By Barry Forbes WASB Associate Executive Director and Staff Counsel February 26, 2015.

Employee Handbook UpdateBy Barry Forbes

WASB Associate Executive Director and Staff CounselFebruary 26, 2015

2011 Wisconsin Act 10, as enacted, prohibits collective bargaining over wages, hours and working conditions except for “total base wage” increases. Base wage increases agreed to through collective bargaining were also capped at a rate tied to the CPI (subject to a referendum to exceed the cap).

Legal challenges to Act 10 have been resolved.

Act 10 created a void in school district employment policies, work rules, and procedures that must be filled by school boards and administrators with board policies and administrative rules.

2011 Act 10’s Impact on Human Resources Management

Some key gaps often left by the expiration of the final pre-Act 10 CBA:◦ Compensation and fringe benefits for new and existing employees (other

than changes to total base wages).◦ Employee paid and unpaid leave rights.◦ Evaluation procedures.◦ Standards for employee discipline and discharge.◦ Reduction in staff.◦ Internal hiring/recruitment (job posting); job assignments & transfers.◦ Employee work rules and hours of work.◦ Employee code of conduct.◦ Employee resignation / end-of-employment procedures.◦ Statutory grievance procedure in place of grievance arbitration.

Employee Handbooks

Fundamentally, an Employee Handbook is a policy document that serves several important purposes, including:

Fundamentally, an Employee Handbook is not an employment contract or a labor agreement.

Handbooks and contracts are somewhat similar in that, once established, a school district is generally obligated to follow its policies and procedures.

A significant distinction between a contract and a policy/handbook is that the school district generally has discretion to modify its policies/handbooks (at least prospectively) based on unilateral decisions.

Employee handbooks replace collective bargaining agreements.

• Give notice of terms of employment

• Clarify and give notice of expectations and responsibilities

• Promote legal compliance and limit exposure to liability

• Establish routine personnel procedures

• Articulate values/promote trust

• Promote consistency over time

• Provide a framework for evaluation and skill development

Once a handbook is adopted, it must be followed unless and until it is changed:

The principle that government will not be permitted to escape regulations it has promulgated to govern its relations with others is a common law rule, not one dictated by the constitution. . . If put in the abstract, “should government be required to follow the rules it has imposed upon itself,” the answer “yes” is compelling. Scheckel v. School District of Wauzeka, et al. Wis. Ct. App., 1994.

Employee handbooks are policies that must be followed.

Handbooks need to be aligned with:◦ State and federal law.◦ Collective bargaining agreements on base wages.◦ Other board policies and administrative rules.◦ Individual employee contracts.◦ Unwritten employment practices in the district.

Employee handbooks must align with the other “laws” of the district.

Employee handbook

Individual contracts

Unwritten practice

Legal requirements

Policies and rules

We adopted our handbook several years ago. Is it time for an update?

Employee handbooks

Personal internet accounts. Reduction in staff policy. Grievance process. FMLA compliance. Same gender marriage issues. Wage and hour issues. Employee smart phones and other mobile devices. Wellness programs and the ADA. Post-employment benefit vesting. PPACA implementation.

Critical areas requiring handbook review

Employer and educational institution access to, and observation of, personal internet accounts• School districts may not request or require access to an employee’s

personal email account as a condition of employment, penalize an employee for refusing to disclose such information or refuse to hire an employee who does not provide such information with specified exceptions. 995.55(2)

Personal internet accounts2013 Wisconsin Act 208

Criteria for selection for layoff need to be standardized and objective.

Subjective criteria may open door for claim that employer is retaliating for employee exercise of statutory right, such as right to leave under FMLA.

Reed v. Tetra Tech, Inc., No. CIV-13-542-M (W. Dist. Okla., March 10, 2014).◦ An employee with Lupus who was laid off several days after

requesting intermittent leave for medical treatment was allowed to advance claims of discrimination and retaliation under the ADA, FMLA and state law was allowed to advance claims to jury trial. The court found inconsistencies in the reasons given for layoff.

