Benefits & Compensation Questions of the Week

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What Is the Difference Between FSAs and HSAs

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Stethoscope laying next to a piggy bank representing saving money for an FSA or HSA.

HR Question:

We’ve been fielding a lot of benefits questions from our employees and some are trying to choose between opting into an FSA or HSA. What’s a good way to describe the difference between FSAs and HSAs?

HR Answer:

HR professionals play an important role in helping employees understand their benefits options so they can make the best decisions for themselves and their families. When it comes to managing healthcare expenses, it’s important for employees to be aware of the various options available to them. Two popular options are Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs). Both accounts are designed to help individuals and families save money for medical expenses, but they have distinct features and eligibility criteria.

What are Flexible Spending Accounts (FSAs)?

A Flexible Spending Account (FSA) is a type of tax-advantaged savings account offered by many employers as part of their benefits package. FSAs allow an employee to set aside pre-tax dollars from their paycheck to cover eligible medical expenses. These expenses can include medical, dental, and vision costs that are not covered by their health insurance plan, such as co-payments, deductibles, prescription medications, and certain over-the-counter items.

One important characteristic of FSAs is the “use-it-or-lose-it” rule. This means that any funds contributed to an FSA must be used within the plan year, or the employee risks forfeiting the unused balance. Some plans offer a grace period or a limited rollover option, but these rules can vary, so be sure to explain your specific plan options.

Using FSAs for Dependent Care:

One noteworthy advantage of FSAs is their potential use for dependent care expenses, including childcare. If your organization offers a dependent care FSA, employees can contribute pre-tax dollars to cover eligible expenses related to the care of their children, disabled spouse, or elderly relatives who require care while they work or attend school. Eligible childcare expenses can include daycare services, after-school programs, summer day camps, and more. This feature can provide valuable financial relief for families with young children or dependents requiring care.

What are Health Savings Accounts (HSAs)?

A Health Savings Account (HSA) is another type of tax-advantaged account designed to help individuals save for qualified medical expenses. HSAs are typically paired with high-deductible health insurance plans. To be eligible for an HSA, the employee must be enrolled in a high-deductible health plan (HDHP) and cannot be covered by other health insurance, such as Medicare or another non-HDHP plan.

One significant advantage of HSAs is that the funds contributed are not subject to federal income tax, and they can grow tax-free over time. Unlike FSAs, there is no “use-it-or-lose-it” rule for HSAs. Any unused funds in an HSA can be carried over from year to year, allowing the employee to build up savings for future medical expenses or even retirement.

5 Key Differences Between FSAs and HSAs:

1. Eligibility

  • FSAs: Generally available to employees regardless of their health insurance plan.
  • HSAs: Available only to individuals with a qualified high-deductible health plan (HDHP).

2. Contribution Limits

  • FSAs: The IRS sets annual contribution limits, and these limits can vary from year to year. The FSA contribution limits for 2023 are $3,050 with a maximum allowable carryover amount of $610.
  • HSAs: The IRS also sets contribution limits for HSAs, and these limits are generally higher than those for FSAs. The limits may vary based on whether the employee has individual or family coverage. The HSA contribution limits for 2023 are $3,850 for self-only coverage and $7,750 for family coverage. Those 55 and older can contribute an additional $1,000 as a catch-up contribution.

3. Tax Treatment

  • FSAs: Contributions are made with pre-tax dollars, reducing the employee’s taxable income.
  • HSAs: Contributions are made with pre-tax dollars and can be invested, with earnings growing tax-free. Withdrawals for qualified medical expenses are also tax-free.

4. Rolling Over Funds

  • FSAs: Typically have a “use-it-or-lose-it” rule, with limited exceptions for grace periods or rollovers. You should clarify your plan options to ensure your employees are correctly informed.
  • HSAs: Funds can be carried over from year to year, and they remain available even if you change employers or health insurance plans.

5. Ownership

  • FSAs: Generally owned by the employer, though employees can use the funds for eligible expenses.
  • HSAs: Owned by the individual, allowing for more control over the account and its investments.

Choosing the Right Option:

When deciding between an FSA and an HSA, employees should consider their current health insurance plan, medical expenses, and financial goals. If an employee has a high-deductible health plan and wants the flexibility to save for future medical expenses, an HSA might be the better choice. On the other hand, if the employee prefers to use funds within a specific plan year and has a more traditional health insurance plan, an FSA could be more suitable.

Remind your employees that both FSAs and HSAs can provide valuable tax benefits and help them manage their healthcare costs more effectively. Encourage them to review the specific terms, contribution limits, and rules associated with each option before making a decision.

FSAs and HSAs are valuable tools for managing healthcare expenses, each with its own set of advantages and considerations. Understanding the key differences between these two accounts can empower employees to make a well-informed choice that aligns with their financial and medical needs.

Special thank you to Paula Alexander, MA, PHR, SHRM-CP, HR Business Advisor for contributing to this HR Question of the Week.

Do you find yourself without answers to tough Benefits and Compensation questions? Whether you need an analysis of your current benefit offerings, a review of your salary structure, or outsourced payroll/benefits administration, Clark Schaefer Strategic HR can do the job. Please visit our Benefits & Compensation page for more information or Contact Us.

 

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How do I manage compensation increases with inflation?

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HR Question:

How do I best manage compensation increases with inflation still rising?

HR Answer:

This is a question many companies continue to wrestle with as the US economy experiences rising inflation. According to the Bureau of Labor Statistics (BLS), the consumer price index (CPI) reached its highest annual increase (8.6%) in over 40 years in May 2022, and we continue to watch the CPI on the rise. These increased daily costs put significant pressure on employees to stretch their income further, which in turn, puts pressure on employers to increase wages to cover the gap.

Employers also need to consider other factors when assessing pay strategies, such as the state of the labor market. With employment rates at record lows, it can be harder to find and attract qualified candidates, making salary a sticking point in many employment conversations.

What does this mean for organizations as they try to meet the needs of employees and remain competitive in the market? How are they supposed to be competitive when navigating rising costs across the board? What if salaries have already increased – should they be expected to continue to climb so soon? We recommend the following considerations to help manage your compensation increases amidst inflation and a tight labor market.

Keep Inflation In Mind When Strategizing

With these external influences, HR leaders need an effective rewards strategy that retains current high performers, attracts top candidates, evaluates business costs, and is applied equitably. Easy, right? Not only that, but the approach should align with organizational strategy, have market-based salary data, include review processes, and consider non-monetary compensation. Then, that complex plan should be communicated throughout the organization.

This presents an opportunity to ensure that your annual compensation review process includes an assessment of how the cost of living impacts your pay strategy. Consider adding inflation into your review model utilizing data from the Department of Labor and additional government agencies, along with the criteria you use to determine annual pay increases. While you don’t have to directly increase your salary rates in step with the inflation percentage, not doing so may put your organization at a competitive disadvantage in the candidate market.

Salary Benchmarking

Rather than relying on inflation to exclusively guide your salary increases, consider utilizing salary benchmarking tools for each role in your company. This is also a great opportunity to weave in any feedback you’ve learned from job candidates, stay interviews, or exit interviews. The compensation review process could then use current market-based salary ranges to recommend increases.

And, while it makes sense to consider what’s happening in the economy, an increase in the cost of living may or may not lead to a proportional pay increase. Although prices may be going up, it doesn’t mean that compensation market data has moved at the same rate as inflation. For example, if the CPI has increased by 8%, salaries may have increased by less than 8% or more than 8% in the market. This is why conducting salary benchmarking is crucial for each position.

Benchmarking against what other organizations are planning for salary increases can help give a sense of perspective as well. According to a recent survey conducted by WorldatWork, increases in 2024 are budgeted for 4%. You may want to review several resources to compare compensation data across your industry for a reasonable comparison.

Non-Monetary Compensation

Take-home pay is the predominant concern when inflation hits, but other variables can still be vitally important to employees. Evaluate benefits and non-monetary rewards offered and consider additional low-cost options.

For example, are there ways to enhance health benefit subsidies, HSA contributions, flexibility, paid time-off, retirement contributions, tuition reimbursement, etc.? Providing more generous offerings in this category could help ease the impact of inflation without necessarily increasing your immediate costs.

Communication and Transparency

Before finalizing compensation increases, collaborate with other leaders to determine the overall economic impacts on the organization. Perhaps additional revenue streams or other increased costs may impact the feasibility of compensation increases either way.

Once decisions have been made, effectively communicating with employees is crucial. Tailor the message based on the employee’s perspective and make sure to be transparent and empathetic while explaining the reality of what is and isn’t possible. Doing this authentically will help people feel valued.

Compensation analysis is an ongoing process, and HR Leaders should consistently evaluate the organizational strategy and market data to stay competitive. With a robust strategy, sound framework, and effective communication, any factor can be considered and incorporated appropriately.

 

Thank you to Becky Foster, Sr. HR Business Strategist, for contributing to this HR Question of the Week.

Let the HR Business Advisors at Strategic HR review your strategy and conduct a compensation market analysis to make sure you’re not missing any opportunities to have a rewards strategy that attracts, retains, and engages your team. Learn more about our Benefits and Compensation Services or Contact Us for help.

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When Do I Have to Deliver an Employee’s Final Paycheck?

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What is Equal Pay Day?

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Woman holding two unequal pay stacks

HR Question:

I keep seeing information about “Equal Pay Day” during Women’s History Month. What is Equal Pay Day, and how can I recognize it in my organization?

HR Answer:

Equal Pay Day is a symbolic day that puts into perspective the 23% pay gap between a woman and a man in the same role. Based on the current gap, a woman has to work one full year plus several additional weeks into the following year to make the same amount that her male counterpart made in one year alone.

In 2023, Equal Pay Day is March 14, representing the 2022 US Census Data showing women make 84 cents (all full-time workers) and 77 cents (all full-time, part-time, and seasonal earners) for every dollar paid to non-Hispanic, white men. This translates to an annual wage gap of $9,954. That gap is unfortunately even larger for most women of color, resulting in a gap of $.64 on the dollar for Black women, $.62 for mothers, $.61 for Native Hawaiian and Pacific Islanders, $.54 for Latina women, and $.51 for Native and Indigenous women.

Equal Pay Day was established in 1996 by the National Committee on Pay Equality (NCPE). The day is recognized annually, but not always on the same date due to the pay gap calculation. Even though Equal Pay Day has been around for 27 years, it is more widely recognized today, in part due to the stronger focus on eliminating the gap. Current initiatives, such as pay transparency and salary history ban laws, were introduced by individual cities and state-wide to address the pay gap.

Where are Equal Pay Laws in Place?

On January 1, 2023, three new states were added to the list of city and state governments that passed laws to protect applicants by banning employers from asking about prior salary history and/or requiring that companies list salary ranges in their job advertisements. Currently, the following governments have such laws:

States:

  • California
  • Colorado
  • Connecticut
  • Maryland
  • Nevada
  • Rhode Island
  • Washington

Cities:

  • Cincinnati, OH
  • Ithaca, NY
  • Jersey City, NJ
  • New York City, NY
  • Toledo, OH
  • Westchester County, NY

According to the Society for Human Resource Management (SHRM), pay transparency is one of the top issues people managers will face in 2023. According to Monster’s 2022 poll, 98% of workers believe salaries should be disclosed, with another 53% of applicants refusing to apply for a position if the salary is not disclosed.

How Can I Support the Movement?

So how can employers address the gender gap and honor Equal Pay Day in their organizations? Some recommended ways include:

  • Performing an Equal Pay Audit to review job classifications, salaries, and genders and take corrective actions if inequity is found.
  • Reviewing compensation policies to remove gender bias.
  • Removing managerial discretion on pay and sticking to a salary band of positions for new hires and for annual increases.
  • Removing prior salary history from applications and interviews.
  • Establishing fair scheduling practices to allow for caregiving.

For even more ways to contribute to awareness and celebrate Equal Pay Day you can visit equalpaytoday.org.

Thank you to Paula Alexander, MA, PHR, SHRM-CP, for contributing to this HR Question of the Week!

Performing an equal pay audit can be a complex, but necessary, step toward equal pay for all. Clark Schaefer Strategic HR is ready to assist you with any of your needs around Benefits and Compensation. We offer assistance with everything from job descriptions to policy development to help address your complex issues that impact employee compensation or benefits. Please visit our Benefits and Compensation page for more information on how we can assist you.

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How To Set Up An Employee Bonus Plan

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HR Question:

I am having trouble motivating my employees to do more than just the fundamental functions of their job. Could an employee bonus plan help? And if so, how do I set this up?

HR Answer:

Yes! While some people are driven solely by their own internal motivation, many behaviors and accomplishments are encouraged and strengthened by external rewards, prizes, or incentives. Think about your own behavior. Do you eat healthy all week and reward yourself with a sweet treat on the weekend for a job well done? Or is there a meaningful work project that would suddenly become more tempting to tackle if there was a reward for knocking it out of the park?

“Behavior that is motivated by a desire for reinforcement or incentives” is known as the Incentive Theory of Motivation. From this, we learn that providing the right external rewards can drive human behavior. In a work setting, incentives can help to set your employees’ course of action and encourage them to perform projects or tasks that might be above and beyond their daily work responsibilities, stretch and grow them in areas that will further benefit the company, and drive advancement and change in your organization.

While there are a variety of ways to incentivize employees, one of the easiest and most impactful ways is a financial incentive or bonus. Not all individuals are motivated by money, and you have to know your employees well to know if and how much money will actually be motivating, so it might prove to be beneficial to conduct an employee survey to understand your employees’ motivators.

There are many creative ways to structure bonuses to incentivize the behavior you want to see. The Economic Research Institute provides a description of the most common types of bonuses used by employers in their article, “How to Calculate Employee Bonuses.” We are going to focus the remainder of this article on the performance bonus.

How to establish a performance bonus plan

To implement a performance employee bonus plan in your organization, we recommend the following steps:

  1. Work with your company leadership team and chief financial officer to establish a budgeted amount of money that will be available at the time bonuses will be paid out.
  2. Determine who is eligible to participate in the bonus program. Remember that if you include non-exempt employees, the bonus amount will have to be added to the base hourly rate in the calculation of overtime for that time period.
  3. Define the time period that the bonus will cover and how often it will be paid out (i.e., monthly, quarterly, semi-annually, or annually).
  4. Establish maximum bonus amounts for participants – will it be a percentage of their salary or a fixed amount? Will this vary based on the pay grade their job is assigned?
  5. Prepare a policy with all of this information and communicate the program to eligible employees.

Setting goals for bonus payout

Once you have established the structure of your bonus program, the next step is the MOST IMPORTANT one in the process – setting goals. Work with your employees to set stretch goals that will motivate them to perform their essential functions better, improve processes, learn a new skill, or complete specific projects. These goals should align with both the organization’s annual goals and the department’s goals for the year.

As you align your bonus plan payout with your company, departmental, and individual goals, you may want to allocate percentages of the bonus to each of these areas. By tying the bonus payout to multiple relevant factors, you can set minimum expectations for the financial and performance metrics that need to be met for a full payout. This also provides flexibility to offer a partial payout if certain measures are partially met.

