The SESCO Report – December 2014
SESCO SPECIAL REPORT: Year in Review and Forecast for 2015
In an effort to educate our valued clients, trade and business associations and their members and the general business and HR public, SESCO is proud to provide our annual year in review, projections for 2015 and professional staff recommendations to reduce liability and improve profitability.
A Look Back at 2014
In 2014 we continued to see a strong focus on disability issues by the EEOC. Nearly 34% of all EEOC filings for 2014 were based on disability related claims. Additionally, the EEOC continued its battle against employers over the legality of using credit and criminal background checks to make hiring and employment decisions. The EEOC also provided guidance regarding the Pregnancy Discrimination Act (PDA) and the American with Disabilities Act (ADA) as those acts apply to pregnant workers. This is the first comprehensive guidance by the EEOC on pregnancy in the workplace in over 30 years. The guidance has been a source of controversy and employers should expect increased enforcement by the EEOC.
The "ban-the-box" initiative continues and recently the District of Columbia, Illinois and New Jersey joined 66 cities and counties and 11 states to pass "ban-the-box" laws, preventing employers from asking about prior criminal history on job applications. Ban-the-box refers to the check box on employment applications asking whether the candidate has ever been convicted of a crime. Ban-the-box laws require hiring managers to put off asking about a candidate's criminal history until after an interview has been conducted or a provisional job offer has been extended.
Same Sex Marriage — On October 6, 2014, the US Supreme Court denied review of five cases seeking the freedom for same sex marriage, which left the earlier decisions in three federal circuit courts effective immediately. The states of Virginia, Indiana, Oklahoma, Wisconsin, and Utah began issuing marriage licenses for same sex couples almost immediately. The addition of these five states now brings the total to 24 states and the District of Columbia that recognize same-sex marriage. Shortly thereafter the states of North Carolina, West Virginia, Wyoming, Kansas, and Colorado followed suit based on the court's decision to deny review. The 6th Circuit Court of Appeals has reversed pro-marriage rulings in Kentucky, Michigan, Ohio and Tennessee, and legal teams in each state have vowed to take the fight to the U.S. Supreme Court, which could pave the way for a national ruling.
FLSA: Wage and Hour Proposed Rules - Most prominent among the Wage and Hour's planned regulatory activities is revising the Fair Labor Standards Act (FLSA) rules defining the exemptions for executive, administrative, professional, outside sales and computer employees. The division anticipated issuing the proposed rules changes to the FLSA in mid-November 2014. All indicators now point toward the proposed rules being published by the end of the first quarter 2015 increasing the base salary test of $455 to $980 per week.
NLRB rulings on confidentiality and social media policies is giving increased scrutiny to employer policies that limit employees' ability to disclose information, or to disparage their employer, supervisors, or fellow employees. In the Laurus Technical Institute case, the NLRB ruled that a "no gossip" policy was unlawful under Protected Concerted Activity section 8 (a)(1). The NLRB further commented that policies that restrict an employee's section 7 right to communicate freely with fellow employees and others regarding work issues are unlawful.
The Affordable Care Act continues to be revised with many employers and insurance companies trying to manage the cost and employment impacts. Of the 6 million people who signed up for private insurance through online exchanges during the first enrollment period, 85 percent qualified for federal subsidies that decreased the cost of their premiums. Though many people have found policies with affordable premiums, high deductibles and other out-of-pocket costs have discouraged some people from using their insurance. Employers both large and small continue to revisit their benefit strategies – how they plan to offer health plans to employees – and consider their options going forward. A recent study revealed that 74 percent of U.S. employers plan to continue to offer coverage to their full-time employees in 2015 and beyond, compared to only 46 percent in 2012.
The EBOLA outbreak has killed over 5,000 people across the globe, roiled U.S. hospitals, and shaken the faith of Americans in the government's ability to respond. At the same time, and below the radar, U.S. companies are responding to Ebola with a variety of steps to protect themselves, their employees, and their operations. The employer response to the Ebola outbreak could raise questions regarding the complex nature of workplace safety and equal employment issues as we move forward.
The IRS and DOL continued the crackdown on companies incorrectly identifying employees as independent contractors. It is clear that increased IRS and state labor departments' focus on these independent contractor issues will also lead to more private civil lawsuits, as the damages available in such independent contractor misclassification cases make them attractive to plaintiffs' attorneys.
