The SESCO Report – April 2009
COBRA Complications and Employer Cost Arise from Economic Stimulus Package
As we have reported to our valued clients, on February 17, 2009, President Obama signed the economic stimulus package. A centerpiece of this law is a 65% subsidy for employees who are involuntarily terminated between September 1, 2008 and December 31, 2009 and who are eligible to continue healthcare coverage under the Consolidated Omnibus Budget Reconciliation Act (COBRA).
Employers are required to pay the 65% subsidy for COBRA insurance and take a credit in the form of reduced payroll tax deposits on a quarterly basis.
The most common questions that we have received from clients include:
Who is eligible for the COBRA subsidy?
An eligible individual is a person who becomes eligible for COBRA between September 1, 2008 and December 31, 2009 due to termination or layoff. The subsidy also applies to spouses and dependents who are eligible for COBRA coverage as a result of the employee's termination. The subsidy is not available for separations such as resignation, divorce, reduction in hours, a dependent child reaching a limiting age under a health plan, or for termination for gross misconduct.
How long does the subsidy last?
The subsidy will apply to premiums paid for periods of COBRA coverage beginning on or after February 17, 2009. For many plans, this means that the subsidy will begin on March 1, 2009. The subsidy is available for up to nine months, but not beyond the end of the maximum period of coverage required under COBRA. The subsidy also ends when the individual becomes entitled to coverage under a new employer-sponsored group health plan or Medicare.
Who pays the 65% subsidy?
In the case of a group health plan subject to federal COBRA regulations or a self-funded plan, the employer pays the COBRA subsidy. For an insured plan not subject to federal COBRA – for example, health care continuation required by the state – the insurer pays the subsidy.
How will an employer be "reimbursed" for the subsidy it provides to eligible individuals?
The subsidy amount is reimbursed by being claimed as a credit against employment taxes on the IRS Form 941 – "Employer's Quarterly Federal Tax Return." Form 941 has been revised to allow for this credit. The form requires reporting the total dollar amount of premium assistance paid by the employer and the number of individuals who have received COBRA premium assistance.
What other information must be maintained by the employer or employer's payroll service?
Although not required on the Form 941, the following information must be maintained as part of the COBRA subsidy process:
• Date of the involuntary termination (during the period from September 1, 2008 to December 31, 2009) for each covered employee eligible for the subsidy.
• Proof of the individual's eligibility for COBRA coverage and their election of COBRA coverage.
• Information on the receipt, including dates and amounts, of the individual's 35% share of the premium.
• A record of the social security numbers of all covered employees, the amount of the subsidy reimbursed with respect to each covered employee, and whether the subsidy was for one individual or two or more individuals.
What should SESCO clients do now?
Individuals who are eligible for the COBRA subsidy must be notified through a COBRA election notice. Individuals who are terminated (other than for gross misconduct) beginning February 17, 2009 through the end of this year should be sent a COBRA election notice that details the person's eligibility for COBRA and the conditions of the COBRA subsidy.
Also, individuals terminated on or after September 1, 2008 who selected COBRA coverage and are currently paying the full premium are also eligible to receive the subsidy beginning with the first period of COBRA coverage beginning February 17, 2009 — in many cases this will be March 1, 2009.
For those individuals whose employment was involuntarily terminated (other than for gross misconduct) on or after September 1, 2008 and before February 17, 2009 who did not elect COBRA coverage, will be provided a special election period. Eligible individuals who originally elected not to take COBRA and individuals who originally elected COBRA but lost coverage because they stopped paying their premiums, have a 60-day special enrollment period during which they may elect to take the subsidized coverage. The 60-day period begins on the date they receive notice of their special enrollment rights. The COBRA subsidy is not retroactive. For example, if an employee could have elected COBRA in December 2008, but failed to do so at the time, and now elects COBRA through the special election period, the COBRA premium would be subsidized for up to 9 months, beginning March 2009. Furthermore, the COBRA coverage would be for 18 months from the qualifying event – that is 18 months from December 2008, not 18 months from March 2009.