For example, you could structure your employee bonus plan like this:

1. Company Goal – A financial goal the company must meet/exceed – 25% of the eligible bonus amount
2. Departmental Goal – A goal the department must meet/exceed measuring quality, performance, customer service, financials, safety, etc. – 25% of the eligible bonus amount
3. Individual Goals – Two individual goals measuring projects, training/development, performance, safety, productivity, attendance, etc. – 50% of the eligible bonus amount

Once the goals are set, your next critical priority is to follow up on these goals. Whether you are setting a bonus goal for the year or for the month, meet with your employees at regular intervals and discuss their progress on their goals. Assure that the goals are attainable and that they continue to make sense as time moves forward. Company leaders should also provide updates on company and departmental goals so employees have a sense of organizational progress and success.

Finally, at the end of the bonus period, meet with your employees to assess their progress in reaching/exceeding the goals. Reward those goals completed at 100% and lessen the reward if the goals were not fully met. Be sure to assess the effectiveness of your bonus plan at the end of the year and tweak it accordingly before rolling it out again next year.

Thank you to Lorrie Diaz, MS, Sr. HR Business Advisor, for contributing to this HR Question of the Week.

Clark Schaefer Strategic HR have the answers to all of your tough Benefits and Compensation related questions. Whether you need an analysis of your current benefit offerings or are looking to create a cost-effective recognition and rewards program, Strategic HR can do the job. Please visit our Benefits & Compensation page for more information or Contact Us.

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Could Sabbaticals Be Your Next Retention Tool?

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HR Question:

In today’s fast-paced and high-pressure market, it’s difficult to truly disconnect from work. We’ve been trying to find ways to give our team a break to avoid burnout, but sometimes a week of vacation just isn’t enough. Could sabbaticals be the newest tool in our retention toolbox?

HR Answer:

You’re not alone in considering sabbaticals as they seem to be gaining in popularity. According to a recent World at Work survey assessing US organizations ranging in size and industry, 10% of organizations offered paid sabbaticals (up from 7% in 2019), and 29% offered unpaid sabbaticals (up from 16% in 2019). Now, as we’re well into a period with many different names – the Great Reshuffle, the Great Resignation, the Great Re-Evaluation to name a few – sabbaticals may be the unsung hero that benefits both employers and employees alike when it comes to talent retention, supporting good mental health, and strengthening employee engagement and dedication to their work and your organization.

Time to Re-Charge, Re-Energize, and Reconnect

It’s no secret that the first beneficiary of a sabbatical is the employee. Unfortunately, those who do choose to take sabbaticals may often lack the opportunity to properly enjoy them. In fact, The Sabbatical Project reports that nearly two-thirds of those who do take a sabbatical are often forced into them due to traumatic circumstances out of their control – the loss of a family member, health issues, the need to navigate complex or dissolving relationships, etc. Not exactly the most relaxing setting for a rejuvenating and relaxing period of time.

Although a sabbatical can be used to address such issues, it could benefit organizations to promote them for a broader purpose. Employees should be encouraged to consider using a sabbatical as an opportunity to truly disconnect, re-energize, and re-focus if suffering from burnout or fatigue. They can also be used to discover new passions, chase hobbies, and gain the experiences that many may put off until after retirement.

Sabbaticals Benefit the Employer Too

And while a sabbatical, paid or unpaid, can seem like an intimidating amount of time away from the desk for both the employee and the employer, the benefit of a re-energized and re-engaged employee can pay back dividends. Interviews for a Charter and TIME article revealed employees who returned from a sabbatical found themselves more creative, felt greater feelings of loyalty and energy, and brought new ideas to the table.

When considering the cost of having to replace a long-term employee, along with their organizational knowledge, skills, and work relationships built over time, offering a sabbatical as an opportunity to renew and recharge may be far more cost-effective. In addition, offering sabbaticals as part of your benefits package is not only attractive to retain current employees, but can also be a valuable talent acquisition tool to attract new talent.

Your Team Will Benefit From Your Time Away

The longer nature of sabbaticals creates an opportunity for cross-training. As opposed to managing through vacations where you can push a project or a question off “just a few days” until a person returns, sabbaticals present a fantastic opportunity to engage other team members in new and different tasks, departments, and levels of the organization – providing the employer with a built-in opportunity for the career development and growth that ranks high on job seekers’ lists today.

Sabbaticals Don’t Come Without a Cost

It would be a win-win if sabbaticals came without a cost to the employer or employee, but unfortunately, that’s not the case. That’s why it’s important that employers establish their promises and expectations for sabbaticals. How often and for how long can employees be away? Do they need to serve a certain number of years to qualify? How much of their regular pay will they still receive, if any? How does a sabbatical tie into their PTO or other time off categories?

While the cost may not be a surprise, the money saved by creating an attractive workplace, providing necessary mental health benefits, and showing that you’re an organization committed to putting employees’ needs first may very well pay dividends in attracting and retaining valuable talent.

Special thanks to Sammie Kelly for contributing to this HR Question of the Week! 

Providing adequate Benefits and Compensation for your employees is key to the recruitment and retention of a well-performing workforce, and having the right policies in place can make or break a company. Clark Schaefer Strategic HR can help you structure your benefit and compensation system to meet today’s competitive market. Please visit our Benefits and Compensation page for more information today.

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As Open Enrollment Season Approaches, What Are Best Practices to Improve Benefits and Remain Compliant?

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HR Question:

It’s almost that time again – open enrollment season is quickly approaching! I want to be prepared this year and avoid any last-minute decisions or chaos. Can you recommend any best practices for reviewing, improving, and staying compliant with our employees’ health and well-being?

HR Answer:

It can be an intimidating feeling to see Open Enrollment season coming up on the calendar. Health insurance carriers typically provide an annual renewal timeframe and a deadline for brokers and employers to decide on which health insurance carrier will be utilized for the following year. Mapping out your strategy with this deadline in mind guarantees you have ample time to review your options and make effective decisions. In this article, we will walk you through key considerations you should consider as you review your employee benefits package to ensure you are well prepared and compliant with your open enrollment.

Timing of Open Enrollment

For those employer groups that renew their health insurance on January 1, 2023, the beginning of September is the time to start the review process. If you are a smaller employer, important questions to ask yourself are:

  • How will my employees complete the application process?
  • Could they use an online application program like Survey Methods, Google Forms, FormFire, or Easy Apps Online?
  • When can employees start the process of completing their applications?

Some insurers allow for applications to be dated within 120 days of their renewal date. That means employees could begin the application process as early as September 1, 2022. If your employees are not filling out applications, now is the time to do a quick survey. Getting a pulse from your employees will help to determine what options you need to keep in place and what adjustments you need to make to the health and well-being package.

Cost of Benefits

Cost for the employer and the employee can be a major deciding factor. The type of program may provide discounts, returns of claim funds, or additional benefits. For example, chambers of commerce or associations may offer discounts or additional plan benefits for smaller businesses that can’t afford the discounts that larger organizations have access to. Some plans offer savings to employees for participating in wellness programs. These are all options that you should inquire about at your renewal.

The health insurance plan design you select is as important as the insurance company you choose to provide your benefits. Consider plans that may meet your employees’ immediate needs more readily, such as split-dollar co-payments for office visits, personal nurse benefits, or plans that offer telemedicine at no cost. Carefully review the prescription drug plans available to you, as well. Implementing a tiered deductible network, deductible for brand-name prescriptions, a $0 copayment for emergency room visits (subject to the deductible), or selecting a plan with higher copayments for brand-name drugs and specialty medications can all result in a reduction in premium. Bundling your ancillary benefits like dental, vision, life, LTD, and STD insurance may result in more favorable pricing and/or a multi-year rate guarantee without sacrificing quality.

Maintaining Compliance

Make time to review any compliance requirements. The DOL has a self-compliance tool for employers to use as a guide. Keep in mind the IRS updates guidelines as well, such as HSA contributions limits and the ACA affordability requirement. Therefore, before determining the contribution breakdown between you and your employees, do a quick calculation to ensure the amounts will be within the published guidelines.

There are a lot of factors to consider as you review your health and well-being offerings in your open enrollment process. Setting a timeline for a complete review will help keep the renewal process on track. Considering all your different options will ensure your employees receive the best possible benefits at the best possible price. Educating your employees on their new benefits will give them time to prepare. Wishing you well in this renewal season!

Thank you to Gina Kocevar with LS Benefits Group for contributing to this edition of our HR Question of the Week!

Clark Schaefer Strategic HR have the answers to all of your tough Benefits and Compensation related questions. Whether you need an analysis of your current benefit offerings or are looking to create a cost-effective recognition and rewards program, Strategic HR can do the job. Please visit our Benefits & Compensation page for more information.

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What Are Non-Qualified Bonus Grant Programs?

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HR Question:

Like any organization, I have a handful of key employees – my “rockstars,” for lack of a better term. If any of them left, it would be difficult to replace them – not to mention the impact it would have on our company’s success. But I’m struggling to keep up with the pay increases that other companies can afford. I need to find a way to retain and compensate these key employees and someone suggested non-qualified bonus grant programs. What are those?

HR Answer:

This is a great question. Not every company can afford to meet the wage increases of 10, 15, or even 20% that seem to be commonplace in today’s competition for talent. It might even seem like competitors are able to pay whatever it takes to recruit key employees away from their current employer. Or if employees are willing to forego a higher salary for other benefits, like stocks or buying into company ownership, but that’s not an available option, what are employers to do? One way that employers can financially reward essential employees over a longer time period (and thus, encourage retention) is through Non-Qualified Bonus Grant Programs.

What are Non-Qualified Bonus Grant Programs?

Non-Qualified Bonus Grant (NQBG) programs were specifically built for employers in need of long-term incentives for key employees when other financial benefits (like stocks, ownership, or commissions) aren’t available. By establishing a vesting period, employers are able to set up key employees to receive additional compensation should they stay employed and perform well over that period of time.

At the end of each year, the employer reviews how the company and employees have performed. From there, a bonus amount for the employee is determined. The amount that is credited is fully discretionary and controlled by the employer, meaning that should an employee not perform as agreed upon during a given year, the bonus amount can reflect that.

What are the Benefits of an NQBG Program?

This can be a fantastic retention tool in more ways than one. First, this program allows employees to defer compensation, creating guaranteed income for the future.

Second, this gives employers an opportunity to reward those can’t-do-without employees for their loyalty. The year-end review also provides employers a chance to review this benefit with the employee and have a tangible result of the employer’s appreciation. NQBGs provide additional benefits to employers in that they are:

  • Simple to execute
  • Inexpensive
  • Flexible based on the business’s needs

Additionally, these programs, along with other non-qualified deferred compensation plans, aren’t covered under the Employee Retirement Income Security Act, meaning that there are no regulations when it comes to who the employer can or has to include in the program’s benefits.

NQBG plans can benefit the bottom line, as the compensation that employees are earning now isn’t payable until the future. The only drawback for the employer is that the funds aren’t tax-deductible for the organization until they are paid out.

It is no secret that employers are having to navigate through a competitive labor market making it even harder to retain their most critical talent. There’s no better time to look for creative and financially viable ways to reward and retain your essential employees. It may be worth exploring if a Non-Qualified Bonus Grant Program could be a valuable retention tool for your organization.

Special thanks to Brian Leen of LS Benefits for sharing his expertise on popular retention tools like NQBG programs!

Strategic HR offers assistance with a variety of Benefits and Compensation needs, including understanding how recruitment trends affect your business and helping you to craft competitive compensation plans. Please visit our Benefits and Compensation page for more information.

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What are the Newest Benefit Trends?

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HR Question:

We’re trying to review our benefit offerings to make sure that we’re meeting each of our employees’ needs. We’re able to offer the basics – health, dental, vision – but are there offerings we haven’t considered yet to keep up with benefit trends?

HR Answer:

In today’s market, it’s as important to retain the talent that you have as it is to recruit the right talent. The conversation around retention has offered employees a greater opportunity to be more vocal about their individual needs. So, what innovative employee benefits trends are employers implementing to retain their workforce and catch the eye of necessary talent? How can employers structure their benefits package with offerings that are appealing and beneficial to each employee?

Now more than ever, employees consider benefit offerings as an essential part of their compensation packages. While it’s obvious that employers can’t offer the sun, moon, and stars, employers can survey their teams to understand the benefits that would truly make a positive impact in their lives (and hopefully retain these employees longer). The results may surprise you, as it’s possible only a few adjustments need to be made to meet the wants and needs of your workforce.

For example, consider these four trending areas to enhance benefits and voluntary options to accommodate employee wants and needs: mental health, policies to support neurodiverse employees, support for life-changing diagnoses, and financial assistance.

Mental Health

Mental health remains one of the most talked-about and pressing benefit trends of this year. Even though the COVID-19 pandemic has receded to levels that allow for a partial return to normal, the impact on mental health remains. Many employers are turning to partnerships with apps like Calm or Headspace, while others (such as Clark Schaefer Hackett) have taken the opportunity to extend their Employee Assistance Programs (EAPs) to cover their employees’ extended family members, such as siblings and in-laws.

Policies to Support Neurodiverse Employees

It has been proven that diverse workforces naturally perform better. But diversity goes beyond race, gender, or age – it can also apply to thinking styles, abilities, and problem-solving practices (also known as neurodiversity). By creating inclusive policies and benefits for neurodiverse individuals – such as people with autism – organizations can open their doors to additional talent, unique perspectives, and innovative individuals, creating even greater diversity and inclusion in their workplace.

Support for Life-Changing Moments

As the conversation around work/life balance ebbs and flows between a balance and an integration, many would agree that personal life priorities impact performance, focus, and success at work. Offering support for moments such as cancer diagnoses and care programs (such as cancer insurance or critical illness insurance) or addressing the needs of female health (such as time and flexible work hours to deal with symptoms of menopause or fertility needs), miscarriages, or adoption needs can go a long way in addressing the work/life needs of your employees.

Financial Assistance

According to Schwab Retirement Plan Service’s annual survey, 48% of participants found themselves more likely to save more in general due to the pandemic, with over 85% listing a 401(k) plan as a “must-have” benefit. If 401(k) plans fall outside of what your organization can provide, consider offering smaller but still impactful benefits such as reimbursements for work-at-home expenses, stipends for child-care support, or programs to support emergency savings, debt management, and budgeting.

While healthcare costs continue to rise amongst the “Great Resignation” waves, employers are not without ways to attract and retain a larger percentage of their employees – starting with their benefit offerings.

Thanks to Janine Cummings, SPHR, SHRM-SCP for contributing to this edition of our HR Question of the Week. 

Strategic HR has the answers to all of your tough Benefits and Compensation-related questions. Please visit our Benefits & Compensation page for more information or contact us to troubleshoot today.

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Do I Have to Give Performance Bonuses to Employees on FMLA Leave?

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HR Question:

It’s almost time for quarterly performance bonuses, but one of my employees has been out on approved FMLA leave for the past six weeks. I don’t want to penalize the employee for being out, but it doesn’t seem fair to my other employees if I give this individual their full bonus even if they weren’t here. What should I do?

HR Answer:

It’s understandable that you don’t want to negatively impact your present employees or punish the team member out on leave. That being said, it’s important that however you approach this situation, you do so in a fair, equitable, and repeatable manner. You’re correct that the Family Medical Leave Act (FMLA) does provide benefit and job leave protection for leaves. However, there are some areas of total compensation that can be impacted as long as the reduction is due to the quantity of work and not the quality of work being done. That means that performance-based bonuses can potentially be impacted (i.e., reduced or not paid at all) according to the Department of Labor.