Reduction in staff policy

When charged with discrimination or retaliation following an employee layoff, employers will be asked to articulate objective nondiscriminatory reasons for selecting that employee.◦ To survive summary judgment under the mixed-motive

burden-shifting framework, an employee must first make a prima facie case of FMLA retaliation. Richardson, 434 F.3d at 333. The burden then shifts to the employer to articulate a legitimate, nondiscriminatory reason for the adverse employment action. Id. Ion v. Chevron USA, Inc., No. 12-60682 (5th Cir., Sept. 26, 2013).

Reduction in staff policy

How to avoid problems:◦ Employers need good consistent documentary evidence

supporting reasons for selecting one employee over another for layoff.

◦ Methodology and criteria for selecting employees should be standardized and uniformly applied.

Reduction in staff policy

The District shall utilize the following criteria in order of application for determining the employee for nonrenewal:◦ Educational Needs of the District: Will be those needs as

identified and determined by the Board through normal channels in accord with its constituted authority.

◦ Qualifications as Established by the Board: Including, but not limited to specific skills, certification [if applicable], training, District evaluations, etc.

Reduction in staff policyWASB Employee Handbook Language

◦ Qualifications of the Remaining Employees in the Grade Level, Department or Certification Area: Relevant qualifications will be those experiences and training that best relate to the position(s) to be maintained and District needs as determined by the Board. These experiences may include but not be limited to current and past assignment and practical experience in the area of need.

◦ Performance of the Employees Considered for Nonrenewal: Performance of the employees under consideration as previously and currently evaluated. Greater weight may be given to more recent evaluations.

◦ Length of Service of the Employee.

Reduction in staff policyWASB Employee Handbook Language

Grievance Procedure

◦ Any grievance process created to satisfy the requirements of Act 10 must cover at least all of the following:

employee terminations;

employee discipline; and

workplace safety.

2011 Wisconsin Act 10 – Grievance Process

Grievance Process

◦ If a local governmental unit creates a grievance process under these provisions, it must include the following:

a written document specifying the process that a grievant and an employer must follow;

a hearing before an impartial hearing officer; and

an appeal process in which the highest level of appeal is the governing body of the local governmental unit.

2011 Wisconsin Act 10 – Grievance Process

A county employee terminated for failing to have a driver’s license following conviction for operating a motor vehicle while intoxicated (first offense) was denied an opportunity to grieve the termination. ◦ County grievance process excluded terminations for lack of

qualification or license.◦ Circuit court granted summary judgment for the county,

finding that the county could exclude terminations of lack of qualification or license from the grievance process.

Grievance Procedure - §66.0509 (1m) – Recent Court Decision

The court of appeals overturned the decision.◦ The statute does not define “terminations,” and the County presents

no reason to suppose that the term has a technical meaning. When a statutory term is not defined, we may consult a dictionary to ascertain the term’s common meaning. The word “termination” is a form of the verb “to terminate.” The AMERICAN HERITAGE COLLEGE DICTIONARY 1399 (3rd ed. 1993) provides definitions of “terminate” as “[t]o discontinue the employment of; dismiss.”

◦ In rejecting the County’s arguments, the court stated that, while it will not always be clear whether a “termination” within the meaning of the statue occurred, in this case, the action taken against the employee was a termination “within the plain meaning of the statute.” Local 1323-A, AFSCME v. Dodge County, Ct. App., 2013.

Grievance Procedure - §66.0509 (1m) – Recent Court Decision

Significant changes and additions were made to federal rules in 2013:◦ New rules governing military caregiver leave for the families

of active military personnel and veterans.◦ Rules relating to the accounting for intermittent leave are

changed such that employers may not require that employees use more leave than is necessary. 29 CFR 825.205.

FMLA handbook issuesFederal law

2013 military caregiver rule changes:◦ A new category of “qualifying exigency” leave allowing

employees to care for the parent of a military service member who is incapable of self-care. 29 CFR 825.126.

◦ Up to 26 weeks of military caregiver leave: An employee who is a spouse, son, daughter, or parent, or next of

kin of a covered service member may take up to 26 weeks of military caregiver leave.

Covered military service members include covered veterans who were discharged within last 5 years. 29 CFR 825.127.

Definition of serious illness or injury expanded to include illness or injury occurring before military service that was aggravated during military service. 29 CFR 825.127.

