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The SESCO Report – December 2012

SESCO's Annual Year-End Review and Predictions for 2013

The trend of very challenging economic and regulatory conditions for employers of all sizes continued in 2012. As we look back at developments in 2012 which will have long lasting and structural impacts on employers and how they operate, consider:

• Supreme Court Decision
— The most significant development in 2012 was the Supreme Court's decision on the Patient Protection and Affordable Care Act (commonly known as "Obamacare"). The Supreme Court in a 5 to 4 decision upheld the healthcare law that will require individuals to be insured and/or pay fees (taxes). The individual mandate was upheld as a tax.

Employers are struggling with how best to respond to these structural changes in healthcare regulations and the obvious increase in cost of providing healthcare coverage for employees. Much of the research and response from clients responding to Obamacare include:

- Reduce full-time workers to part-time (less than 30 hours per week).
- Discontinue healthcare coverage.
- Layoff and freeze hiring.
- Implement stringent performance measurement standards requiring extraordinary performance from employees.
- Freezing compensation to offset other costs such as Obamacare and higher taxes forthcoming.

For employers with 50 or more employees, experts have estimated that health insurance costs will rise $1.78 per hour per employee under the new healthcare regulations. For the same group of employers, it is estimated that fines would amount to $.98 per hour per employee, thus creating a very enticing cost savings for employers — which many believe is intentional so that as many employees/ individuals are pushed into Obamacare as possible so that eventually a single payer system will be achieved.

• The EEOC issued guidance on employment policies that prohibit and curtail hiring applicants with criminal convictions — The EEOC concluded that such practices have a "disparate impact" on African-American and Hispanic applicants.

• The EEOC initiated aggressive pay discrimination compliance efforts — In an effort to combat what the EEOC believes is gender-based discrimination, the EEOC launched programs that provides authority to conduct direct investigations — investigations initiated without any prior charge of pay discrimination. Thus, the EEOC can and will be contacting employers, without notice, to review compensation practices to determine if gender-based discrimination exists.

• The Department of Labor expanded the coverage of Family and Medical Leave to non-traditional families including unmarried partners and families in the lesbian-gay communities. It also expanded the definition of a "son" and "daughter" to ensure that an employee who cares for a child receives parental rights to Family Leave for biological or non-biological relationships.

What Employers Can Expect in 2013 and Beyond

Based on the recent election results, employers and human resource professionals can expect more of the same from Washington as over the past four (4) years. The President and democrats will continue to champion more and more workplace regulations and restrictions creating significant challenges for employers. Some of the more prominent challenges include:

• Immigration Reform — Based on campaign rhetoric, President Obama and the Democrats will push hard to pass comprehensive immigration reform which likely will include amnesty. Additionally, the government will place more and more pressure on employers to be the immigration "police."

• Workplace Discrimination/Compensation - Washington will continue to push for "equal pay" for women in the workplace. This will include the passage of the "Employment Non-Discrimination Act," which prohibits discrimination against workers based upon their sexual orientation.

• Workplace Leave — Since 2009, President Obama and Democrats have been strong supporters of measures to create more leave options for employees, such as a federal paid leave act. This may include expanding leave options under Family and Medical Leave.

• Labor Relations — With the Democrats picking up seats in both the Senate and House, expect the long-stalled Employee Free Choice Act, to be revived. The Democrats "owe" the labor unions for their political support and as such, the Employee Free Choice Act as well as other pro-labor regulations will be revived.

Other election day results of interest include endorsements of same-sex marriage by Maine, Maryland, and Washington. Also, Colorado and Washington have legalized recreational use of marijuana. Thus, employers in those states need to revise their employee handbooks and policies and pratices to reflect these changes.

• Affordable Care Act — Beginning in 2013, the following changes are effective under the healthcare reform law:

- Part D Subsidy is eliminated — the existing employer tax deduction for the Part D subsidy is eliminated.
- FSA limits – health flexible spending accounts (FSA) will be limited to $2,500. Previously, these contributions were not limited, but there was a "use it or lose it" provision.
- Medicare payroll taxes – the Medicare payroll taxes on wages and self-employment income in excess of $200,000 ($250,000 joint income) will increase by 0.9%, and also applies for the first time, to net investment income.

• The minimum wage will increase in the following states effective January 1, 2013:

- Arizona — $7.80 per hour
- Colorado — $7.78 per hour
- Florida — $7.79 per hour
- Missouri — $7.35 per hour
- Montana — $7.80 per hour
- Ohio — $7.85 per hour
- Oregon — $8.95 per hour
- Rhode Island — $7.75 per hour
- Vermont — $8.60 per hour
- Washington — $9.19 per hour

•The EEOC will continue to focus on pursuing systemic discrimination lawsuits which are defined as a "pattern or practice, policy, or class cases where the alleged discrimination has a broad impact on an industry, occupation, business, or geographic area." This simply means that the EEOC will target specific industries and geographic areas for compliance.

•The Wage and Hour Division has increased its investigators by double (50%). The Wage and Hour Division will target industries such as home healthcare, food and beverage and others. They will be scruitinizing positions classified as exempt as well as timekeeping practices to ensure that overtime is paid on all hours worked as defined.

• A new version of the Form I-9 will be implemented in 2013. It will expand from one page to two pages. In addition, the employer will be required to provide applicants/employees with six pages of instructions along with the one-page list of acceptable documents.

The IRS has issued the 2013 optional standard mileage rates to 56.5 cents per mile.

From a human resource standpoint, three of the biggest human resource challenges facing employers include:

- Retaining and rewarding the best employees.
- Developing the next generation of corporate leaders.
- Creating a corporate culture that attracts the best employees to organizations.