Resources Available from SESCO to Ensure Compliance
SESCO has revised our COBRA Administrative Manual to include information concerning the COBRA subsidy process, including required election notices. The manual is available for purchase on our website by clicking:
or can be ordered by calling our corporate office at 423-764-4127. Additionally, retainer clients who have questions about the COBRA subsidy, should contact Phil Richards, Director of Client Services, at 423-764-4127 or firstname.lastname@example.org.
Avoid Age Discrimination Claims During Layoffs
Employers continue to challenge staffing levels in light of the current economic conditions. Additionally, many SESCO clients have used the current economic conditions to "right size" their workforce. Where before many organizations maintained select positions and staff for efficiency or growth purposes, now these positions are being removed and individuals laid off. Many of these positions are managerial and administrative such as accounting, engineering, mid-level management, R&D, etc.
Many times, employees who are the age of 40 or over are selected for layoff. In order to avoid claims of discrimination, SESCO clients must understand the Age Discrimination in Employment Act of 1967. The Act (ADEA), protects individuals who are 40 years of age or older. Under ADEA, it is unlawful to discriminate against a person because of his or her age with respect to any term, condition, privilege of employment including hiring, firing, promotion, layoff, compensation, benefits, job assignments, and training.
Many SESCO clients will provide a severance package to those selected for layoff. The employer may ask an employee who is 40 or older to waive his or her rights under the ADEA in connection with an exit incentive program or other employment termination package. However, the ADEA, as amended by the Older Workers Benefit Protection Act of 1990 (OWBPA), sets out specific minimum standards that must be met in order for a waiver to be considered knowing and voluntary and, therefore, valid. Among other requirements, a valid ADEA waiver associated with a severance package must include:
• Be in writing and be understandable;
• Specifically refer to ADEA rights or claims;
• Not waive rights or claims that may arise in the future;
• Be in exchange for valuable consideration;
• Advise the individual in writing to consult an attorney before signing the waiver; and
• Provide the individual at least 21 days to consider the agreement and at least seven (7) days to revoke the agreement after signing it.
If you are considering a severance package to include compensation and benefits over and beyond what is already owed to the employee selected for layoff, SESCO strongly recommends that a severance agreement and release be developed. SESCO's severance agreement and release does contain the necessary waivers of ADEA rights as amended by OWBPA. Please consult with SESCO should you wish to develop an exit incentive program or other employment termination/layoff programs and severance packages to ensure you protect yourself.
The Little Red Hen Story
by J.W. Lawson Sr.
Written and Published in 1970
Once upon a time there was a Little Red Hen who scratched about and uncovered some grains of wheat. She called her barnyard neighbors who were playing and having fun and said, "If we work together and plant this wheat we will have some fine bread to eat. Who will help me plant the wheat?"
"Not I," said the Cow. "Not I," said the Duck. "Not I," said the Goose. "Not I," said the Pig. "Then I will," said the Little Red Hen and so she went to work.
After the wheat started growing, the ground turned dry and there was no rain in sight. "Who will help me water the wheat?" said the Little Red Hen.
"Taking vacation," said the Pig. "I'm tired," said the Goose. "I'm busy," said the Duck. "Then I will," said the Little Red Hen and so she went to work.
The wheat grew tall and ripened into golden grain. "Who will help me reap the wheat?" asked the Little Red Hen.
"To much work, said the Cow. "I'm off duty this week," said the Duck. "Out of my classification," said the Pig. "I'd lose my benefits," said the Goose.
"Then I will," said the Little Red Hen and so she went to work.
When it came time to grind the flour, no one wanted to work. So the Hen ground the flour, working long, hard hours.
When it came time to bake the bread, "That's overtime for me," said the Cow. "I've never learned how," said the Duck. "If I'm the only one helping, that's discriminatory," said the Goose. The Little Red Hen again offered, but none of her neighbors showed up.
"Then I will," said the Little Red Hen and so she went to work. She baked five loaves of fine bread and proudly held them up for her neighbors to see what she had accomplished.
"I'm hungry," said the Cow. "I want some," said the Pig. "I demand my share," said the Goose. "Give me mine," said the Duck.