FMLA handbook issuesFederal law

2013 military caregiver and other FMLA rule changes:◦ The health care providers authorized to provide certification

for military caregiver leave is expanded to include health care providers, as defined in § 825.125, who are not affiliated with DOD, VA, or TRICARE. 29 CFR 825.127.

◦ All periods of absence from work due to or necessitated by USERRA-covered service is counted in determining an employee’s eligibility for FMLA leave. 29 CFR 825.110.

FMLA handbook issuesFederal law

Federal FMLA requires that employees requesting FMLA leave be given 3 types of written notices:◦ Eligibility and rights and responsibilities notice: http://

www.dol.gov/whd/forms/WH-381.pdf Send within 5 days of leave request.

◦ Rights and responsibilities notice: http://www.dol.gov/whd/regs/compliance/posters/fmlaen.pdf Note this notice requirement also covered by WH-381.

◦ Designation notice: http://www.dol.gov/whd/forms/WH-382.pdf Send within 5 days of determination of leave eligibility.

FMLA handbook issuesFederal law

Failing to give notice can cause problems:◦ Employer that provided 16 weeks of maternity leave, but did

not tell an employee that her right to reinstatement to the same or an equivalent position ended after 12 weeks of leave, violated the law when it failed to reinstate her at the end of the 16 weeks of leave, Fry v. First Fidelity Bancorporation, No. 95-6019 (E.D. Pa. 1996).

◦ Note that employees who are given all leave they have a right to will likely not be eligible for a claim based on failure to provide notice of rights, Dodgens v. The Kent Manufacturing Co., 955 F. Supp. 560 (D.S.C. 1997).

FMLA handbook issuesFederal law

Wisconsin FMLA does not have similar requirement that written notice be given when leave is granted.

There are few instances where an employee is eligible for Wisconsin but not Federal FMLA, so giving written notice of eligibility and designation for both is a good business practice.

FMLA handbook issuesWisconsin law

How often do you require a doctor’s note when an employee is taking intermittent leave covered by federal law?◦ Federal FMLA: Employers may ask for a recertification of a

serious health condition, but generally no more often than every 30 days (29 C.F.R. §825.308(a)).

◦ No similar state law requirement.

FMLA handbook issuesFederal law

FMLA leave may require modification of evaluation process:◦ A negative evaluation based on quantifiable performance

measures may be viewed as retaliation for or interference with an employee’s exercise of the right to take FMLA leave: If the failure to meet the quantifiable performance measures was

caused in part by the employee taking FMLA leave, the negative evaluation may be found to be the result of the employee taking leave.

Several cases have involved salespersons and quantifiable sales goals. Pagel v. TIN Inc., 695 F.3d 622 (7th Cir. 2012), Gostola v. Charter Communications, LLC, 2014 WL 7204924 (E.D. Mich., Dec. 17, 2014).

How might this apply to Educator Effectiveness?

FMLA handbook issuesFederal law

Employees who exhaust FMLA leave may have right to leave under ADA:◦ An employee with several disabling medical conditions was granted

intermittent leave starting November 2008 under the FMLA for one medical condition, which exhausted her FMLA leave by July 2009. She then was diagnosed with cancer. She requested and was given several unpaid leaves, the last ending September 19, 2009. She was unable to return to work at that time and requested another leave through February 4, 2010. The employer refused and terminated her on October 7, 2009. A federal district court found that the employer had failed to consider an extension of the unpaid leave as an accommodation of the employee’s disability and failed to prove that allowing such leave would be an undue hardship on the employer. Casteel v. Charter Communications Inc., No. C13-5520 RJB (W.D. Wash., Oct. 23, 2014).

FMLA handbook issuesFederal law

In U.S. v. Windsor, 570 U.S. 12 (June 26, 2013), the U.S. Supreme Court invalidated Section 3 of the Defense of Marriage Act, which had provided that federal law would only recognize opposite-gender marriages.

On Sept. 4, 2014, the 7th Circuit ruled unanimously that the state same-gender marriage ban is unconstitutional. The U.S. Supreme Court declined to review that decision on October 6, 2014.

On January 16, 2015, the Supreme Court announced that it would take up a 6th Circuit decision upholding a same gender marriage ban. The hearing is scheduled for April and a decision is likely in June.

Same gender marriage

Handbook implications:◦ Presuming a Supreme Court decision consistent with its earlier

decisions, employers now must review handbooks and policies to modify rules inconsistent with these decisions.