Statistics of Interest
• Business Spending – about a 4% gain in 2013, half of the pace in 2012

• Trade Deficit – rising 5% in 2013, same pace as in 2012

• Energy – oil trading at $85-95 per barrel through year-end

• Housing Sales – up 8% in 2012, helping GDP in 2013

• Retail – 5% growth in 2013 after strong holiday sales

• U. S. Gross Domestic Product – 2% growth in 2013, about the same as 2012

• Interest Rates – little or no increase in 2013

• Inflation – 2% in 2013, matching this year

• Unemployment – around 8% by year-end, improving in 2013

• Healthcare Benefit Costs – healthcare benefit costs are projected to rise up to 6.3%, compared to the 4.9% increase for 2012

• Salary Increases – base salary increases for 2013 are projected to be 3%, consistent with the average increase in 2012

SESCO Staff Recommendations for 2013

With the continuing regulatory and financial challenges facing employers, SESCO's recommendations for employers and clients in 2013 include:

• Conduct an annual HR systems and compliance audit. This audit will include a review of all systems to determine compliance with federal and state employment regulations. The audit will also assess human resource practices and systems to determine efficiency and effectiveness in managing human resources.

• Review compensation practices. Employers should review all compensation practices as compensation and staffing is the employer's largest, single controllable cost. As expenses will increase with Obamacare and other taxes, employers must consider total compensation practices. This would include a review of:

- Internal equity (all increases should be based on performance)

- Mediocre behavior must be improved or removed

- A system of compensation must be developed to manage this significant cost

- Review the market; however, the market should not be the only factor in determining payroll. Affordability as well as internal equity must be considered.

• Review and update employee handbook and policies to address:

- Social Networking
- PDA's
- Substance abuse in the workplace
- Leave policies
- Benefit offerings

• Organizational assessment of current leaders and future leaders and subsequently provide training and

• As wages may remain stagnant, consider employee benefit statements, communicating to employees on a
customized basis their total compensation which includes monetary, benefits, taxes and all other compensation
as provided by the employer.

• Review screening and hiring practices - to ensure that the right person is hired the first time. Turnover is expensive and certainly with the financial challenges facing employers, these expenses must be avoided.

Merry Christmas

As we come to the close of another year, we at SESCO want to express our sincere appreciation for the loyalty, trust and confidence you and your organization have placed in us as your management consultants. We value each and every one of you and are committed to providing you the service you have come to expect from SESCO in the coming new year.

We hope you enjoy this holiday season not as the adult you are, but in the cheerful thoughts you held as a youth just a short time ago. May the spirit of Christmas peace, the job of Christmas cheer, the heart of Christmas — which is love, be yours throughout the new year.

From the Staff and Management of SESCO Management Consultants

Special Thanks to New SESCO Clients!

Paul Davis Restoration
Bristol, VA

First Century Bank
New Tazewell, TN

Health Insurance Innovations
Tampa, FL

SESCO Client Feedback

"I was very pleased with the speed of results and your overall service." ~ Natalie Hampton — Stein World

"SESCO helps to keep us informed and current on changing laws/regulations." ~ Adrienne Bauer — Allen Tire Company

"We receive excellent services from SESCO! Even in a crisis they are available (late Friday call)!! The personal approach and concern shown by all staff is exceptional. We have had great service from Joel, Bill Ford and Phil Richards."
~ Janegale Boyd — LeadingAge Florida

"SESCO is very knowledgeable in the field of HR — easy to talk to and always available.My overall opinion of SESCO is fantastic! I'm so glad we have SESCO to reach out to with any HR need."
~ Amy Howard — Lifespan Health

"Great presentation. The approach about the subject with managers was great. SESCO is always helpful anytime I have an HR question or issue." ~ Shay Barton- Laurel Grocery

SESCO Client Inquiry — Staff Response

Question: If we give our employees a Christmas bonus, do we have to include the bonus in calculating overtime pay?

Answer: A bonus which is a gift to employees – such as at Christmas or on other special occasions-may be excluded from computation of their regular rates and overtime pay under the Fair Labor Standards Act (FLSA). However, the bonus must not be measured by hours worked, production or efficiency, and the bonus must not be paid pursuant to a contract. The following leeways are permitted with respect to Christmas bonuses or gifts:

• The bonus may be paid with such regularity that the employees are led to expect it.

•The bonus may vary for different employees on the basis of salary, hourly rate, or length of service.

Christmas and other gift bonuses may not be used as a means of satisfying obligations under the FLSA for overtime pay. Any overtime wages owed to employees must be paid for separately.

Special Insert — EXCLUSIVE OFFER — SESCO'S Service Agreement

For a fixed monthly fee your organization and human resource team can receive the following services at no additional charge:

1. Telephone/Email Hotline – Any member of the management or human resource team can contact SESCO daily or as needed (no maximum time limits) to discuss any employment law or HR question.

2. Compliance Assessment – A thorough assessment of all human resource systems, practices and procedures to not only ensure compliance with the many federal and state employment regulations, but also to determine if your systems are effective and efficient.

3. Employee Handbook Review on an annual basis.

4. A set of federal and state posters on an annual basis.

5. The SESCO Report, our monthly newsletter, to be provided to all management personnel as so selected.

6. Priority services at reduced fees.

Please contact SESCO if you are interested in learning more about the Professional Service Agreement as well as to receive a professional quotation to meet your specific needs. For additional information click HERE

Bill Ford
President & CEO
P.O. Box 1848
Bristol, TN 37621
Phone: 423-764-4127
Fax: 423-764-5869