What Employers Can Expect in 2015 and Beyond
Affordable Care Act (ACA) – 2015
The Republican control of the next Congress is likely to bring challenges to the ACA in two ways. There will probably be some "posturing legislation" to repeal the law and possibly repeal the ACA's individual mandate. We would fully expect a presidential veto if the bill were to pass. Secondly, there is likely to be a wide variety of efforts to chip away at the ACA. One path could possibly involve an alteration of the full-time definition from 30 hours per week to 40. Other proposals would probably hinge on Medicare payments and the medical device tax that helps to finance the law. At the end of the day don't expect anything that would substantially strike at the core of the ACA and its coverage expansions and reforms.
The Employer Mandate Takes Effect
Beginning January 1, 2015, most employers with an average of at least 100 full-time and full-time equivalent employees during the preceding year can be subject to a penalty tax for:
• Failing to offer health care coverage to 95% (for 2015 only, 70%) of their full-time employees (and their dependents)
• Offering minimum essential coverage that is either not affordable or under which the plan's share of the total allowed cost of benefits is less than 60% of the actuarial value.
Employers with between 50 to 99 full-time and full-time equivalent employees in 2014 will not be subject until 2016, but only if they meet certain specific requirements. Additionally, employers that maintained non-calendar-year plans as of December 27, 2012 may have until the first day of their 2015 plan year to comply, but again, only if certain specific requirements are met.
Take Steps Now to Satisfy 2016 Health Care Coverage Reporting Requirements
Two sets of health care coverage reporting requirements will come into effect in early 2016, but employers should be preparing now. The reporting requirements are found under Code Section 6055 ("Minimum Essential Coverage Reporting") and Code Section 6056 ("Large Employer Reporting"). Minimum Essential Coverage Reporting requires every provider of health coverage (i.e., insurers and employers who self-fund plans included) to file information returns with the IRS and provide statements to individuals covered; the reports will be used to administer the so-called Individual Shared Responsibility Requirement. For Large Employer Reporting, employers subject to the Employer Mandate (see above) must file information returns with the IRS and provide statements to their full-time employees about the health plan coverage the employer offers. Large employers with self-insured minimum essential coverage will prepare combined reports. Employers should note that even if they are not subject to the Employer Mandate until 2016, they still must engage in Large Employer Reporting for 2015.
The Cadillac Tax
Although the Cadillac tax is not effective until 2018 employers would be well-served to begin looking at the potential impact to their organizations now. The Cadillac Tax is essentially a 40-percent nondeductible excise tax that will be imposed on employer-sponsored health coverage, to the extent that the total cost or value of that coverage for a given employee for a year exceeds a specified threshold amount. The initial thresholds will be $10,200 for individual coverage and $27,500 for family coverage. Companies that are close to the thresholds should prepare now by gradually lowering benefits to reduce the value of the insurance plan by 2018 so it won't be subject to the Cadillac tax.
Along with the increased cost and confusion surrounding health care, additional concerns and areas of interest for human resource professionals include:
• The skills gap continues to widen. If you ask any HR executive what their biggest challenges are, the skills gap is typically unanimously noted. Over the past few years the gap has actually widened instead of closing. The Bureau of Labor Statistics shows that there were 4.7 million job openings in June 2014, and more than half of employers say that they can't find qualified candidates.
• Succession planning becomes a top priority. There is no doubt that succession planning is going to be a major concern for companies in 2015 as more boomers start to retire. One of the ways that companies are handling succession planning is to keep some workers eligible for retirement on the payroll. About 65% of surveyed workers plan to work for pay in retirement. You will start to see companies hold onto their older workers longer in order to transfer their knowledge to younger ones.
• Employee retention. Today's employees are undergoing a continuous job search job and are never settling. This is happening because technology has enabled people to easily find new jobs and for recruiters to steal talent in numbers. It is estimated that nearly 86% of employees are actively looking for work outside their current occupations. Long-term employment relationships are in decline and we fully expect that trend to continue.
• Increased use of Social Media to promote business and attract talent. We will start seeing more social media updates, and blog posts, from companies in 2015. In order to stand out as an employer, companies will need to start posting more work culture related posts and leveraging their employees to share them. In today's society people want to work for interesting companies and when they see social media posts, it gives them a better sense of what they are about.
And if that wasn't enough.......
A new OSHA recordkeeping rule will become effective January 1, 2015. Under the new rule, employers will be required to notify OSHA of work-related fatalities within eight hours, and work-related in-patient hospitalizations, amputations or losses of an eye within 24 hours. Previously, OSHA's regulations required an employer to report only work-related fatalities and in-patient hospitalizations of three or more employees. Reporting single hospitalizations, amputations or loss of an eye was not required under the previous rule.
The elective deferral limits for 401(k) and 403(b) for 2015 will change to $18,000. The catch-up contribution limit available to employees age 50 and above rises to $6,000.