The FMLA is a federal leave law that applies to all companies with 50 or more employees; public agencies; and all public and private elementary and secondary schools. Under the FMLA, eligible employees can receive up to twelve (12) workweeks of unpaid leave during a 12-month period. It also requires group health benefits to be maintained during the leave as if employees continued to work instead of taking leave. Employees are entitled to return to their same or an equivalent job at the end of their FMLA leave. To be safe, many employers lean on the side of “no changes” when their employees return, but in this instance, you do have a right to adjust the bonus the employee would typically be eligible to receive.

According to the Department of Labor, an employer may deny a bonus that is based upon productivity goals as long as the calculation is applied equally to those who would be taking a non-FMLA-protected leave. For example, if you have an employee who is on a leave of absence for approved personal reasons and you prorate their bonus based on actual “time at work,” you could do the same for the employee on FMLA-approved leave.

The Department of Labor goes on to clarify that an employer could deny (or reduce) any bonus based on achieving a goal as long as they are treating employees in similar situations the same. That could be due to attendance, safety, and even productivity. A recent article from the Society for Human Resource Management (SHRM) cited a Second Circuit Court ruling that affirmed that such a proration was “allowed,” so long as employees on FMLA-approved leave are treated like others and not penalized in ways that others are not.

As an employer, you can create policies and precedent that would clear up any potential confusion in the future. For example, you could create a policy that specifies employees must actively be working for the entire month to be eligible for performance bonuses. Another option would be to create a policy that allows for partial payments prorated on the number of days an employee worked in the month. These are two very different options that could be used, as long as FMLA-qualified and non-FMLA-qualified individuals on leave are treated the same.

Finally, be sure that you understand that you cannot discipline an employee for non-performance or for not meeting established productivity goals while out on leave. As an employer, you can maintain work standards, but the quantity of the standard may need to be adjusted as it is directly impacted by the employee’s ability to be present at work – which is protected under FMLA.

Strategic HR has the answers to all of your tough Benefits and Compensation-related questions. Please visit our Benefits & Compensation page for more information or contact us to troubleshoot today.

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How Can I Use Salary Benchmarking As a Recruitment Strategy?

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HR Question:

Like many companies, we’re struggling with recruiting right now. I’ve been tasked with doing salary benchmarking to see if compensation is part of the problem, but I’m not sure how to go about doing it. Can you advise me on how to tackle the benchmarking process?

HR Answer:

Attracting and hiring talent is one of the most challenging yet critical processes for any organization. Descriptions of a welcoming work environment, rich benefit offerings, and career growth are frequently at the top of the most attractive attributes that organizations tout in their job ads, but one feature stands out among the rest – salary. If you are struggling to hire the talent that you need and your organization has not assessed the market pay rates for your positions, or if it has been a while since you’ve done this analysis, then it will be very beneficial to gather salary benchmarking data to ensure that you’re offering a competitive and attractive salary, particularly in a candidate’s market.

What is Salary Benchmarking?

Salary benchmarking is a process in which companies compare their internal salaries to those of other competitive companies to understand the market average. This allows them to create compensation structures and programs that can meet (if not beat) other competitors in the industry and attract top talent.

But beyond attracting talent, salary benchmarking can also take steps towards reducing costs, rather than just increasing them. Consider the average amount of time and money that goes into hiring, onboarding, training, and equipping new employees. Then, picture your bottom line should a candidate leave soon after joining the team for a higher, more competitive salary – one you had the ability to offer in the first place. And now, the process has to start all over again due to a more competitive offer. So how can organizations reduce the frequency of these situations through salary benchmarking?

How to Begin Salary Benchmarking

First, determine the roles you want to benchmark and create descriptions for each of them. The descriptions should include key job responsibilities, skills, education, and experience criteria. Next, determine the market criteria you want to compare against. Factors to consider are companies within the same industry, geography, organizations of similar size, and cost of living.

After you have established your criteria, conduct external research and compile salary data by comparing your roles against similar roles in the market(s) you’ve identified. Salary data can be found through several sources including the U.S. Bureau of Labor Statistics (BLS), online salary surveys, job posting websites, compensation reports, and third-party providers. Keep in mind, when using free online resources, be sure to reference several sources as the data may not be up to date or completely accurate.

Once you’ve compiled external salary data for each job, establish an internal pay range that aligns closely with the external market. Salary ranges should include a minimum and maximum pay range, and a mid-point that lies within 50% of the range. Once you understand what your organization is able to pay, use the salary range to create a compensation and recruitment strategy for your organization. For example, are you able to pay “at market”, meaning your pay is at a level that matches the market average salary for a specific job? Alternatively, you may opt to pay ‘above market’ and offer a higher rate of pay than other companies in the market. Company and employee performance, the company’s financial ability to pay, and overall business strategy should drive the compensation philosophy you adopt.

I Have My Compensation Strategy… Now What?

Adhere to your compensation strategy and salary ranges to maintain both internal and external salary equity for your employees. In other words, internal employees within the same job classification and similar experience levels should be paid similarly to their internal counterparts. New hires should be paid within the established pay range of the position and their pay should be commensurate with their level of experience. An employee’s placement in the salary range should align with their overall experience level and tenure. Entry-level hires should be paid toward the lower 25% percentile of the range while more experienced employees should be paid between the 50% mid-point or 75% percentile of the range.

What About My Current Staff?

What happens when the candidates you’re recruiting for all have higher salary demands than the salaries of your current staff? It could mean your salary structure is out of date and lagging behind what the market is offering. Or, there may be dynamic forces in place which have drastically shifted salaries – such as inflation, increased competition, or a major market event.

In either case – it’s best to research, validate, and adjust the starting salaries for the positions you’re recruiting for rather than continue to offer below-market wages. These lower wages can not only hurt your recruitment efforts but also compound any “below-market” compensation issue you’re experiencing. Instead, conduct an internal analysis of positions and/or employees who are being underpaid and develop a strategy to bring pay up in line with the marketplace.  This may require an immediate adjustment to salaries or, a long-term plan which brings salaries up over time.

Lastly, in addition to starting rates and salaries, hiring managers and HR professionals should also benchmark what other perks are being offered to attract talent. Sign-on bonuses, flexible work hours, and enhanced time-off benefits are just a few of the perks offered by employers today to help attract staff and retain staff.

Special thanks to Terry Salo for contributing to this HR Question of the Week. 

Need assistance in benchmarking your organization’s salaries? Strategic HR can help! Contact us to get started.

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Bonus Grants: A Creative Way to Retain and Reward Key Employees

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HR Question:

I’ve been asked to look into how we can use bonus grants as part of our retention strategy. Can you help?

HR Answer:

Changes in the economy – as well as clashing generations in the workforce – have altered the employment landscape. Gone are the days of someone retiring after 40 years with the same company. Job hopping has become the norm, and in the war for talent, top performers are regularly being courted by the competition.

Organizations need to implement new and creative ways to keep their key employees – and keep them happy. While salaries are generally staying level, more employers are focusing on bonuses as a way of rewarding employees. But traditional bonus programs may not be good enough anymore. Enter: The bonus grant.

Bonus grants are different than conventional bonuses in that they are a commitment that the company makes to key employees. Instead of earning raises and/or bonuses that are paid out annually, key employees accrue larger bonuses over a longer period of time. The company also has the option of tailoring the program to the individual employee to provide the most appropriate benefit.

While there are many advantages associated with implementing a bonus grant program, the following are the three most significant:

Retention

Most bonus programs are paid in the year they are earned. While this may immediately inspire feelings of gratitude and loyalty, the effect quickly wears off. With bonus grants, key employees are credited a certain bonus amount each year, but they are not fully vested until a specific date determined by the employer (usually 5-10 years). This is a terrific way to help ensure retention because if an employee leaves the company, they are walking away from the bonus account that was set up for them.

Flexibility

Unlike salary raises that commit employers to funds that they may not be able to spare in the future, bonus grants provide companies the flexibility to determine how much – if any – money is given to a specific employee based on their individual performance, as well as the company’s performance that year. Employers can set a different percentage or flat rate for each employee in the program, and these numbers can vary from year to year at the employer’s discretion.

Simplicity

There are different types of retention tools and tactics in the marketplace, but most are complicated and difficult to understand – for both employers and employees. A bonus grant program can be very straightforward. By keeping it simple, key employees will easily understand the value of the benefit being offered, and the company leadership will understand what they are committing to.

Is a bonus grant program right for your company?

Here are some questions to ask when deciding whether a bonus plan is right for your company:

  • Are you having issues recruiting and retaining key employees, or competing with larger companies for employees at the executive level?
  • Do you wish to provide specialized forms of compensation to key executives or employees in lieu of making them partners or part owners in the business?
  • Is your ability to offer a more robust benefits package to high-performing employees hindered by your business’ lack of free cash flow?

If you answered “yes” to any of these questions, a bonus grant program is worth exploring.

Thank you to our CSH colleagues, Bill Edwards and Lance Drummond, for contributing to this HR Question of the Week.

There is some strategic planning involved in setting up a bonus grant program, but our skilled colleagues at Clark Schaefer Hackett can help your organization set up and administer one. If you’re looking for a creative way to hold onto your best employees, a bonus grant program may be something that sets your company apart from the competition. For more information, please contact us.

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What Are Total Compensation Statements?

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HR Question:

Can you explain Total Compensation Statements … What are they? What should they include? When should we use them?

HR Answer:

Total Compensation Statements convey the total value of your compensation and benefits offerings as they include an employee’s direct and indirect compensation. They are a great tool to show not only how much an employee earned in base salary or hourly wages and bonuses in a given time period (often a year), but they also share the hidden costs of employee benefits and perks.  Employers prepare and distribute Total Compensation Statements to employees typically once a year, often at the end of the year or with their W-2.

Total Compensation Statements should include the employer’s cost for the following:

  • Social Security & Medicare taxes
  • Workers’ compensation
  • Unemployment tax
  • ALL insurance packages (health, dental, vision, life, short- & long-term disability, long term, etc.)
  • HSA, FSA, HRA contribution
  • Retirement contributions
  • Paid time off (vacation, sick, holidays, personal, bereavement, jury duty)
  • EAP, wellness, or financial health programs
  • Relocation
  • Parking
  • Tuition reimbursement & education assistance
  • Professional memberships
  • Professional development and training (internal and external)
  • Company vehicle or equipment use
  • Company events, lunches, celebrations

How to use Total Compensation Statements to RETAIN your employees

Although you are not required to provide them, we highly recommend that you distribute Total Compensation Statements to your employees. If you are not using them as an essential retention tool, you are missing out on the benefits of sharing the secret value of your employees’ “total” paycheck with them. Most employees have no idea how much it costs to employ someone and have an expectation of benefits without understanding the cost. Seeing these numbers is where the real aha moments come for employees!

Consider providing a Total Compensation Statement to your employees at the end of this year, or maybe even more than once a year. The statement provides a great reminder of the many benefits and the additional dollars you are investing in them beyond what they see in their paycheck, especially if they are thinking about joining the “Great Resignation.” As employees quit their jobs in record numbers, according to USA Today, this Total Compensation Statement may be the message that conveys that you, their employer, care about them and provide benefits that go beyond the organization’s front door to provide for their health, education, retirement, etc.

How to use them to RECRUIT new employees

I recently attended a local event where Sheetz, a ‘new to our area’ gas station/convenience store/fast food restaurant, was handing out free cookies, drawing in the crowd with sugar, and recruiting fliers. What caught my eye was not another flyer for another job, rather a flyer showcasing what you could earn working at the company in terms of Total Compensation. That total number was big and bold right at the top and included their base pay, benefits, and retirement contributions. The flier also showed how an employee could progress through their four employment levels and each level showed the total compensation in bold at the top. You immediately saw that you could earn $31,166 per year (rather than $10.60 an hour base pay). What a great way to stand out and catch the eye of job seekers!

Thank you to Lorrie Diaz, Senior HR Consultant with Strategic HR, for contributing to this HR Question of the Week.

Need assistance in creating a Total Compensation Statement? Strategic HR will work with your organization to develop a great strategy for using Total Compensation to recruit and retain your talent and even create the statements for you. Contact us to get started!

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What Role Should HR Play in Benefits Open Enrollment to Ensure Success?

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HR Question:

I recently took on the responsibility of overseeing our company’s benefits. Can you offer advice on the role HR should play in benefits open enrollment to ensure its success?

HR Answer:

As many employers, like yourself, are in the midst of planning for benefits open enrollment, it takes me back to the early days in my HR career. During one of my first HR positions, I assumed that my employee benefits broker could effortlessly pull off a stellar enrollment while I worked on other HR priorities. That’s when I learned – the hard way – that a broker cannot work autonomously to assemble and communicate your benefits program.

There’s no doubt that employee benefits brokers play a vital role in any benefits enrollment process. They know what benefits programs are available, which vendors can provide them, and how benefits are priced. An experienced employee benefits broker will also take the time to understand your organization and develop a customized employee benefits plan to meet your workforce’s needs. However, they cannot operate effectively without an HR professional taking a leadership role in the process. Having learned this lesson firsthand, I can share the following suggestions on the role HR should play in making your benefits open enrollment successful.

Identify benefits that give your company a competitive advantage.

Can a well-stocked benefits plan make your company the lead horse in the race for talent or help improve your retention? You bet! In their August 2021 survey, PwC revealed that employers underestimate the value of benefits in retaining employees despite the fact that benefits were identified as the number two reason employees were looking for new jobs. Employers who present both employees and candidates with a mix of competitive pay AND an enticing selection of health, retirement, and financial benefits can put themselves on the “employer of choice” A-list.

Plan for benefits that fit with workplace changes.

You may have more employees who now work remotely, either full-time or for some days of the week. Their family members are likely also dealing with workplace, school, or daycare changes. Consider benefits plan enhancements that address their needs, such as supplemental child care or elder care support. In addition, a recent SHRM article shared insight from Doug Ramsthel, executive vice president and partner at Burnham Benefits, explaining that employers “are likely to see an increase in spouse enrollment, as labor statistics indicate more spouses have elected to stay at home instead of work and will need coverage now, through the working spouse.”

Additional considerations for your benefits plan design include:

  • Many employees may have a greater awareness of the need for both short-term and long-term disability benefits and mental health support.
  • The use of telemedicine has increased significantly as a result of the pandemic. More employees are now comfortable with receiving virtual care.
  • Some employees may want help with financial concerns, like how to best preserve their retirement benefits while balancing financial cash flow needs.

If you’re not sure of what benefits your employees would value most – ask them! Taking the pulse of your employees’ preferences will help you to identify the benefits that they value the most, and perhaps shine a light on benefits that may no longer hold the value they once did.

Leverage the most effective ways to communicate with employees.