◦ Employers also must modify how they administer handbooks and policies in light of the expanded scope of the terms “spouse” and “family.”

Same gender marriage

Handbook provisions that may need review:◦ FMLA◦ Leave provisions◦ Insurance benefits◦ Retirement benefits

Same gender marriage

Current definition of spouse: ◦ Spouse. Spouse means a husband or wife as defined or recognized

under State law for purposes of marriage in the State where the employee resides, including common law marriage in States where it is recognized. 29 CFR 825.122(b).

On June 20, 2014, the US Department of Labor issued a notice that it was revising the definition of spouse under the FMLA. ◦ The new definition would allow eligible employees in legal same-

gender marriages to take FMLA leave to care for a same-gender spouse with a serious medical condition, regardless of whether the couple resides in a state where same-gender marriage is recognized.

Same gender marriageFederal FMLA

Wage and hour provisions all handbooks should include:◦ Hour and pay provisions specifying work hours, meals and

breaks, overtime, pay periods and any deductions allowed by contract. Some of these may need to be referenced in the individual contracts of employees with contracts.

◦ FLSA safe harbor anti-docking provisions for exempt employees.◦ Description of how overtime is authorized and paid.◦ Include clear and prominent disclaimer language that the

handbook is not a contract. Include statement that any and all handbook provisions may be modified prospectively at employer discretion.

Wage and hour handbook issues

Lunch breaks for non-exempt employees:◦ Unpaid lunch breaks must generally be at least 30 minutes.◦ Employees must be free to leave their posts.◦ Employees are generally relived of duties:

“As long as the employee can pursue his or her mealtime adequately and comfortably, is not engaged in the performance of any substantial duties, and does not spend time predominantly for the employer’s benefit” the time is not compensable. (See White v. Baptist Memorial Health Care Corp., 699 F.3d 869, 873 (6th Cir. 2012).)

DOL has issued guidance indicating that non-exempt employees supervising children during their lunch breaks have not been relieved of their duties and must be compensated.

Wage and hour handbook issues

Lunch and break periods:◦ Teachers - 118.235 Lunch period for teachers. Every school board shall

grant daily a duty-free lunch period to each of its teachers, except that a

school district may contract with any teacher employed by it for services

during such period. Such period shall be not less than 30 minutes and shall

be provided at or near the time of the regular school lunch period. ◦ Wisconsin law does not require that employers provide brief rest periods,

coffee breaks, or meal periods to adult employees, although the Department

recommends, at Wis. Admin. Code § DWD 274.04(2), that employers do so.◦ Employers are encouraged, but not required, to provide breaks of at least 30

minutes in duration at times reasonably close to the usual meal period.  Such

matters are to be determined directly between the employer and the

employee.

Wage and hour handbook issues

Potential problems:◦ Employees may access work email or other employer data

through personal smart phones. Confidential information may be compromised if device is lost or

stolen.

◦ Other employees may be distracted by employee smart phone use, particularly unusual ringtones.

◦ Employees taking photographs and making video and audio recordings in workplace.

Employee smart phones and personal devices in the workplace

Potential problems:◦ Non-exempt employees using smart phones to respond to work

emails may be performing compensable duties.◦ Where employer allows employee use of personal device,

employee may demand reimbursement for lost, stolen or damaged device.

◦ Smart phone use by employees while driving (e.g. mapping app) can be distractive. Employees having accidents while driving for work may have

workers’ compensation claims. Others injured in such accidents may claim that the employer is

liable.

Employee smart phones and personal devices in the workplace

Smart phone policies and employee handbook provisions:◦ Determine how you will deal with school district data on

personal smart phones: One option is to prohibit such use. If personal device use is allowed, what steps should be taken to

protect school data. Require security software to protect school data. Require employees to report lost or missing personal devices with

school data.

Employee smart phones and personal devices in the workplace

Smart phone policies and employee handbook provisions:◦ Personal calls and other smart phone use should be limited.◦ Using smart phones while driving for work should be

prohibited.◦ Adopt rules of smart phone etiquette, such as requiring that

phones be silenced or on vibrate ringtone during workday.◦ Prohibit use of smart phones cameras in sensitive areas such as

rest rooms and lockers.◦ Require employees to use different passwords for work and

personal/social media accounts.