"No," said the Little Red Hen. "I worked long and hard to make these five loaves myself and I deserve to eat them."
"EXCESS," cried the Cow. "UNFAIR," screamed the Duck. "SELFISH," screamed the Goose. "GREEDY," grunted the Pig.
And they hurriedly painted picket signs and marched around the Little Red Hen singing, "Selfish, unfair, we want our share."
When the farmer came to investigate the commotion, he said, "You must not be greedy, Little Red Hen. Your neighbors are hungry. You owe them some bread."
"But – but – but, I worked hard and have earned the bread!" said the Little Red Hen.
"Exactly," the wise farmer said. "That is the wonderful free enterprise system; anybody can earn as much as they want. You should be happy to have this freedom. However, you must give four loaves to your neighbors."
And they all lived happily ever after. Including the Little Red Hen, who smiled and smiled and clucked, "I am grateful, I am grateful."
BUT HER NEIGHBORS WONDERED WHY SHE NEVER BAKED ANY MORE BREAD AND WHY THEY DIDN'T HAVE ANY TO EAT THEMSELVES.
Thanks to SESCO Clients
Johnson Health Center
Appalachian Coalition for the Homeless
North Carolina Tire Dealers
Virginia State Feed Association
Rose Funeral Home
SESCO Client Inquiry – Staff Response
Question: Are we required to pay employees for time spent in training?
Answer: Time spent in attending employer-sponsored training programs, lectures, and similar activities need not be counted as paid working time if all of the following criteria are met:
• Attendance occurs outside the employee's regular working hours;
• Attendance is voluntary (attendance is not voluntary if the employee is led to believe that nonattendance will prejudice his working conditions or employment standing);
• The course, lecture, or meeting is not directly related to the employee's current job; and
• The employee does not perform any productive work during his attendance.
Upcoming SESCO Events
Upcoming SESCO Events
April 8-9, 2009
Public Seminar — Effective Leader/Manager
The Centre at Millennium Park
Johnson City, TN
April 29, 2008
Employment and Economic Seminar
The Centre at Millennium Park
Johnson City, TN
SESCO, Seyfarth-Shaw, Wells Fargo,
Blackburn, Childers & Steagall
May 2, 2009
Virginia Automotive Association
Winter Green, VA
May 12, 2009
How to Comply with Wage and Hour Regulations
North Carolina Funeral Directors Association
State and National Business and Trade Associations, Chambers of Commerce and Human Resource Associations are welcome to contact SESCO to book a professional speaker for annual conventions and seminars. Contact Bill Ford at 423-764-4127 or by email email@example.com.
Special Insert — Email Notifications
SESCO provides free email notifications containing timely and important information concerning federal and state employment regulations and timely staff recommendations. For those who are not receiving these emails, you can do so by emailing firstname.lastname@example.org or calling Lori at 423-764-4127 and provide an email(s) of those who wish to be included on our email notifications. Or if you are receiving The SESCO Report by hard copy and would prefer an electronic version, please also submit your email.
SESCO'S SERVICE AGREEMENT
Additionally, many of you receive a complimentary copy of The SESCO Report and/or our email notifications. If you are not a SESCO client via our monthly Service Agreement, we urge you to consider our Service Agreement as this professional service provides significant support including on and offsite consulting for a fixed monthly fee. Monthly fees can be customized and typically include the following:
• Unlimited telephone, email, research consulting on a daily or as-needed basis (no maximum time).
• Onsite visits per year. These visits may be used to conduct our Human Resource Management Compliance Assessment to determine compliance to federal and state employment regulations as well as effectiveness of your human resource systems. These visits may also be substituted for in-house training, round tables, or select services.
• Free review of your employee handbook.
• The SESCO Report, our monthly newsletter.
• Email notifications.
• Priority service at reduced fees.
A SPECIAL THANKS
Finally, as client referrals have been and always are our best marketing tool, we urge those who are SESCO clients to refer us to your friends and colleagues who own or manage businesses or are human resource professionals. Through continued growth, we will be able to continue to hold down our fees. Thank you to all of our valued clients who have referred SESCO over these many years!