You know how to best deliver important messages to your employee audience. Differences in employee ages and life stages, locations (office, manufacturing facility, remote, etc.), and comfort levels with technology have likely driven different communications approaches. Handing out a benefits enrollment form and brochure or mailing it to employees’ homes may be useful for some, but it is only the start of the communications process. HR can play a critical role in making your benefits open enrollment successful by using additional communication tools that speak to broader communication preferences including:

  • Text messages. Although email is universally used, could text messaging be a helpful tool for your employees? You know that many of your employees, regardless of age, use texting as a way to get updates. It can also be a great communication tool for employees who work on the road or don’t have consistent access to a computer in their work day. You can use texts to provide prompters, deadlines, or answer questions. You can also use texts to remind employees about underutilized benefits to drive participation.
  • Website / Mobile App. Consider providing employees with enrollment information through an online benefits website or mobile app that can be accessed 24/7. This site can be updated throughout the enrollment period with FAQ’s, details of new benefit offerings, and deadline reminders. Contact information may include a chat feature or texting options for questions. You can also add events to make the enrollment process both fun and enlightening, such as quizzes, benefit enrollment scavenger hunts, polls, videos, and infographics.
  • Webinars and virtual meetings. Video-based webinars, town hall meetings, and “ask me anything” sessions with members of the benefits team or broker can be effective approaches. Employees may have varying shifts or conflicting schedules, or they may want a family member or significant other to attend a meeting, so you may want to host multiple sessions over different time zones to maximize the number of participants who can participate in a live session. These webinars should also be recorded, posted on the company employee site, and include the opportunity to email or text in questions for employees who cannot attend a live event.

Take it from me. Your active participation in the benefits enrollment planning and communication process is a vital part for success!

 

Thank you to Strategic HR’s Terry Wilson, SPHR, SHRM-SCP, Senior HR Consultant, for contributing to this HR Question of the Week.

Do you need help in determining the benefits that best fit your organization? Or could you use help in developing Total Compensation Statements? Learn more about our Benefits and Compensation Services or contact us today. 

 

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Do I Have to Pay Taxes On My Unemployment Benefits?

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HR Question:

It’s tax season, and I’m a little confused about how to handle the unemployment benefits I received in 2020 – do I have to pay Federal and State taxes on this income?

HR Answer:

Millions of people impacted by the COVID-19 pandemic were able to receive some relief through unemployment benefits. As the nation navigates our annual tax season (a little later than normal, as the tax deadline was delayed until May 17), many are surprised to learn that income is actually taxable!

When it comes to federal income taxes, unemployment benefits are taxed as if they were wages. The American Rescue Plan, signed into law on March 11, 2021, includes a provision that makes the first $10,200 of unemployment nontaxable for each taxpayer who made less than $150,000 in 2020. If you are married, and your spouse also received unemployment, both of you can exclude $10,200.

However, when it comes to state income taxes, it depends on where you live.  Some don’t tax them at all, while others are making exceptions for 2020 and 2021 as a result of the pandemic. To help taxpayers understand how unemployment benefits are taxed on a state-by-state basis, Kiplinger created a comprehensive guide. Let’s take a look at the guidance for Ohio, Kentucky, and Indiana:

Ohio

Ohio remains aligned with the federal government exemption guidelines for unemployment income in 2020, meaning the individuals are not required to pay taxes on unemployment benefits up to $10,200. The IRS is expected to issue a refund for anyone who filed prior to the American Rescue Plan being enacted. More details to come.

Kentucky

Kentucky will not provide an exemption for up to $10,200 of unemployment compensation received in 2020. Kiplinger provided further guidance by highlighting that “[any] unemployment compensation excluded on a Kentucky resident’s federal income tax return must be added back on his or her Kentucky individual income tax return on Schedule M, Line 5, as an ‘Other Addition.’”

Indiana

Indiana is not currently allowing for an exemption for unemployment compensation, which means that “an amount excluded for federal income tax purposes has to be added back when filing your Indiana income tax return.” As Kiplinger pointed out, this could change depending on what the Indiana General Assembly decides in the coming months.

But a key point to note here is that there may be a part of unemployment benefits that are deductible (as Indiana considers unemployment benefits taxable). “The deductible amount depends on your federal adjusted gross income, how much unemployment compensation you receive, and your filing status,” Kiplinger reports. In order to calculate the exact amount of your deductions, Kiplinger also recommends completing the “Unemployment Compensation Worksheet” in the Form IT-40 instruction booklet.

For additional guidance on how unemployment benefits are taxed in your state, contact your tax advisor or get in touch with your state’s Tax and Information Assistance contact.

 

Thank you to Strategic HR’s Terry Salo, Senior HR Consultant, for contributing to this HR Question of the Week.

Strategic HR knows that keeping abreast of HR Compliance issues can be daunting, especially when the laws keep changing. We can help you stay compliant by fielding your questions and offering resources to help you identify and mitigate compliance issues. Visit our HR Compliance and Recordkeeping page to learn about our auditing services which can help you identify trouble spots in your HR function.

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Are Employee Gift Cards Considered Taxable Benefits?

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An excited employee holding up a gift card.HR Question:

To thank my employees for their extra efforts, I have provided them with a $50 gift card.  Accounting is telling me I have to report the value of the gift cards as taxable benefits.  Is that true?

HR Answer:

Yes, it’s true! According to the IRS, cash, gift certificates, and gift cards are considered taxable fringe benefits and must be reported as wages. But you may be relieved to know that this rule doesn’t apply to all gifts or perks that you may give to employees.

The IRS tells us that we can exclude the value of a “de minimis” benefit from an employee’s wages.  For those unfamiliar with a “de minimis” benefit, the IRS defines it as “any property or service you provide to an employee that has so little value (taking into account how frequently you provide similar benefits to your employees) that accounting for it would be unreasonable or administratively impracticable.” Most employers tend to categorize de minimis gifts in the under $50 range, but for some, it can go upward of $100.

In comparison to cash or cash equivalents which are always considered taxable benefits, small gifts have much more flexibility when it comes to tax responsibilities according to the IRS. But how organizations denote “small” is still up for negotiation. When deciding on a gift or fringe benefit for an employee, consider the value and the frequency of the gift or benefit. For example, purchasing a book for an employee for their birthday would be excluded. Purchasing a book every month for an employee would not be excluded due to the frequency of the gift, regardless of the value of the book.

Additional Examples of Tax-Exempt Benefits

Other examples of de minimis benefits include such things as some meals, occasional parties, occasional tickets for events (not season tickets), holiday or birthday gifts (other than cash or cash equivalents). Essentially, occasional gifts that can’t be redeemed for cash value can be considered as these exempted benefits.

There is also an exemption for achievement awards, which come with additional rules of their own. Examples of these gifts include gifts for achievements such as safety milestones or length of service or anniversary milestones. Certain achievement awards can be excluded from the employee’s wages if the awards are tangible personal property and meet certain requirements. Notable exceptions from The Tax Cuts and Jobs Act prohibit certain property as an employee achievement award, including vacations, lodging, stocks, bonds, and securities. Limitations are further detailed in the Act, including $400 maximum for non-plan awards and up to $1600 if you have a documented, non-discriminatory program surrounding the awards.

Additional requirements exist for these achievement awards. For example, length-of-service awards can’t be received during the employee’s first five years of employment or more often than every five years. Also, safety awards can’t be given to more than 10 percent of eligible employees during the same year.

Employee awards are an important part of employee engagement.  It is important, however, to make sure you don’t turn that $100 thank you gift card into a much more expensive “gift” by assuring you are properly handling the taxes accompanying such a gift.

Strategic HR knows that keeping abreast of HR Compliance issues can be daunting, especially when the laws keep changing. We can help you stay compliant by fielding your questions and offering resources to help you identify and mitigate compliance issues. Visit our HR Compliance Services to learn more.

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Mental Health Concerns in the Workplace

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In today’s chaotic environment, many American workers have been searching for ways to cope with the “new normal.” Between the pandemic, civil unrest, a divisive and contentious election, and frequent changes in their day to day life, it’s no surprise that mental health concerns in the workplace are on the rise. What impact can your employees’ mental health have on your organization?

In a recent study of 12,000 employees conducted by the Boston Consulting Group, individuals with better mental health were about two times more likely to maintain or improve their productivity when compared to those who were experiencing worse mental health during the pandemic. When surveyed about their mental health needs, TELUS International found that roughly 80% of workers would quit their current role if a new position provided more support for their mental health needs.

In this unique moment of increased remote work, additional challenges have presented themselves. In that same study, four out of every five workers indicated that they found it difficult to separate their work life and home life when working remotely due to the pandemic. Between the longer days and later hours resulting from a lack of structure when working from home, the mental strain led to an inability to maintain a positive work-life balance. This trend can be very difficult to sustain on a long-term basis, eventually impacting employee productivity and the quality of their work.

So how can HR and business leaders partner together in this remote/hybrid work environment? The same TELUS survey allowed employees to voice the changes they would most like to see implemented.

Encouraging the Use of PTO

Roughly 97% of those surveyed believed that taking vacation days is important to their mental health. In fact, over half of those surveyed have taken a “mental health day” since the pandemic began. Without the ability to travel or get away for vacation, employees may find themselves hesitant to take time off. Leaders should encourage the use of available PTO to disconnect, recharge, and relax – even if it’s within their own backyard.

Creating Flexible Scheduling (Without the Extra Hours)

Nearly nine out of every ten respondents agreed that a flexible work schedule would positively impact their mental health. This would allow employees to take mental breaks during the day, catering to children’s school schedules and family needs while reducing the guilt associated with “not being available.” When implemented correctly, this gives employees a feeling of control, reduces turnover, and boosts morale.

Provide Professional and Personal Interaction

Many employees would benefit from additional coaching or “reach outs” through the week from their managers or leaders. By connecting up and down the ladder and across departments, these unstructured check-ins can allow employees to fill the social gaps they lack from the isolation that naturally comes with remote work. In fact, many businesses have also implemented virtual “happy hours” to have their team gather for social interaction. Be sure to strike a careful balance here to avoid “Zoom Fatigue” by bombarding each other with video calls and check-ins.

Implement Telehealth Initiatives

There has been an increased demand for remote counselors or therapy sessions. In fact, the American Psychology Association has indicated that telehealth counseling can be just as effective as in-person counseling especially for younger generations that are used to using technology. It also allows for easier scheduling, lower costs, and a more private environment than the traditional face-to-face setting. Connecting employees to resources that provide this kind of remote support can allow individuals to work through their stress and develop coping mechanisms with trained professionals.

 

The COVID-19 pandemic has increased the ongoing conversation around mental health and highlighted the importance of taking care of ourselves, both in mind and in body. HR professionals and business leaders have an opportunity to make a positive impact on their lives and the health of their employees by building bridges for interaction, implementing mental health initiatives, and guiding employees to utilize the resources they have at hand. Strategic HR created this extensive compilation of mental health resources as an easy-to-use reference for employers to support the mental wellbeing of their employees. By encouraging frequent conversations, utilizing available resources without attaching stigma, and establishing positive practices surrounding mental health, businesses can see themselves and their employees through these uncertain times with success.

Special thanks to Mike Coltrane, Talent Acquisition Consultant, for contributing to the Emerging Issues in HR!

Your employees face challenges every day. We can help you to ensure that your company policies and benefits best support your employees’ overall well-being. Visit our Benefits and Compensation page or our Health, Safety, & Security page to learn more. Or, better yet, contact us.

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How Can We Address Pay Compression?

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HR Question:

To remain competitive in the marketplace, our company’s upper management decided to raise our minimum rate of pay. Unfortunately, HR was not included in this decision that has now led to salary compression and angry seasoned workers. How do you recommend for our human resources team to handle this?

HR Answer:

This is a challenging situation that you find yourself in, and you’re not alone in this struggle. In the tight labor market that we’re experiencing, many companies are struggling to find qualified workers to fill their open positions. As a result, many organizations have had to reevaluate their employer value proposition in order to attract and retain the best employees. Evaluating salary competitiveness is an important component in this process to ensure that you’re meeting candidates’ expectations. However, in doing so, it’s important to also consider the pay rates of your current workforce and how changes might impact them. Otherwise, an organization could risk dealing with salary compression issues just as you are.

What is pay compression?

For those who may not be familiar with the term, pay or salary compression occurs when the pay of newer or lower-skilled workers approaches the pay of your more seasoned and/or experienced workers. Pay compression can lead to disharmony and lessen engagement in the workplace as the more tenured workers feel less valued for the contributions they have made and continue to make to the company.  We are seeing this happen more frequently as the competition for talent remains at a consistent and long-term high, many companies are finding it necessary to raise starting pay to attract the workers that they need. However, at the end of the day, pay and pay equity matters not just to those you are trying to recruit, but also those who are part of your existing workforce.

If you’re wondering how employees found out about the salary discrepancies, let’s face it – employees talk. Even though your company may frown upon it, this activity is protected under the rules of the National Labor Relations Board (NLRB) which enforces the National Labor Relations Act (NLRA). The NLRA protects employees’ rights to discuss conditions of employment, such as safety and pay, even if you’re a non-union employer. The NLRB considers these discussions “protected concerted activity” and defines them as when employees “take action for their mutual aid or protection regarding terms and conditions of employment.”

How can you repair the damage of salary compression?

It’s unfortunate that HR wasn’t brought into the decision-making process prior to implementing the new salary changes. On the surface, it probably seemed that raising the company’s minimum pay rate could only lead to positive results. It probably did make a positive impact on your talent acquisition efforts. However, it may lead to a serious retention issue for your experienced workers if it goes unaddressed.

Our best advice at this point is to be honest with your employees. Provide them with the explanation that probably should have come before the new starting salary changes were implemented.

Here are some things to consider and/or information to address with your workforce:

  • Be transparent. Help them to appreciate the reasoning behind the decisions that were made. Understanding the “why” goes a long way with accepting the outcome.
  • Help them to understand the reality of the labor market and how difficult it has been for you to fill open positions.
  • Share all of the other actions you have taken to attract new workers prior to (or in addition to) raising the starting salary.
  • Remind them that you realize the longer positions are open, the longer the burden of work is spread across fewer hands. It is in their best interest that the open positions are filled as well.
  • Let them know that you hear their concerns and share what you plan to do to address them.

If you are open about the decisions that have been made and why they were made, your employees will be able to see how you had to take action in order to attract the workforce that you need to keep your organization moving forward. Some may not like what they’re hearing, but it can help them to respect it.

To address the pay equity concerns that have been raised, you may want to do an analysis of your compensation structure and salary ranges to identify inconsistencies and to ensure you are in line with market trends, internal needs, and your company goals. For additional help, HR Daily Advisor has outlined steps you can take to address pay compression in your organization.

For organizations that are navigating through today’s difficult labor market and looking for ways to be more competitive, we urge you to involve human resources in your strategic planning. HR can help to assess the potential impact of decisions on your workforce and develop an appropriate communication plan to ensure a smooth implementation.

 

Strategic HR has the answers to all of your tough Benefits and Compensation related questions. Whether you need a job analysis of your positions or need to update (or write) job descriptions, Strategic HR can do the job. Please visit our Benefits & Compensation page for more information or Contact Us to discuss your needs.

 

 

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Low Cost Benefit Ideas

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Question:

We are a small business trying to attract and retain staff in this competitive job market.  We can only offer so much in compensation. Are there any low-cost benefit ideas you can recommend?

Answer:     

With unemployment levels at a record low, attracting and retaining talent is extremely hard regardless of the size of your business.  But, you are on the right path to be thinking about the benefits you offer in addition to compensation. In a recent Workforce Report by AFLAC, over half of employees (55%) say they are at least somewhat likely to take a job with slightly lower pay but a more robust benefits package.