Employee smart phones and personal devices in the workplace

Sample employee handbook provision:◦ Electronic Recording: Employees shall not electronically record by audio,

video, or other means, any conversations or meetings unless each and every person present has been notified and consents to being electronically recorded. Persons wishing to record a meeting must obtain consent from anyone arriving late to any such meeting. Employees shall not electronically record telephone conversations unless all persons participating in the telephone conversation have consented to be electronically recorded. These provisions are not intended to limit or restrict electronic recording of publicly posted Board meetings, grievance hearings, and any other Board sanctioned meeting recorded in accordance with Board policy. These provisions are not intended to limit or restrict electronic recordings involving authorized investigations conducted by District personnel, or authorized agents of the District, or electronic recordings that are authorized by the District, e.g. surveillance videos, extracurricular activities, voicemail recordings.

Employee smart phones and personal devices in the workplace

Sample employee handbook provision:◦ Personal Electronic Devices: The District permits staff to use personal

technology devices in support of teaching and learning and to access the District’s Wireless Public Network when doing so. Personal devices include laptop computers, portable digital assistants (PDAs), cell phones, smart phones, iPods/MP3 players, wireless devices, digital cameras, e-readers, storage devices, or other electronics that may be carried on a person. Staff may use personal devices provided such use does not interfere with educational or employment responsibilities, hinder, disrupt or consume an unreasonable amount of network or staff resources, or violate board policy, administrative rules, state law or federal law. An employee using a personal device shall take adequate measures to ensure the confidentiality and proper maintenance of all pupil record information. The District is not liable for the loss, damage or misuse of any personal device including while on District property or while attending school-sponsored activities.

Employee smart phones and personal devices in the workplace

EEOC enforcement actions claim wellness programs violate limits on employer required medical examinations of employees:◦ EEOC enforcement action claims that Honeywell International,

Inc.’s biometric testing incentive for employees and their spouses violates the ADA and GINA. The incentives included a $125 per month contribution toward

health insurance and other incentives totaling up to $4,000 per year.

The Minneapolis Federal District Court refused to issue a temporary restraining order. The case is pending.

Wellness programs and the ADA

EEOC enforcement actions claim wellness programs violate limits on employer required medical examinations of employees:◦ The EEOC brought an action claiming that an employer

wellness program was not voluntary because the employer required employees not participating to pay all of the cost of their health insurance. EEOC v. Orion Energy Systems, No. 1:14-cv-01019 (E.D. Wis.).

◦ The EEOC filed another action against a Wisconsin employer. Flambeau, Inc., a plastics manufacturer cancelled the health insurance coverage for an employee who failed to participate in biometric screening.

Wellness programs and the ADA

EEOC enforcement actions will likely continue and expand in 2015:◦ The ADA prohibits employers from requiring medical

examinations or making disability-related inquiries of an employee, unless the examination or inquiry is job-related and consistent with business necessity. The ADA does not prohibit voluntary medical examinations.

◦ The EEOC enforcement action argues that wellness programs with large incentives or penalties are not voluntary.

Wellness programs and the ADA

Vesting:◦ The prerequisites written into an employee handbook for

qualification for post-employment benefits determines when and if an employee vests.

◦ Loth v. City of Milwaukee Wis. Sup. Ct., 2008: The city could prospectively change post-employment health benefits for those employees who had not yet met all the requirements for receipt of those benefits: 15 years of service; Age 60 or older; and The employee retires from service.

Post-employment benefits

Vesting:◦ Champine v. Milwaukee County, 280 Wis. 2d 603 (Wis. Ct.

App. 2005): An employee right to be paid for earned sick leave at retirement is a form of deferred compensation that the employee earns as the work is performed. Milwaukee County could not deny employees a retirement

payment on sick leave earned before the benefit was modified. The county could change the benefit prospectively.

Post-employment benefits

Individual Mandate: Requires U.S. citizens and legal residents to have qualifying health coverage (there is a phased-in tax penalty for those without coverage, with certain exemptions).◦ Implementation: January 1, 2014. ◦ Implementation Update: On February 12, 2014, the IRS issued

final regulations on the individual shared responsibility provision. The IRS also prepared a set of Q&As on the so-called individual mandate. On January 30, 2013, HHS released a companion proposed rule on minimum essential coverage. On July 1, 2013, HHS issued a final rule that establishes the standards and processes for the Exchanges to determine eligibility for and grant exemptions from the individual shared responsibility payment.

