have not been finalized and that drafts will be released for public comment. She gave some background info on each form used by employers and indicated that Form 1094-C will be used to transmit aggregate employee information, similar to a Form W-3, while Form 1095-C will include copies for the IRS and an employee statement similar to a W-2. Insurers will report on Forms 1095-B and 1094-B.

Combined Reporting Allowed
Donis noted that the final regulations allow for combined reporting. ALEs that are self-insured may include all information required under sections 6055 and 6056 on one form, and ALEs that sponsor plans offered through third-party insurers need only report the information required by section 6056.

Reporting Methods
Tackney discussed the different reporting options. He noted that all employers may use the general reporting method or, where applicable, an alternative method that may simplify the reporting. The general reporting method requires a report that includes monthly data on the type of coverage, the cost of the lowest self-only plan, and the names of employees to whom the coverage was offered. One reporting alternative would allow ALEs to certify that they have offered affordable MEC that provides minimum value to a full-time employee for all 12 months of the year. Tackney noted that the IRS may develop an indicator code, perhaps "Q12," to report this information. Under this method, ALEs would then not have to provide detailed employee information for those employees to whom it made the "Q12" offer. Another reporting method allows ALEs to certify that they have offered minimum value coverage to 98% of their full-time employees. Utilizing this method would eliminate the burden on employers to identify which employees are full-time and which are part-time.


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