Many people often think of the traditional medical, dental, vision, and retirement plans as the cornerstones of benefits offerings, but your benefits can reach far beyond this list. To stimulate your brainstorming process of benefit opportunities, take a look at our article featuring the Top 10 Benefits of 2019. Some of the most popular lower-cost options that we found in our research included:

  • Flexible Working Options – This can include working remotely and flexible scheduling.
  • Professional and Career Development – This can be accomplished through reimbursement of professional development memberships and offering internal and external training and mentorship opportunities.
  • Unlimited PTO – This could allow employees to take as many vacation, sick, and mental-health days as they need, as long as they meet their performance goals.
  • Free Food and Beverages – These on-site perks encourage mingling and an easy way to refuel and recharge.
  • Ancillary Benefits – Some examples include Teledoc, employee assistance programs, legal assistance, and identity theft protection.
  • Health & Wellness – These can range from options that support physical wellness (i.e., gym membership reimbursements, on-site exercise classes, coordinating company teams for 5K run/walk, etc.) to ensuring financial wellness (i.e., financial planning training and support).

So, what benefits should your organization offer? The secret answer to your question is…”Ask your employees.”  Every organization is different, and what works in one organization doesn’t necessarily work in the next.  Just because a particular benefit works for Disney, Southwest Airlines, Zappos, or the company next door, it doesn’t mean it will work for your organization. Far too often, employers assume they know what employees want, but their assumptions could not be further from the truth.

Your best way to determine the perceived value of your benefits is to simply ask your employees.  Gathering employee feedback can be done in many ways, ranging from having a casual conversation with your employees to conducting focus groups or a formal survey. You’ll want to choose the method that fits your organization best.

Questions to consider asking include:

  • How satisfied are you with each of the company benefits?
  • Which of our benefits are most important to you?
  • Which of our benefits are least important to you?
  • How satisfied are you with our current benefits?
  • Are there benefits you’d like to see implemented?
  • How do you consider our benefits compared to those offered by other companies?
  • How interested would you be in the following benefits? (Provide a list of new options for which you’d like to gauge interest.)

With some of the questions above, you’ll want to include a list of your current benefits and provide a Likert scale for your employees to rate their answers.  You may find some of the benefits you think your employees love are not important to them at all and are costing you quite a bit of money. Having this knowledge gives you the opportunity to reallocate your dollars toward benefits that will help you to both attract and retain talent.

As you review your benefits with your employees, you may find not all of them know what you offer.  By simply asking your employees, it gives you an opportunity to market your benefits to your employees. To ensure that your employees have a solid understanding of the benefits that you offer, we recommend that you provide the following:

Benefits Summary:

If you don’t already have one, consider creating a benefits summary that lists each of your benefits, eligibility, and cost.  This tool can be shared with employees and used as a recruitment tool during your hiring process.

Total Compensation Statements:

Develop total compensation statements for your employees that include all of the costs that your organization covers on behalf of the employees,  such as compensation, bonuses, employer contributions on premiums, retirement match, taxes, etc.

Benefits Marketing:

Your job doesn’t end by identifying and setting up the benefits for your employees.  You will need to regularly update employees on your benefits. What tools do you already have that you can take advantage of (i.e., employee newsletter, bulletin board, company-wide meetings, huddles, etc.)? We do not recommend a one and done approach, rather, you will need to continually share information to keep your organization’s benefits top of mind for your employees.

As a smaller business, you may not have the funds to lead the market in compensation or provide 100% employer-paid health. However, if you know what your employees want, the funds you are able to afford can be better allocated to the benefits your current and future employees want.

 

Providing adequate Benefits and Compensation for your employees is key to the recruitment and retention of a well performing workforce, and having the right policies in place can make or break a company. Strategic HR understands this critical need and can conduct a benefits analysis of your current offerings and make recommendations to help you to meet today’s competitive market. Please visit our Benefits and Compensation page for more information on how we can help get you competitive today.

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ERISA’s Summary Plan Description Requirements

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(By Diane Cross, Compliance Analyst at HORAN. Reposted from HORAN’s Health Benefits Compliance Blog).

Question:

Are you in compliance with ERISA’s rules regarding Summary Plan Descriptions?

Answer:

The Employee Retirement Income Security Act (ERISA) sets minimum standards for employee benefit plans, providing several rules for private-sector employer sponsored group health plans (governmental and church plans are exempt from ERISA). Among ERISA’s many rules is the requirement to provide each participant with a Summary Plan Description (SPD). We often discover that many employers mistakenly believe they are compliant with this requirement when they are not, as discussed further below. The good news is, there are tools available to help achieve compliance.

The SPD is a document that communicates plan rights and obligations in a way that is easily understood, explaining the plan’s benefits, claim review procedures, and the participant’s ERISA rights. And, it must be distributed to participants at certain times. A common misunderstanding for employers is that the plan’s certificate of insurance/benefit booklet provided by an insurance carrier or third-party administrator (TPA) meets ERISA’s SPD requirement. Most often, this is not the case. The group health plan sponsor will need to provide additional information that may not be contained within the booklet created by the insurer to meet this requirement. For example, ERISA requires SPDs to include certain types of information such as plan number and plan year, employer’s tax ID number, name and address for the plan administrator, and plan contribution structure – which is typically not included in the certificate of insurance provided by a carrier.

To meet the SPD requirement, an employer can use a wrap document (SPD wrap) that includes the ERISA-required information that the certificate or booklet prepared by the insurer or TPA may not include. This document is called a wrap document because it essentially “wraps around” the insurance certificate or benefit booklet to fill in the missing ERISA-required provisions. In this scenario, the wrap SPD and the insurance certificate/booklet, together, make up the plan’s SPD.

When must an SPD be provided to a plan participant?
Participants must receive an SPD:

•Within 120 days of the plan becoming subject to ERISA;
•Within 90 days of enrollment for new participants;
•Every 5 years if material modifications are made during that period; or
•Every 10 years if no amendments occur.

Are all group health plans required to provide participants with an SPD?
All group health plans subject to ERISA must provide participants with an SPD, regardless of size. Both insured and self-funded group health plans must comply with the federal laws governing SPDs. While ERISA contains an exception for group health plans with less than 100 plan participants, that exception only applies to reporting requirements (e.g., 5500 filings).

Employers subject to ERISA should revisit their plan documentation to make sure they are compliant with ERISA’s SPD requirement, as not having an SPD can be costly for employers. For example, if an employer fails to provide an SPD within 30 days of a participant’s request, fines of $110 per day can accrue.  Without an SPD, it is difficult for an employer to respond to such request.  For more information on the SPD requirement, its required content, or how to utilize an SPD wrap document – contact your HORAN representative.

Thank you to HORAN for providing the content for our Question of the Week. HORAN serves as a trusted advisor on employee benefits, wealth management and life and disability insurance. To learn more about HORAN, please contact HORAN for additional information.

It’s never ending. Just when you thought you had a handle on recent regulatory changes something new crops up. There isn’t enough time in the day to keep on top of everything! That’s where Strategic HR can help. We stay on top of the changes so you don’t have to. Ask us for assistance with any of your benefits, compensation or other regulatory needs. Please visit our Benefits & Compensation page for more information on any of these services.

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Who Is Responsible to Provide COBRA Coverage to M&A Qualified Beneficiaries?

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(By Diane Cross, Compliance Analyst at HORAN. Reposted from HORAN’s Health Benefits Compliance Blog)

HR Question:

Business reorganizations, such as mergers and acquisitions (M&A), directly impact employee benefits administration – and one consideration is COBRA responsibility. What is our COBRA responsibility as a result of our business sale (or purchase)? is a common question we receive from employers.

HR Answer:

The short answer is, it depends on the circumstances, discussed further below.

Who is Responsible to Provide COBRA Coverage to M&A Qualified Beneficiaries?
A seller and buyer may contractually allocate COBRA responsibility as part of the transaction. If that is the case, COBRA responsibility will be outlined by the terms of the contract. In absence of contracted terms, or if the party who was contractually responsible for providing COBRA fails to do so, the IRS provides guidelines that outlines who has COBRA responsibility. Generally, if the seller maintains any group health plan after the transaction, the seller bears responsibility for providing COBRA coverage to the M&A qualified beneficiaries. 

Who are M&A qualified beneficiaries?
For the purposes of COBRA, M&A qualified beneficiaries include (1) individuals who are receiving COBRA coverage under the seller’s group health plan at the time of the transaction; and (2) individuals who experience a loss of coverage due to a qualifying event in connection with the transaction.

If the seller does not maintain any group health plan after the sale, who bears COBRA responsibility will depend on the structure of the transaction. In a stock purchase (the buyer assumes the role of the seller and generally assumes responsibility for all the seller’s employee benefit plans as a matter of law), the buyer is responsible for providing COBRA coverage to M&A qualified beneficiaries. However, in an asset purchase (buyer usually does not assume any plans or plan liabilities unless a buyer affirmatively adopts or continues the seller’s plans), buyer is responsible for providing COBRA coverage to M&A qualified beneficiaries only if the buyer maintains a group health plan and is considered a successor employer.

When is a buyer a successor employer?
A buyer is a successor employer if it continues the operations of the business without substantial change or interruption, and the seller does not provide any group health plan after the transaction.

Why is this Important?
Aside from employers understanding their COBRA responsibility generally, the impact of COBRA liability for M&A beneficiaries could be significant. For example, a buyer assuming COBRA liability could result in a negative impact to the buyer’s premiums; for a self-funded plan, a buyer assuming COBRA liability can impact the plan’s finances especially if M&A beneficiaries have high claims expenses. Such issues, if determined early enough in the process, could be factored into negotiations (through the purchase price or handled another way by agreement).

When negotiating the purchase or sale of a business, employers should be mindful to include COBRA considerations early in its due diligence and discuss with counsel to understand any potential responsibility. Please contact your HORAN representative with questions.

Thank you to HORAN for providing the content for our Question of the Week. HORAN serves as a trusted advisor on employee benefits, wealth management and life and disability insurance. To learn more about HORAN, please contact HORAN for additional information.

Strategic HR is ready to assist you with any of your challenging situations around Benefits and Compensation. We offer assistance with everything from job descriptions to policy development to help address your difficult issues that impact employee compensation or benefits. Please visit our Benefits and Compensation page for more information on how we can assist you.

 

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Employee’s Failure to Pay Premiums Under FMLA Protected Leave

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HR Question:

An employee on FMLA protected leave of absence has stopped paying for their health insurance premiums. Is it safe to terminate their health coverage given the employee’s failure to pay premiums?

HR Answer:

If the employee is on FMLA protected leave, absent any written policy that provides a longer grace period, the regulations require an employee receive a 30-day grace period to pay for benefit premiums before health coverage can be terminated. In addition, employers are required to provide the employee a written notice at least 15 days prior to the end of the grace period informing the employee that benefits will be terminated if payment isn’t received. It’s recommended that the written notice be sent via certified mail and in an electronic format (if the employee has communicated via email in the past). Over Communication to understand the ramifications of the employee’s failure to pay premiums is beneficial.

Failure to pay when not on FMLA leave

If the employee is not on FMLA-protected leave – the existing policy, practice, or precedent for how similar situations have been handled (non-FMLA related leaves) should dictate how to proceed as practices should be consistent. For ease of administration, it may be beneficial to handle the non-payment of benefit premiums for non-FMLA protected leaves in the same fashion – even if doing so is more than is legally required.  

For someone who is not yet on a formal leave of absence but may be out due to medical reasons, a formal memo should be sent to the employee. The memo should outline the employee’s requirement to notify the employer of the reason behind their absence, documentation to support the need for a medical leave (if applicable), and what accommodations (if any) may be needed. The memo should also outline the employee’s responsibilities for payment of health insurance premiums. Once again, prior to terminating health insurance, the memo should be provided to the employee, a minimum of 15 days prior to terminating health coverage.

For additional information, the U.S. Department of Labor provides this guidance.  

Strategic HR is ready to assist you with any of your challenging situations around Benefits and Compensation. We offer support ranging from salary and benefits competitive analysis, ACA assessment and reporting, and compensation structure design to payroll/benefits administration, including FMLA. Please visit our Benefits & Compensation page for more information on how we can assist you.

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Can Employers Prohibit Wage Discussions Between Employees?

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Question:

We’ve been hearing a lot about the issue on wage discussions. Can I prohibit our employees from talking about their salary and benefits with each other?

Answer:

Employers may not discourage or prohibit wage discussions between employees. Likewise, employers may not in any way discipline or retaliate against an employee for discussing their wages or other terms and conditions of employment. Prohibitions of this nature infringe upon employees’ protected rights under Section 7 the National Labor Relations Act (NLRA).

The NLRA grants all employees (not just those in unions) the right to organize and engage in “concerted activity . . . for the purpose of mutual aid or protection.” This includes discussions about wages, benefits, managers, facilities, safety issues, and just about anything else that two or more employees might have a stake in, or opinion about. As a result, the protections provided by the NLRA are broad. Here are a few examples of protected activity:

  • Employees discussing how much they are being paid, whether via email, break room chat, or a conversation on someone’s Facebook wall;
  • Individual employee complaints regarding wages or employment conditions, if they reflect general workforce discontent or are attempting to elicit the support of co-employees to correct a problem;
  • Employees discussing improving working conditions with other employees;
  • Circulating a petition asking for better hours;
  • Participating in a concerted refusal to work in unsafe conditions;
  • Employees joining with co-workers to talk directly to the employer, to a government agency, or to the media about problems in the workplace.

The National Labor Relations Board (NLRB), which rules on cases related to NLRA violations, has been saying loud and clear – since the 80’s – that discussion of wages is an absolutely protected right. Distributing or enforcing a policy to the contrary is akin to having a policy that says the employer doesn’t pay minimum wage or overtime. We strongly recommend that employers immediately eliminate any written or unwritten policy telling employees that discussion of wages is discouraged or prohibited, or that wages are confidential, and also discontinue any written or unwritten policy of disciplining or terminating employees for this behavior.

THANK YOU to the HR Support Center for providing the content for this Question of the Week. The Virtual HR Support Center is a do-it-yourself, always ready, at your fingertips resource for everything Human Resources. This cloud-based product provides 24/7 access to exclusive, industry-leading HR tools and resources. From employee handbooks, job descriptions and other commonly used HR documents, to up-to-the-minute law alerts, state and federal law libraries, and unique training videos, the Virtual HR Support Center will help you effectively manage your HR compliance and employee relations needs. Contact Us to learn how the Virtual HR Support Center can put all the DIY HR tools you need at your fingertips.

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Can I Do a Mid-Year Election Change to my Section 125 Plan?

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Question:

I just went through open enrollment and now I want to change my election.  Can I?

Answer:

This question, or some similar variation, is all too common for employers to hear after the open enrollment period has ended. A response is not always a quick yes or no – per Section 125, which provides the rules for administrating a Section 125 plan (commonly referred to as a “cafeteria plan”), participant elections are generally irrevocable for the plan year. In other words, participants ordinarily may not change an election mid-year. As with many rules, there are applicable exceptions, discussed below.