◦ http://kff.org/interactive/implementation-timeline/

Fringe Benefit Issues – Key ACA Provisions

Health Exchanges/Marketplace: Creates state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, administered by a governmental agency or non-profit organization, through which individuals and small businesses with up to 100 employees can purchase qualified coverage. Exchanges will have a single form for applying for health programs, including coverage through the Exchanges and Medicaid and CHIP programs.◦ Implementation: January 1, 2014◦ Implementation update: On July 15, 2011, HHS issued two proposed rules on the

health insurance exchanges. The first rule detailed the specifics of how states may set up their exchanges, while the second rule focused on the standards related to risk adjustment, risk  corridors and reinsurance provisions. HHS released the final rule on exchanges on March 27, 2012, and the final rule on risk adjustment, risk corridors, and reinsurance on March 23, 2012.  HHS also issued a proposed rule on the SHOP exchange on March 11, 2013.

◦ http://kff.org/interactive/implementation-timeline/

Fringe Benefit Issues – Key ACA Provisions

Health Exchanges/Marketplace: Enrollment in exchanges began on October 1, 2013.  HHS issued FAQs on

exchanges, market reforms, and Medicaid on December 10, 2012.  The Department also released additional guidance on the partnership exchanges on January 3, 2013. On May 10, 2013, HHS announced new flexibility to allow states to run the SHOP-only exchange. States choosing this option would run the SHOP exchange while the federal government would run the individual exchange.

The ACA requires every exchange to operate a Navigator program to provide enrollment assistance to consumers. The final exchange rule, issued on March 27, 2012, specified the Navigator program standards. HHS further clarified the standards for Navigators and Non-Navigator Assistance programs in a proposed rule issued on April 5, 2013.  The final rule also finalizes the requirement that exchanges must have a certified application counselor program. On May 1, 2013, HHS issued guidance on the role of agents, brokers, and web-brokers who will also be providing enrollment assistance to consumers.

◦ http://kff.org/interactive/implementation-timeline/

Fringe Benefit Issues – Key ACA Provisions

PPACA Shared Responsibility Provisions - Delayed Until January 1, 2015. § 4980H of the IRC provides that an applicable large employer (as defined in § 4980H(c)(2)) is subject to an assessable payment if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction and either:◦ (1) the employer does not offer to its full-time employees (and

their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer sponsored plan (§ 4980H(a))1; or

◦ (2) the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage that is either unaffordable as defined by law or does not provide the minimum value within meaning of the PPACA.

Fringe Benefit Issues – PPACA Shared Responsibility Provisions

PPACA- The IRS announced on February 11, 2014 the transition rules for the employer mandate under the ACA's shared responsibility provisions.

http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

Fringe Benefit Issues – PPACA Shared Responsibility Provisions

For 2015 (and for employers with non-calendar-year plans, any calendar months during the 2015 plan year that fall in 2016), an employer that (a) had at least 100 full-time employees (including full-time equivalents) in 2014, or (b) had at least 50 but fewer than 100 full-time employees (including full-time equivalents) but does not qualify for the relief described in question 34, will be liable for an Employer Shared Responsibility payment only if:

 ◦ The employer does not offer health coverage or offers coverage to fewer

than 70% of its full-time employees and (unless the employer qualifies for the 2015 dependent coverage transition relief described in question 33) the dependents of those employees, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace.

 ◦

Fringe Benefit Issues – PPACA Shared Responsibility Provisions

For 2015 (and for employers with non-calendar-year plans, any calendar months during the 2015 plan year that fall in 2016), an employer that (a) had at least 100 full-time employees (including full-time equivalents) in 2014, or (b) had at least 50 but fewer than 100 full-time employees (including full-time equivalents) but does not qualify for the relief described in question 34, will be liable for an Employer Shared Responsibility payment only if:

 ◦ The employer offers health coverage to at least 70% of its full-time employees and

(unless the employer qualifies for the 2015 dependent coverage transition relief described in question 33) the dependents of those employees, but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable (see question 19) to the employee or did not provide minimum value (see question 20).