If certain conditions are met, a plan may allow for a mid-year election change – that is, a change requested outside of open enrollment. In order for a participant to change an election mid-year, the change must be (1) allowed by the plan and (2) one of the IRS recognizes permitted election change events. While plans do not have to allow for employees to change their elections, most do.

For a mid-year election change to be allowed, the cafeteria plan must permit it in the written Section 125 plan document. While allowing a mid-year election change is a matter of plan design, the plan can only allow a mid-year election change as permitted by the IRS. Those permitted election change events include:

  • Change in marital status
  • Change in the number of dependents
  • Change in employment status
  • A dependent satisfying or ceasing to satisfy dependent eligibility requirements
  • Change in residence
  • Commencement or termination of adoption proceedings
  • Significant cost changes
  • Significant curtailment (or reduction) of coverage
  • Addition or improvement of benefit package option
  • Change in coverage of spouse or dependent under another employer plan
  • Loss of certain other health coverage (such as government provided coverage, e.g. Medicaid)
  • HIPAA special enrollment rights (contains requirements for HIPAA subject plans)
  • COBRA qualifying event
  • Judgment, decrees, or orders
  • Entitlement to Medicare or Medicaid
  • Family Medical Leave Act (FMLA) leave
  • Pre-tax health savings account (HSA) contributions (employees are free to change their HSA contributions whenever they wish, in accordance with the their payroll/accounting department process)
  • Reduction of hours
  • Exchange/Marketplace enrollment

While a cafeteria plan does not have to allow for all of the permitted election change events as listed above, it cannot be more generous than the IRS permits. When an employee experiences a mid-year election change event as recognized by the IRS and allowed by the plan, the change must be effective prospectively (with the exception for retroactive changes permissible under HIPAA special enrollment events such as birth or adoption). In addition, the requested change must be consistent with the event – an election change must correspond with requested change in status. For example, if an employee requests to change elections due to a divorce, the employee may drop coverage for the former spouse.

Employers should reference their Section 125 plan document to not only determine what is permitted when an employee asks about a mid-year change, but confirm that the plan allows for mid-year changes as intended.  Please contact your HORAN representative with any questions.

THANK YOU to HORAN for providing the content for this Question of the Week. HORAN serves as a trusted advisor on employee benefits, wealth management and life and disability insurance.  To learn more about HORAN, please contact your HORAN for additional information.

 

Strategic HR is ready to assist you with any of your challenging situations around Benefits and Compensation. We offer assistance with everything from job descriptions to policy development to help address your difficult issues that impact employee compensation or benefits. Please visit our Benefits and Compensation page for more information on how we can assist you.

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Do you know if you need to pay an intern or not?

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Question:

I read a notice that there are new requirements that must be met to consider someone an unpaid intern. What are the requirements and how do I make sure our company needs to pay an intern or not?

Answer:

This month, the Department of Labor (DOL) adopted a new test for determining if a company needs to pay an intern. When categorizing interns, employers should use this test—called the Primary Beneficiary Test—when determining if a worker can be properly classified as an unpaid intern or if they need to be classified as an employee and paid minimum wage and overtime. The DOL’s switch to the Primary Beneficiary Test creates a nationwide standard.

Previously, the DOL was using a six-question all-or-nothing test. An employer needed to be able to say “yes, the internship does that” to all six questions or else classify the worker as an employee. The new test is a balancing (or factors) test and has seven questions. No single question will disqualify the worker from being classified as an unpaid intern. Instead, the employer may look at the answers as a whole.

The new questions overlap significantly with the old questions. The major element missing from the new test is a focus on whether the intern is providing tangible benefit to the employer. The old test indicated that the employer should receive little to no benefit from the services of an unpaid intern, with the exception of goodwill and a qualified future applicant. The new test doesn’t ask if the employer is receiving a benefit.

In place of questions about whether the employer receives any benefits, the new test places more emphasis on the internship being academically focused. Only one of six questions in the old test asked about the training and educational aspects of the job, whereas four of seven do in the new test. Employers are free to look at factors outside of these seven, but should be careful about stretching to find new questions if these seven lead to an answer of “paid employee.”

Under the Primary Beneficiary Test, employers should consider the following when deciding if they need to pay an intern or not:

  1. The extent to which the intern and the employer clearly understand that there is no expectation of compensation. Any promise of compensation, express or implied, suggests that the intern is an employee.
  2. The extent to which the internship provides training that would be similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions.
  3. The extent to which the internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit.
  4. The extent to which the internship accommodates the intern’s academic commitments by corresponding to the academic calendar.
  5. The extent to which the internship’s duration is limited to the period in which the internship provides the intern with beneficial learning.
  6. The extent to which the intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern.
  7. The extent to which the intern and the employer understand that the internship is conducted without entitlement to a paid job at the conclusion of the internship.

A link to the new fact sheet and additional information can be found on the Department of Labor Wage and Hour Division website.

 

Strategic HR offers assistance with a variety of Benefits and Compensation needs, including understanding how DOL regulations affect your business and helping craft creative compensation plans. Please visit our Benefits and Compensation page for more information.

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Do I Have To Pay Employees for the Company Holiday Party?

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Employees socializing and eating at a company party.

HR Question:

Our organization is hosting our annual holiday party, and we’re trying to answer a question – do we have to pay our employees to attend?

HR Answer:

It’s that time of year again – the holiday season is here! And with this season come parties and events designed to celebrate this festive time of year, show appreciation for employees and their contributions, and build team camaraderie by gathering together. Plus, in a labor market where employee retention is a primary concern, holiday parties can be a way to provide levity to a stressful time, show an organization’s thanks and commitment, and engage employees (and potentially, their families). But just because it’s a work-sponsored event, does that mean employers have to compensate their employees for time spent at the party?

Do I Have to Pay Employees for the Holiday Party?

In general, employers are not required to pay employees if the company holiday party is considered voluntary and takes place outside of regular working hours. Holiday parties scheduled during the regular workday should be compensated. If the employer requires all employees to attend an event outside of regular working hours, then it may be considered work time and employees should be compensated for attendance. Be sure to follow applicable FLSA requirements as well as any internal policies that you have established.

How Should I Pay Employees for the Company Holiday Party?

If an employee is exempt, their salary covers all work obligations. Non-exempt employees, however, need to be paid for attending in the following situations:

  • If attendance is mandatory, non-exempt employees should be paid for the extra time and travel to and from the party (if it’s not held at the regular work location).
  • If the holiday party includes work-related activities, such as a meeting and/or team-building exercises, non-exempt employees should be compensated.
  • If a non-exempt employee is working at the event including set-up, clean-up, serving, and/or representing the company (i.e., wearing a mascot costume), they should be paid, even if they are working voluntarily. Want to keep internal costs down and avoid placing additional stress on your team? Don’t ask or permit non-exempt employees to work the holiday party.

It’s important to note some employment contracts or collective bargaining agreements may have provisions that require employers to pay employees for attending certain events, including holiday parties. Be sure to keep those agreements in mind when scheduling or factoring in potential costs for a holiday party.

What Else Should I Consider?

As always, whenever there’s alcohol involved, it’s important to keep some of the legal considerations in mind. For example, do you have a plan for handling alcohol? Will there be drink tickets or a cash bar? Do you plan to enforce a drink limit to help avoid DUIs and other potential risks? These and several others are good questions to ask to determine ways to limit the organization’s liability for this event.

In the end, it’s important for employers to communicate clearly about whether attendance is voluntary, and whether employees will be compensated for their time. The goal of a holiday party is to celebrate, relieve some stress, and enjoy spending time with your team – not to force people to gather if it’s not how they want to spend their time.

Thank you to Becky Foster, Senior HR Business Strategist, and Samantha Kelly, Senior Sales and Marketing Strategist, for contributing to this HR Question of the Week.

Do you find yourself without answers to tough Benefits and Compensation questions? Whether you need an analysis of your current benefit offerings, a review of your salary structure, or outsourced payroll/benefits administration, Strategic HR Business Advisors can do the job. Please visit our Benefits & Compensation page for more information or Contact Us.

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Are Wellness Program Incentives Taxable?

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Question:

Is it true that employees have to pay taxes on wellness program incentives?

Answer:

With wellness programs on the rise, there is plenty of opportunity for employees to receive various incentives – from t-shirts and event tickets to gift cards and cash.  As employers consider wellness program design and how to incentivize employees (if at all), they should keep in mind that many wellness program incentives are not excluded from income tax.  Does that gift card Johnny received for participating in a wellness program need to be included in his gross income?  Per the IRS, yes.  

Cash and non-cash incentives, rewards, and payments paid through an employer wellness program are not excluded from an employee’s taxable income (see IRS Memorandum 20162031) and should be included on the employee’s W-2 and subject to federal tax withholdings.  For example, non-cash incentives subject to taxation include discounts on products/services and certain merchandise prizes.  More specifically, the employee’s gross income includes:

  • Employer-provided cash rewards and nonmedical care benefits for participation in a wellness program; and
  • Reimbursements of premiums for participating in a wellness program if the premiums were originally made by salary reduction through a Section 125 plan.  

Note that employer contributions to an HSA, reduced major medical plan premiums, and benefits and services that are medical care (e.g., biometric screenings, smoking cessation programs, and health risk assessments) are generally excluded from an employee’s gross income and are not subject to taxation.  Also, certain benefits may fall into an exception through the “de minimus” rule, defined as the value being so small as to cause accounting of it to be unreasonable or impracticable.  However, employers should note that cash rewards are never considered “de minimis”.  A practical example of a wellness reward that would be considered “de minimis” is a t-shirt.

Special consideration should be given to the incentives provided as part of your wellness program.  Failure to report wellness cash and cash-equivalent incentives can cause significant penalties, including reporting penalties assessed per employee per W-2.  In addition, employee relations issues could result as the IRS can pursue employees who received, but never paid taxes on, such incentives.

THANK YOU to HORAN for providing the content for this Question of the Week. HORAN assists clients in wellness programs and incentive design. Please contact your Benefits Account Manager or HORAN for additional information.

Strategic HR has the answers to all of your tough Benefits and Compensation related questions. Please visit our Benefits & Compensation page for more information.

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What are the Advantages of Financial Wellness Programs?

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Question:

I’ve been hearing a lot about employers offering financial wellness programs as a benefit for employees in 2017.  What is a financial wellness program and what are the advantages of offering this benefit to my employees?

Answer:

Financial wellness programs are becoming increasingly popular as an employee benefit.  A 2016 Aon Hewitt report found that 55% of employers are offering at least one kind of benefit that is related to financial well-being.  By the end of 2017, that number is expected to grow to 77%.

Financial wellness programs are offered through financial planning companies, and even some local banks.  Employers partner with these companies to provide personalized financial support to their employees.  By doing this, you’re giving your employees the personalized tools they need to build a strong financial foundation, reduce debt, or plan for future expenses like their children’s college tuition or buying a home.

Unfortunately, finances play a leading role in elevating stress levels for about 52% of employees, according to a 2016 PwC Employee Wellness Survey.  To help alleviate that stress, employers are beginning to offer these programs.  For employees, personalized financial planning could lower stress levels, increase productivity at work, and provide the ability to create a solid financial foundation for them.  For employers, financial wellness programs could decrease turnover, improve employee job satisfaction, and lower healthcare costs.

Employees who thrive at home, thrive at work… and employers are starting to notice.   

 

Providing adequate employee Benefits and Compensation are key to recruitment and retention of employees and having the right polices can make or break a company. Strategic HR understands this critical need and can help you with any of your tough benefit and compensation questions. Please visit our Benefits & Compensation page for more information on how we can assist you with creating a strong Benefits or Compensation package.

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What Are the Benefits of Total Compensation Statements?

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Question:

What are total compensation statements and why should I consider them for my employees?

Answer:

Most of the time, an employee’s pay and benefits spread far beyond the base pay.  A total compensation statement can be anything from a simple, computer-generated spreadsheet to an elaborate, in-depth analysis with charts or graphs.  Providing total compensation statements is an easy way to share with employees how much the company has invested in them.

Total compensation statements typically include, but are not limited to:

  • Base pay, bonuses and commission
  • Paid leaves, PTO
  • Car/phone allowance
  • Employer contributions for Medical, Dental, and Vision coverage
  • Employer contribution for Flexible Spending, Retirement, etc.
  • Employer contribution for Life Insurance and Short-Term and Long-Term Disability Insurance
  • Stock options
  • Tuition assistance
  • Training and development opportunities
  • Travel expenses
  • Company discounts
  • On-site child care

Why should an employer consider total compensation statements?

The use of total compensation statements has proven that an extremely high percentage of employees now have a greater appreciation for the value of their employer paid benefits.  This boosts employee satisfaction, which in turn, leads to retention.  

Tips:

  • Include a letter from the president of the company or Human Resources.  By doing this, you are creating a message with a purpose.
  • Highlight benefits or programs that are often forgotten by many employees.
  • Be available for questions from employees or hold a meeting to address these questions.

Strategic HR offers assistance with a variety of Benefits and Compensation needs including total compensation statements.  Contact us now for more information and to talk about how we can help you create total compensation statements.

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Notice of Creditable Coverage

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Question:

My husband just received a “Notice of Creditable Coverage” at home from his employer.  As a Human Resources professional, I’m not sure what this is and I am wondering if I am supposed to be distributing something to my employees?

Answer:

Yes!  The Medicare Modernization Act requires entities, employers with prescription drug coverage, to notify Medicare eligible policyholders annually as to whether their prescription drug coverage is creditable coverage.  Basically, we must tell those covered if the company plan is “as good as” the standard Medicare prescription drug coverage. There are two disclosure requirements:

  1. The first disclosure requirement is to provide a written disclosure notice to all Medicare eligible individuals annually who are covered under its prescription drug plan, prior to October 15th each year.  There are other times when notification is necessary (such as upon joining the plan) but the 10/15 deadline is important because open enrollment begins for Medicare eligible individuals.
  2. The second disclosure requirement is for entities to complete the Online Disclosure to CMS Form to report the creditable coverage status of their prescription drug plan. The Disclosure should be completed annually no later than 60 days from the beginning of a plan year.

For sample, creditable coverage notices and model language, refer to the Centers for Medicare & Medicaid Services.

 

Providing adequate employee Benefits and Compensation are key to recruitment and retention of employees and having the right polices can make or break a company. Strategic HR understands this critical need and can help you with any of your tough benefit and compensation questions. Please visit our Benefits & Compensation page for more information on how we can assist you with creating a strong Benefits or Compensation package.

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Pre-tax and Post-tax on Benefits

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Question:

I have always taken my employee’s premiums for benefits out of their pay check on a ‘pre-tax’ basis.  It was my understanding that was something I was allowed to do.  Recently, I was told I am not technically allowed to do that.  Is that true?

Answer:

You ARE allowed to take premiums out of an employee’s check pre-tax, assuming it meets the required criteria.  Pre-tax benefit premiums are a great benefit to employees and employers.  HOWEVER…employers need to remember that in order to offer their benefit pre-tax (no Social Security, Medicare, Federal, or State withholding), a plan document must be in place so you are able to take the deduction pre-tax.  That document / plan is a Section 125 plan.  Without that plan in place, you are not technically able to deduct employee premiums, pre-tax. The most common deductions take pre-tax with the document are: Group health, dental, vision, flexible spending accounts, dependent care accounts, and health savings accounts.

Strategic HR offers assistance with a variety of Benefits and Compensation needs, including understanding how DOL regulations affect your business and helping craft creative compensation plans. Please visit our Benefits and Compensation page for more information.

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Do I Have to Allow Employees to “Opt Out” of Pre-Tax Deductions?

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Question:

If I have an employer that has a premium only (pre-tax / IRS Section 125a premium deduction plan) – do I have to allow employees the opportunity to “opt out” of the pre-tax deduction?  In other words, they want the premium to come out post-tax….do I have to allow that?

Answer:

Yes, employees must be given the option to participate in the pre-tax deduction and may elect to opt-out of this annually.  Depending on who you have your plan with, many offer an election form that should be completed annually opting “in” or “out” of the program.  If not, be sure employees put the request in writing so it cannot be questioned later.

Strategic HR is ready to assist you with any of your challenging situations around Benefits and Compensation. We offer assistance with everything from job descriptions to policy development to help address your difficult issues that impact employee compensation or benefits. Please visit our Benefits and Compensation for more information on how we can assist you.

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Department of Labor’s Wage and Hour Divisions Email Service

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Question:

At a recent HR meeting we were encouraged to sign up for the Department of Labor’s Wage and Hour Divisions email service. Why would we want to do this?

Answer:

The DOL provides the opportunity to receive free e-mail notices when new information is available on the website that includes over 100 different topics, in 17 categories, including Wage and Hour. The website www.dol.gov/dol/email.htm allows users to select notifications relevant to their interests.

As all HR professionals know, one of the challenges we face is keeping current on legislative changes, findings, and interpretations. Often the communications are sent in the form of opinion letters, or interpretations of the rules, by various DOL officials as they address issues brought up by other companies. These opinion letters do not provide legal guidance in administering DOL rules, but use court decisions as the basis for the opinion. They provide insight into how the officials think about a particular section of regulation or statue and sometimes even mirror some of the issues you may have at your worksite.  In a climate where legislative changes seem to be occurring daily, receiving a regular “heads-up” can only help our efforts to stay on top of it all.

Strategic HR offers assistance with a variety of Benefits and Compensation needs, including understanding how DOL regulations affect your business and helping craft creative compensation plans. Please visit our Benefits and Compensation page for more information.

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Paying to Get Ready for Work

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Question:

I have an employee telling me that I should be paying them for the time it takes them to go to their locker and get ready for work.  Is that true?

Answer:

Paying employees for the time they work seems pretty straight forward, however, the activities that they perform before or after their shift to ‘get ready for work’ can create a lot of question as to whether or not the time spent must be paid time by the employer.  The Fair Labor Standards Act (FLSA) provides guidance but the topic is still very murky and in some instances require a consult with your attorney to make sure you get it right.

The ‘go-to’ document to provide you guidance is the Portal to Portal Act and verbiage around compensation for all time spent within a continuous workday.  The topic that becomes most questionable is what activities are deemed “integral and indispensable” for the job and it is verbiage that many times is interpreted by the court and is specific to the industry and even sometimes the job.  Those activities that are deemed integral and indispensable are those that must be paid time for the employee.  As an example, if the employee is REQUIRED to wear certain clothes or certain equipment, the time spent in putting those items on must be paid time.  If it is something they prefer to wear, it is not necessarily work time or time that is paid.

As an employer, you need to look carefully at what employees do before or after they clock in or clock out for the day.  If they cannot perform their jobs without wearing certain items or equipment, it should be paid.  Dive in deeper to determine what it is that they are doing and then make a determination on whether or not it should be paid or not.  And as always…keep in mind that outside of the legal requirements, payment for such activities may just be “the right thing to do” in your workplace.

Are you hesitant when it comes to navigating FLSA and other federally mandated rules and regulations? Strategic HR understands your uncertainty. Ask us for assistance for any of your benefits and compensation needs including evaluating the exemption status of your jobs relative to the proposed changes. Please visit our Benefits & Compensation page for more information on any of these services.

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Are you familiar with the Portal-to-Portal Act?

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Question:

If I need to send an employee to “cover” at a worksite other than where they are regularly schedule to work, am I required to pay them for the time it takes them to get there?

Answer:

It depends! Luckily, the Fair Labor Standards Act (FLSA) addresses this issue specifically. Section 29 CFR § 785.38 (Portal-to-Portal Act) tells us that time spent traveling to work before the start of the workday or home from work after the workday is over is not considered hours worked or paid time. However, it does also tell us that the time an employee spends traveling from one worksite to another during the same workday, it is considered hours worked and thus they should be paid for the travel time. In your question, it would depend on when they were sent to the other site. For example, an employee arrives at their normal work location on Monday morning only to discover that they are being asked to cover at another location because they are short staffed. Because the employee already arrived at their assigned work location and you are asking them to go to another location after their arrival, the time spent traveling to the other worksite would be hours worked. IF you called that employee before they left their home and asked them to go straight to the different location, that would NOT be hours worked but rather considered time traveling to work under the Portal-to-Portal Act. For more information on travel time during the work day, visit www.dol.gov. The site also has a great resource, a fact sheet that provides information about hours worked. It can be found at : http://www.dol.gov/whd/regs/compliance/whdfs22.pdf 

It’s tough having to navigate the ever-changing FLSA laws and other federally mandated rules and regulations. Strategic HR can help. Ask us for assistance with any of your benefits and compensation needs. Please visit our Benefits & Compensation page for more information on any of these services.

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Smartphone Usage After Hours

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Question:

Many of our employees have smartphones. Do we have to pay them for every time they use it outside of regular working hours?  I tell them not to respond until work hours but many of them still respond to emails and texts outside of work hours.  What do I do?

Answer:

This issue has exploded as of late!  Most employers and employees use smartphones, an ideal tool to improve efficiency, productivity, and accessibility for their employees.  It does, however, become an issue, because non-exempt employees must be paid for all hours worked…this includes hours responding to emails, phone calls, and texts outside of “regular” work hours.  This is probably one of the most common violations that Wage and Hour auditors are finding.

So what to do?  As an employer, you need to have a policy in place requiring tracking of smartphone usage, even restricting use outside of regular business hours, and make sure to tie it into your overtime policy.   That being said, managers then cannot email employees during those off times, and expect an immediate response, or even a response first thing in the morning.  IF you find out employees are replying outside of regular work hours you need to (1) address the issue in terms of performance and (2) make sure you pay them!

For exempt employees, smartphone usage can be less of an issue, however, it can pose a problem.  If these employees are working any part of the workweek, they must be paid for the entire week.  Some companies make it a policy that employees must relinquish all smart devices (smartphones, laptops, tablets, etc.) when they are going to be off but honestly, this can be somewhat unreasonable if you need to touch base on a client issue or a “quick question”.

Consider these issues when you create policy and determine how you will handle such issues with  employees – whether exempt or non-exempt.  The Department of Labor website, www.dol.gov offers guidance for managing these types of concerns and making sure you are paying employees for actual hours worked.

Strategic HR has the answers to all of your tough Benefits and Compensation related questions. Whether you need an audit of your exemption statuses or a job analysis of your positions, Strategic HR can do the job. Please visit our Benefits & Compensation page for more information.

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FLSA Safe Harbor Provision

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Question:

I keep hearing people reference the “safe harbor” provision of the Fair Labor Standards Act and that I should have language included in my handbook about it.  What is the FLSA Safe Harbor Provision?

Answer:

Under the old FLSA provisions (pre-2004), if an employer made an improper deduction from an exempt employee’s salary, the employee would lose their exempt status and the employer would be required to treat not only the impacted employee but EVERYONE with the same title as though they are non-exempt.  Under the current FLSA rules, if an employer makes an improper deduction but follows the safe harbor provisions, they can correct the error but the employee and those with the same title DO NOT lose their exempt status.

To meet the requirements of the safe harbor provisions, the employer must do the following:

  • Establish a clearly communicated policy prohibiting improper deductions and including a complaint mechanism;
  • Reimburse employees for any improper deductions in a reasonable time frame; and
  • Make a good-faith commitment to comply in the future.

This does not protect employers who are frequent abusers but does allow a safety net to those who made the deduction in error.  Employers should create a safe harbor policy and communicate it to employees through the employee handbook.  For additional information, go to the Department of Labor website and review their safe harbor policies on the FLSA page.

It’s tough having to navigate the ever-changing FLSA laws and other federally mandated rules and regulations. Strategic HR can help. Ask us for assistance with any of your benefits and compensation needs. Please visit our Benefits & Compensation page for more information on any of these services.

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Aligning Compensation with Strategic Business Imperatives

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by Linda Gravett, Ph.D., SPHR, CEQC

A compensation philosophy relates to an organization’s commitment to how it values employees. A consistent and intentional pay philosophy gives both the organization and its employees a frame of reference when discussing salary in a negotiation. The goal of a compensation philosophy is to attract, retain and foster an environment that motivates employees. For organizations in the private sector, this typically requires a competitive pay philosophy. In the public and nonprofit sectors the focus is on benefits and the employees’ sense of value in the contributions their work provides to society.

Organizations attract, develop and retain quality employees through a total compensation approach. To accomplish this, astute compensation strategists use a mixture of the three main ingredients of a compensation system: base pay (salary); incentive pay such as cash or stocks; and benefits (rewards such as life and health insurance). A sound approach is a blend of all three.

An organization’s pay philosophy might be to offer salaries that are competitive in the industry, or it may decide to offer pay to attract junior level employees rather than senior level. In order to retain loyal and proficient seasoned workers, perhaps tailored benefits such as long-term disability will be offered. The challenge is to create a compensation system that includes all three components without exhausting the company’s resources.

Many organizations have a compensation philosophy that includes paying a competitive base salary that’s comparable to what employees could get somewhere else doing similar work. Additionally, if employees have equity in the company, that’s a powerful incentive to do well and encourage co-workers to excel. Another excellent incentive is the use of a signing bonus and later on, a retention bonus. The key, according to my research over the last 20 years, is to reward high-performers well to demonstrate their value in meeting strategic business imperatives.

Another consideration is whether your company wants to lead or lag the market with salaries and salary adjustments. Even though many companies review salaries only once a year, the marketplace is continuously moving. A company’s compensation, then, is likely to be at market value just once a year. As a consequence, companies must decide what time of year to offer raises and whether to lead the market at the beginning of the year and lag behind at the end of the year, or to lag behind at the beginning of the year and lead at the end.

Yet another consideration is whether to pay for employee proficiency or longevity, or a combination of both. The formula for employee proficiency involves calculating a comparatio — the employee’s salary compared to market. For example, if an employee earns 45,000 and the median in the marketplace for that job is $50,000, the employee has a comparatio of 90%. If this employee has worked at this comparatio for long, the company is at risk of losing him or her, especially if the employee is highly proficient.

The advantage of paying for proficiency is that the market value of jobs is tied to skills. Employers can assess how their employees stack up on any number of measures related to these skills. The Society for Human Resource Management (SHRM), at www.shrm.org, has numerous articles on developing a matrix of measures related to skills and compensation.

Under protective labor laws, a compensation program must be consistently carried out across all employees and cannot discriminate based on illegal factors such as race, gender, or disability. Companies have the absolute right, however, to differentiate based on factors such as level of position and skill sets required to perform a job.

I’ve found that organizations always benefit from being transparent about their compensation philosophy. A consistently followed, well-developed philosophy will make sense to employees and result in a sense of fairness. This approach can also be a strong recruiting tool, especially in today’s marketplace in which 20–somethings want to understand career growth opportunities before accepting a position. During a salary negotiation for a new employee, consider which would come across more positively: “My final offer is $65,000 and I can’t pay a dollar more”, or “My final offer is $65,000 which is at 100% of market.”

If your company hasn’t been intentional about a compensation philosophy in the past, I encourage you to think about it now. Underpaying or overpaying employees can cost the company in the long run, either in turnover or unnecessarily high salaries.

For more information on this topic, contact Dr. Linda Gravett at lsg@justthebasics.com orLinda@gravett.com.

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Paying for Smartphone Usage

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Question:

Many of our employees have smartphones. Do we have to pay them for every time they use it outside of regular working hours?

Answer:

This is becoming a much bigger issue, as more companies are using smartphones as a tool to improve efficiency, productivity, and accessibility for their employees. When talking about nominal usage outside of regular working hours, i.e., a few minutes a couple of times a week or month, it’s not an issue. However, typically, smartphone usage outside of regular business hours can extend well beyond that. You’ll want to carefully consider who really needs to have a smartphone or similar device for business purposes. If there is not a valid reason, reconsider issuing one to avoid potential problems.

Non-Exempt Employees – yes, you have to pay them for that time. This is probably one of the most common violations that Wage and Hour auditors are finding. To avoid a problem be sure to have a policy in place requiring tracking of smartphone usage, even restricting use outside of regular business hours, and make sure to tie it into to your overtime policy. That being said, remember that managers then cannot email employees during those off times, and expect an immediate response, or even a response first thing in the morning. Be sure to explicitly state this policy and remind your managers.

Exempt Employees – smartphone usage can be less of an issue, however, if the individual is off work or considered on leave, they must be restricted from working. For salary exempt employees, if they work any part of the workweek, they must be paid for the entire week.  Some companies make it a policy that employees must relinquish all smart devices (smartphones, laptops, tablets, etc.) when they are going to be off work. This can be especially problematic when an employee is still expected to be available for contact while on FMLA leave. If you are contacting them for work related reasons, it cannot be counted as FMLA leave, and they must be paid for the time.

Strategic HR offers assistance with a variety of Benefits and Compensation needs, including understanding how DOL regulations affect your business and helping craft creative compensation plans. Please visit our Benefits and Compensation page for more information.

 

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Volunteer Time

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Question:

Can my employee volunteer time to my non-profit organization or an event sponsored by the employer?

Answer:

For an exempt employee, ABSOLUTELY! There are no concerns regarding payment for an exempt employee under the FLSA, and they can actually be required to assist as part of their job, if it is part of their position.

For non-exempt employees….MAYBE. Under the FLSA, a non-exempt employee must generally (depending upon your State) be paid time and one half their regular hourly rate for hours worked in excess of forty in a workweek. The question becomes, does time spent by an employee volunteering their time to their organization (or event) count as hours worked?

In Opinion Letters issued by the Department of Labor some general guidelines were issued to eliminate the confusion of payment for “bona fide volunteer efforts for charitable purposes”. In general, volunteer status can be met when the following criteria is met:

  • Designation of “volunteer” status is not done unilaterally by the employer and it is truly a voluntary act with no coercion by the employer in an attempt to avoid minimum wage or overtime requirements;
  • The volunteer time must be for a civic, charitable, or humanitarian purpose without any promise, expectation or receipt of compensation by the employee (though a nominal fee may be provided);
  • The employee’s volunteer activities cannot not be similar to the job they perform as part of their regular employment; and
  • The volunteering must be performed outside the employee’s normal work hours.

IF a non-exempt employees meets this criteria and are willing to volunteer it may be best to have them sign a volunteer agreement – just so there are no concerns down the line.  Remember…that employee may be happy to do it now but when they get mad later, you could have quite a mess on your hands, even if it was determined to be voluntary.