After 2015, 95% should be substituted for 70% in the bullets above (see question 18).   

Fringe Benefit Issues – PPACA Shared Responsibility Provisions

PPACA Shared Responsibility Provisions –◦ Safe Harbor Wage Determination: In Notice

2011-73, the IRS notes that the safe harbor it plans to develop is designed to make it easier for employers to determine whether the health coverage they offer is affordable coverage.

◦ Thus, the safe harbor would use 9.5% of wages that the employer paid to an employee, instead of the employee’s household income, as the standard for affordability.

Source: http://www.irs.gov/pub/irs-drop/n-11-73.pdf

http://www.treasury.gov/connect/blog/Pages/Continuing-to-Implement-the-ACA-in-a-Careful-Thoughtful-Manner-.aspx

Fringe Benefit Issues – PPACA Shared Responsibility Provisions

PPACA Shared Responsibility Provisions –◦ Safe Harbor Full-time Employee: In Notice 2012-58, the

IRS notes that the safe harbor it plans to develop is designed to make it easier for employers to determine whether the health coverage they offer is affordable coverage. Multiple definitions, including:

◦ “On-going Employee”: Employed for at least one standard measurement period (3-12 months as established by the employer.

Source: http://www.irs.gov/pub/irs-drop/n-12-58.pdf

Fringe Benefit Issues – PPACA Shared Responsibility Provisions

PPACA Shared Responsibility Provisions –◦ Safe Harbor Full-time Employee: Notice 2012-58 (cont.) ◦ “New employee Expected to work full-time”◦ “30 hours per week” employers and others should

determine whether a new employee "is reasonably expected to work an average of at least 30 hours per week."

Source: http://www.irs.gov/pub/irs-drop/n-12-58.pdf

Fringe Benefit Issues – PPACA Shared Responsibility Provisions

PPACA Shared Responsibility Provisions –◦ Educational Institution Rules

School Year Employees Break Periods of less than 4 weeks Crediting of average hours worked during break periods of

less than 4 weeks to a maximum of 501 hours Break periods of 4 weeks or more Anti-abuse provisions

Source: http://www.irs.gov/pub/irs-drop/n-12-58.pdf

http://www.irs.gov/pub/newsroom/reg-138006-12.pdf

Fringe Benefit Issues – PPACA Shared Responsibility Provisions

PPACA Shared Responsibility Provisions – Penalty◦ The penalty is $3,000 annually for each full-time

employee receiving a tax credit, up to a maximum of $2,000 times the number of full-time employees minus 30.

◦ The penalty is increased each year by the growth in insurance premiums.

Source: http://healthreform.kff.org/~/media/Files/KHS/Flowcharts/employer__penalty_flowchart_1.pdf

Fringe Benefit Issues – PPACA Shared Responsibility Provisions

State Law on Health Insurance:◦ If a district offers a group health insurance plan, the

group health insurance offered by the district must offer insurance to all employees working on a permanent basis and having a normal work week of 30 hours or more. Wis. Stats. 632.745(5)(a). Requirement is on the group insurance carrier, not the employer.

◦ Except as provided in par. (b), "eligible employee" means an employee who works on a permanent basis and has a normal work week of 30 or more hours. The term includes…, but the term does not include an employee who works on a temporary or substitute basis.

Fringe Benefits - Nondiscrimination Testing & Coverage Issues

Federal Law on Health Insurance - General:◦ Self-funded Plans: Existing Internal Revenue Code

(IRC) section 105(h) rules on benefit testing – covering self-funded plans.

◦ Cafeteria Plans/Flexible Spending Accounts: Existing IRC Section 125 Rules on Employee Contributions for fully insured plans.

◦ Health Benefits: Proposed IRS IRC 105(h) rules as proposed by the Federal Patient Protection Affordable Care Act (PPACA).

Fringe Benefit Issues – Nondiscrimination Testing & Coverage Issues

Federal Non-discrimination Provisions re: Health Insurance - General:◦ A group health plan cannot, under certain circumstances,

discriminate in favor of highly compensated individuals (HCI) in regard to either eligibility to participate in the plan or health benefits.

Fringe Benefit Issues – Nondiscrimination Testing & Coverage Issues

Retiree-only and “grandfathered” plans are excepted. ◦ Retiree-Only plans most likely are the following:

Plans including only retirees; Plans experience rated for retiree groups only; Most common arrangements at the present time are

group Medicare Supplemental Coverage and Medicare Advantage.

Plans with fewer than two active employees.

Fringe Benefit Issues – Nondiscrimination Testing & Coverage Issues

Retiree-only and “grandfathered” plans are excepted. ◦ “Grandfathered” plans are those plans where the

following changes have not been made: Elimination of all or substantially all benefits to treat a particular

medical condition. Increase in a percentage cost sharing requirement, for example,

raising the co-insurance by 5% or more. Increase in a deductible or out-of-pocket maximum by amount

that exceeds medical inflation plus 15%.

Fringe Benefit Issues – Nondiscrimination Testing & Coverage Issues

Retiree-only and “grandfathered” plans are excepted. ◦ “Grandfathered” plans are those plans where the

following changes have not been made: Increase in a co-payment by an amount that exceeds medical

inflation by 15 % or if greater, $5.00 plus medical inflation. Decrease in an employer’s contribution rate toward the cost of

coverage by more than 5%. Imposition of annual limits on the dollar value of all benefits

below specified amounts. PHS§2716

Fringe Benefit Issues – Nondiscrimination Testing & Coverage Issues

Penalty: Consequences of violation fall on the plan sponsor [district], not the HCI(s). ◦ If a fully-insured plan is found to be

discriminatory, a penalty will be imposed on the employer/plan sponsor.

◦ Regulations are needed to define exactly how the employer penalty will be applied.

◦ It is not clear when the regulations will be forthcoming.

◦ Currently, it appears that the employer will pay a penalty of at least $100 per day per highly compensated participant.

Fringe Benefit Issues – Nondiscrimination Testing & Coverage Issues

Proposed IRS IRC 105(h) rules Enforcement Commencement Date.◦ IRS Notice 2011-1, stated that compliance with §105(h)

requirements by fully insured plans will not be required, and the excise tax penalties for violations will not be imposed, until plan years beginning some time after final regulations or other definitive guidance has been issued.

◦ The Department of Labor (DOL) and the Department of Health and Human Services (DHHS) have also agreed to the delayed effective date.

◦ http://www.irs.gov/pub/irs-drop/n-11-01.pdf

Fringe Benefit Issues – Nondiscrimination Testing & Coverage Issues

IRS IRC 125 Non-discrimination Testing.◦ IRC §125 permits employers to offer benefits on a pre-

tax basis to employees through the use of a cafeteria plan. However, the tax advantage is conditioned upon the cafeteria plan passing three nondiscrimination tests.

◦ If a cafeteria plan discriminates in favor of highly compensated participants, those highly compensated participants will be taxed on their benefits.

◦ HCI rules are different for IRC 125 than listed in IRC 105(h).

◦ http://www.irs.gov/publications/p15b/ar02.html

Fringe Benefit Issues – Nondiscrimination Testing & Coverage Issues

Impact on Employee Handbooks and Individual Contracts◦ Health Insurance Benefit Levels◦ Premium Contribution Levels◦ Post-employment Benefits

Fringe Benefit Issues – Nondiscrimination Testing & Coverage Issues

Telephone: 608-257-2622877-705-4422 toll free608-512-1707 direct line

Email: [email protected]

Barry Forbes has served as WASB staff counsel since 1983 and has more recently been appointed, with Bob Butler, the Association’s co-associate executive directors. WASB Staff counsel provide representation to nearly one-quarter of all school districts in Wisconsin on employment & labor, human resources and school law matters.

They also provide membership services, including general legal information, to all school districts that are members of WASB. For more information, please visit the WASB’s website at:

http://wasb.org/websites/employment_law_hr_services/index.php?p=900

Presenter Information

© 2015

This presentation is a product of the Wisconsin Association of School Boards, Inc. This presentation is intended to provide authoritative general information, with commentary, as a service to WASB members. The materials and information provided in this presentation should not be relied upon as legal advice. If needed, legal advice regarding any topic, issue, situation or incident should be obtained from the school district's legal counsel.