** Be sure to wish Robin a Happy Anniversary – May starts our 20th year providing outsourced HR Solutions **

Strategic HR has the answers to all of your tough Benefits and Compensation related questions. Whether you need an audit of your exemption statuses, a job analysis of your positions or just need help defining your comp and benefit policies and procedures, Strategic HR can do the job. Please visit our Benefits & Compensation page for more information. 

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Snow Storm Pay

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Question:

What do you pay when a snow storm hits?

Answer:

This winter has been one for the record books, and with nearly two months of winter left to go there is a good chance that companies will be faced with this question. Fortunately, two Labor Department opinion letters help clarify the confusing issue of how to treat the hours that EXEMPT employees miss because of inclement weather. It is important to note that while opinion letters don’t carry the weight of law, courts are deferential to them and they provide an idea of how the Labor Department might rule in similar circumstances.

If the Workplace Remains Open

If the workplace is OPEN during inclement weather and an exempt employee misses work for his own (non-illness) reason, a full-day deduction from the employee’s salary can be taken. Additionally, the employer can require the employee to use vacation time or other accrued leave to cover the time off.

NOTE:  You can deduct only full-day absences from exempt employees’ salaries. Docking pay for partial-day absences could destroy the person’s exemption. An exempt employee who shows up for part of the day should be paid for a full day, regardless of how long employee is there.

If the Workplace Is Closed

Organizations always have the option of closing their doors during inclement weather. If the workplace is CLOSED, exempt employees can be required to take vacation time or use other leave, but you can’t insist on leave without pay.

NOTE: The Fair Labor Standards Act (FLSA) doesn’t require employers to provide vacation time. Employers are free to administer leave programs in any nondiscriminatory way they see fit. Employers may charge time off as leave even in amounts less than a day as long as the employee’s salary remains the same. The key is that the employee’s salary can’t be affected.

What about non-exempt employees?

Of course, the rules are different for non-exempt (hourly) employees. Generally, if a non-exempt employee does not come to work for whatever reason, the employer does not need to pay the employee. If the workplace is closed an entire day due to inclement weather (or other emergency), the employer does not have to pay the non-exempt employees. However, in this situation employees are missing work for reasons that are not their fault. Employers should consider paying employees for the day or part of the day. This gesture cements relationships and communicates effectively that the employer is committed to its employees’ well being.

If an employer closes the company mid-way through a day, employees must be paid for hours worked. In some States, an employer must pay employees a minimum number of hours if they have reported for work – be sure to check the regulations for your particular State.

It is wise for employers to develop a policy that covers handling employee work hours and pay in the event of bad weather or other emergencies. An inclement weather policy should cover:

  • What constitutes an inclement weather day,
  • How employees will be paid,
  • How work responsibilities will be covered,
  • How employees will be notified, and
  • Guidelines for when an employee cannot make it to work because of bad weather.

A good policy makes the facts known so that employees know what to expect when inclement weather or other emergencies occur. It also provides managers who must make the decision whether or not to close for inclement weather, guidance for their decision making.

Are you hesitant when it comes to navigating FLSA and other federally mandated rules and regulations? Strategic HR understands your uncertainty. Ask us for assistance for any of your benefits and compensation needs. Please visit our Benefits & Compensations page for more information about our services.

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Voluntary Classification Settlement Program

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Question:

What is the new Voluntary Classification Settlement Program (VCSP) and what, if anything, does my company need to do?

Answer:

The new Voluntary Classification Settlement Program (VCSP) was developed by the IRS to provide payroll tax relief to employers that reclassify their workers (as employees) for future tax periods. Part of the Fresh Start initiative created by the IRS, this program aims to increase compliance and reduce the tax burden for employers. Under the VCSP employers will pay 10 percent of the employment taxes that would have been due for the most recent tax year on the workers being reclassified. Employers also avoid interest and penalties on the payment and will not undergo an audit for tax purposes in prior years.

To take part employees in question must have previously been treated as independent contractors or other non-employees. Employers need to file an application with the IRS at least 60 days before beginning the treatment of these workers as employees. Employers will be notified whether or not they are eligible to participate and in doing so, the IRS will not share the reclassification with the Department of Labor.

It’s never ending. Just when you thought you had a handle on recent regulatory changes something new crops up. There isn’t enough time in the day to keep on top of everything! That’s where Strategic HR can help. We stay on top of the changes so you don’t have to. Ask us for assistance with any of your benefits, compensation or other regulatory needs. Please visit our Benefits & Compensation page for more information on any of these services.

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When to Offer a Part-Time Employee Company Benefits

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Question:

How quickly do we need to offer benefits once a part-time employee is working 40 or more hours per week? The employee is regularly scheduled to work 30 hours per week and is ineligible for coverage. However, the employee is currently working on a major project where the hours worked tend to often exceed the full-time threshold. Our company policy manual states there may be periods when a part-time employee is permitted to work more than 40 hours but does not alter an employee’s part-time status.

Answer:

This situation can be looked at in many ways. Depending on how you’ve handled it in the past and what’s in your summary plan description or company policies really determines what you need to do.

In a nutshell, the individual is a part-time employee regularly scheduled 30 hours per week and, according to your plan, is ineligible for insurance. There are occasions when the individual is asked to work 40 hours, but as long as it is not a ‘regular’ occurrence, it does not change the employee’s eligibility for benefits.

Your company has the task of defining the term ‘regularly’. If the employee is not pursuing the issue of not receiving benefits, there really is no “hours policy” trying to determine whether the employee is eligible or not. One suggestion is that your company take a stance that, for example, an employee who works 40 hours or more per week for over 50% of the weeks in the previous year, would be deemed eligible for benefits coverage.

Keep in mind that there may be a problem if, or when, the employee comes back and DOES have an issue because benefits were not offered but the employee feels like he/she should be eligible. If that is not the case right now, it would be wise to take action and define what you consider to be ‘regularly.’ If you do start working the employee for 40+ hours regularly, then make that employee full time. It’s the right thing to do. And when the Healthcare Reform is active in 2014, the answer will be entirely different.

Strategic HR has the answers to all of your tough Benefits and Compensation related questions. Whether you need an audit of your exemption statuses or a job analysis of your positions, Strategic HR can do the job. Please visit our Benefits & Compensation page for more information.

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Am I Required to Offer COBRA?

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Question:

How do I determine if I have to offer COBRA to our employees for their health insurance? We are ‘on the bubble’ with 21 employees this year, but some are part time. 

Answer:

According to the Department of Labor, group health plans for employers with 20 or more employees on more than 50 percent of its typical business days in the previous calendar year are subject to COBRA. Both full and part-time employees are counted to determine whether a plan is subject to COBRA. Each part-time employee counts as a fraction of an employee, with the fraction equal to the number of hours that the part-time employee worked divided by the hours an employee must work to be considered full-time.

Providing adequate Benefits and Compensation for your employees is key to the recruitment and retention of a well performing workforce, and having the right policies in place can make or break a company. Strategic HR understands this critical need and can help you structure your benefit and compensation system to meet today’s competitive market. Please visit our Benefits and Compensation page for more information on how we can help get you competitive today.

 

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FMLA Expiration and COBRA

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Question:

We have an employee who is on FMLA to receive an organ donation and the leave is expiring soon. At what point do we offer the employee COBRA, and for how long?

Answer:

It is generally required by employers to offer health care coverage under COBRA law when the employee is:

  • No longer eligible to receive benefits of employer-provided group health plan
  • No longer protected by federal or state leave laws

It is common for employee coverage eligibility to expire after 12 weeks of leave under FMLA and any additional leave where the employer is reasonably accommodating the employee under the Americans with Disabilities Act.

Strategic HR has the answers to all of your tough Benefits and Compensation related questions. Whether you need an analysis of your current benefit offerings or are looking to create a cost-effective recognition and rewards program, Strategic HR can do the job. Please visit our Benefits & Compensation page for more information.

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Can I backdate FMLA paperwork?

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Question:

Can I backdate FMLA paperwork to the date at which the employee went on Workers’ Compensation?

Answer:

In a word, “no” – FMLA cannot be backdated. That’s why it is so critical that HR is on top of any types of absences that may qualify for FMLA. If an injury that falls under Workers’ Compensation also qualifies as a “serious medical condition” under the Family and Medical Leave Act, any time missed can be counted against the 12 week leave allotment an FMLA qualified employee is entitled to receive. When such an event occurs, send the appropriate notifications (found on www.dol.gov), and make sure you document that you have done so.  Then follow up appropriately for the certifications. The clock does not start ticking on FMLA until the notifications have been sent – whether it is immediately after the incident, or two months later. Keep in mind, if an employee returns to work on light duty, from a Workers’ Comp injury, that is no longer time counted against Family Medical Leave.

The world of employee leave is a complex one, often involving Family Medical Leave, Workers’ Compensation and the Americans with Disabilities Act. Many times, the different types of leaves overlap. Make sure you consider all appropriate legislation when an employee is absent from work before taking any type of adverse employment action.

FMLA, the ADAAA and other labor laws can be difficult to interpret, let alone enforce. That’s where Strategic HR has you covered. We bring years of experience and know-how to the table. We can assist you with your tough compliance issues and help you sleep more soundly at night. Visit our Compliance page to learn more.

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Co-op and Intern Exemption Status

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Question:

We would like to add a co-op student to our staff this year. Are Co-ops and Interns considered exempt or non-exempt? How do you determine this?

Answer:

According to the Department of Labor (DOL), it appears that interns who work in for-profit companies in the private sector are typically considered non-exempt: http://www.dol.gov/whd/regs/compliance/whdfs71.htm.

However, whether or not student interns are covered under the Fair Labor Standards Act (FSLA) depends on the circumstances of the activities. If the work activity that the intern is to perform is an extension of the student’s academic programs, then the student might not be considered an employee.

To help determine if a student’s work is an extension of their academic program, these six criteria must be met:

1.     The training, even though it includes actual operation of the facilities of the employer, is similar to that which would be given in a vocational school;

2.     The training is for the benefit of the trainee;

3.     The trainees do not displace regular employees, but work under close observation;

4.     The employer that provides the training derives no immediate advantage from the activities of the trainees and on occasion the employer’s operations may actually be impeded;

5.     The trainees are not necessarily entitled to a job at the completion of the training period; and

6.     The employer and the trainee understand that the trainees are not entitled to wages for the time spent in training.

If all six of these criteria are met, the intern may not be considered an employee to the employer requiring compliance with FLSA or even pay. For more details, visit http://www.dol.gov/whd/regs/compliance/whdfs71.htm.

It’s tough having to navigate the ever-changing FLSA laws and other federally mandated rules and regulations. Strategic HR can help. Ask us for assistance with any of your benefits and compensation needs. Please visit our Benefits & Compensation page for more information on any of these services.

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Summary of Benefits Coverage

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Question:

It sounds like the Health Care Reform is requiring employers to distribute Summary of Benefits Coverage documents for plan years beginning September 23. What do I need to know?

Answer:

You are right!  Starting September 23, the Accountable Care Act (aka Health Care Reform) requires employers to distribute the new Summary of Benefits Coverage (SBC’s) documents.

At first glance, the SBC’s seem like an easy task to check off your to-do list. Most health care vendors are filling in the government-designed templates for their clients. All you have to do is hang them on your site or mail to employees. Easy, right?

Well, not so fast.

Since we create and maintain Summary Plan Descriptions for our clients, many have asked us to review the SBC documents sent to them by their vendors. We have found some vendors are providing base documents, but are not including the specific nuances designed into the plans.

When you get your SBC’s, closely check some of the following areas:

  • Penalties: If you have penalty fees, e.g. for not pre-certifying a hospital stay, the fees need to be in the Limits and Exceptions box on the same line where the coverage is listed.
  • Limitations: If your plan has unique limitation amounts, e.g. for speech and physical therapy or home health and hospice service, make sure they are listed correctly, again on the same line where the coverage is listed.
  • Prescription carve outs: If your prescription coverage is carved out from your medical plan, your medical vendor probably won’t complete that section. You will need to complete that part of the template and ask your prescription vendor to review it for accuracy.

For the initial year, the Department of Labor has indicated it wants to work with plans to get to compliance and is not focusing on imposing penalties. Therefore, you might not be concerned about meeting every regulation spelled out in the government’s 15-page instructions. However, keep in mind that you will probably pick up the same document next year, so it would probably be worth the time and effort to get it as accurate and complete as possible. As is true with most benefits and HR communications, the devil is in the details.

A special thanks to Elizabeth Borton, President of Write On Target, for sharing her expertise with us.  Sign-up on her website at to receive future communication blogs at www.writetarget.com. Or, you can contact her with questions at EBorton@WriteTarget.com or  937.436.4565 at extension 28.

Are you hesitant when it comes to navigating federally mandated rules and regulations? Strategic HR understands your uncertainty. Ask us for assistance for any of your benefits and compensation needs. Please visit our Benefits & Compensation page for more information on any of these services.

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Improve Employee Communication

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Question:

It seems like employees don’t listen to us when we communicate. What can we do to improve our communications to employees?

Answer:

Back in the late 70’s, my first boss at an ad agency used to refer to the “95% Factor,” meaning that 95% of the time when you are communicating with people, they are only thinking of how the information will impact them. Today, folks refer to it as WIIFM or “what’s in it for me.”

Makes sense. You’re probably thinking that same question right now.

So here’s my HR communication tip for the week: use the 95% Factor to get results by doing the following:

  • Use the second person, not third. Don’t speak from the company’s perspective; take the employee’s point of view. Talk about how “you” can access and use your benefits or how “your” performance impacts your pay.
  • Be specific. Focus your communications more on the “what” and “how” and not so much on the “why.” The more specific you are about the actions you want employees to take, the better results you’ll get. It also helps if you can target your communications to specific audiences so folks only get the messages that apply to them. (The last thing you want to do is make people work to figure it out.) Plus, if you can be specific about the personal impact to employees, they will pay closer attention. For example, instead of saying “you can save thousands by switching to this plan,” create versions based on current plan enrollment to say “what would you do with an extra $2,050?”. Believe me, the second version will get more attention.
  • Keep it simple. Not only should you write from the employee’s point of view, you should speak their language. Avoid acronyms and other benefits “geek speak.” Try to write on about a 5th to 7th grade level by keeping sentences short and avoiding words with multiple syllables. Not because your audience isn’t smart enough to understand higher reading levels, but because they only have seconds to scan for the 95% Factor information.
  • Make it relatable. People make decisions based on emotions, then justify with facts. To make an emotional connection, your communications need to be relatable. Use photos or images of folks like your employees. If they are blue collar, don’t use the infamous conference room shot of a bunch of models in slick suits. Show folks who get their hands dirty. When you are trying to explain a complex issue, use examples or stories to illustrate your point. People relate much better to stories of “people like me” than they do to charts.

When creating your HR communications, keep this in mind: whenever employees see or hear any message, all they want to know is three things:

  1. What’s this about?
  2. How’s it impact me?
  3. What do I have to do?

Answer those questions, and you’ll have met the 95% Factor 100% of the time.

Note to AP Stylebook geeks: I realize percent is supposed to be spelled out. I used the symbol on purpose.

A special thanks to Elizabeth Borton, President of Write on Target, for sharing her expertise with us.  Sign-up on her website at to receive future communication blogs at www.writetarget.com.  Or, you can contact her with questions at EBorton@WriteTarget.com or  937.436.4565, ext 28.