The contribution limit (employee plus employer) for Health Savings Accounts (HSAs) will increase by $50 in 2015 – for the individual — $3,350; $100 in 2015 for family coverage — $6,650. The HSA catch-up contribution for employees age 55 and above remains unchanged at $1,000.
High-earning employees will find more of their salary subject to Social Security payroll taxes starting on Jan. 1, 2015. Based on the increase in average wages, the maximum amount of earnings subject to the Social Security tax (the "taxable maximum") will increase to $118,500 from $117,000 for 2015.
The minimum wage will increase in the following states effective January 1, 2015:
$8.75 per hour
$8.05 per hour
$7.50 per hour
$8.23 per hour
$9.15 per hour
$8.05 per hour
$7.75 per hour
$8.00 per hour
$9.00 per hour
$7.65 per hour
$8.05 per hour
$8.00 per hour
• New Jersey
$8.38 per hour
$8.10 per hour
$9.25 per hour
• Rhode Island
$9.00 per hour
• South Dakota
$8.50 per hour
$9.15 per hour
$9.47 per hour
• West Virginia
$8.00 per hour
Additionally, on December 31, 2014 New York will increase its minimum wage to $8.75 per hour
Statistics of Interest
• Energy – Oil trading will rebound to about $85 per barrel during the 1st quarter 2015, but oil traders are increasingly bearish on prices which could lead to a reduction by mid-year.
• Insurance Cost – Costs to rise 8% to 15% for companies and individuals without plan design changes. 5 to 10% with plan changes.
• Retail – 4.5% growth in 2015, with car and light-truck sales up slightly from 2014.
• U.S. Gross Domestic Product – 3% growth in 2015, buoyed by a healthy 2014 fourth quarter.
• Federal Deficit – 2.6% of GDP in 2015, down from 2.9% of GDP in 2014.
• Inflation – Expect for inflation to rise slightly in 2015, climbing to about 1.9% for the year.
• Unemployment – Look for the rate to end 2014 around 5.8% and gradually decline to around 5.3% by the end of 2015.
• Salary Increases – Base salary increases for 2015 are projected to be around 3%.
SESCO Staff Recommendations for 2015
1. Audit all areas of labor and employment – The U.S. and state governments will continue their aggressive review of employers' compliance. In addition, law firms are under significant economic pressure and as such attorneys are seeking new and creative ways in pursuing plaintiffs and employers.
2. Profit margins to tighten – With margins tightening employers MUST:
• Review all compensations practices. Compensation and performance management must be a priority to remain profitable. As such a formal pay system and specific performance measurements must be updated and/or employed. MEDIOCRE behavior cannot be allowed.
• A serious review of all benefits offered must take place NOW.
3. Improve screening techniques – It will be more critical than ever to screen applicants using state of the art tools. These include personality testing, behavior testing, risk analysis and skills testing. Fewer applicants are worthy of hire and employers cannot afford to make a bad hiring decision.
4. Review your handbook – The employee handbook continues to be the cornerstone of the employment relationship. It is also your primary defense when there is alleged wrong-doing. With the increase in regulations it behooves all employers to implement and update an effective handbook.
5. Succession planning – With more leaders/family retiring, employers must identify those who are promotable and then provide leadership training and development.
SESCO is very appreciative of the valued clients we have served since 1945. And we look forward to assisting our current and new clients in 2015 as the challenges from profitability and liability standpoints will be difficult. Through our propriety Service Agreement, we are able to serve our clients very cost effectively. We also are proud of the staff we have retained.
SESCO Client Inquiry — Staff Response
Question: For the reporting requirements under the Affordable Care Act when must an Applicable Large Employer (ALE) file the required information return with the IRS?
Answer: ALE members must file the return for each employee (Form 1095-C) and a transmittal form (Form 1094-C) with the IRS on or before February 28th (March 31st if filed electronically) of the year immediately following the calendar year for which the offer of coverage information is reported. Because transition relief applies for 2014 reporting, the first section 6056 returns required to be filed are for the 2015 calendar year and must be filed no later than February 29, 2016, or March 31, 2016, if filed electronically. Regulations under IRS section 6081 address extensions of time to file information returns.
The Christmas Gift of Knowing You
The Christmas season fills our hearts with joy;
Bright, happy days bring special kinds of pleasure.
We're wrapped in the excitement of it all,
The sights, the sounds, the smells, the tastes we treasure.
Yet when we have some quiet time to think
About our finest blessings all year through,
We focus on our family and our friends,
And appreciate the gift of knowing you!
By Joanna Fuchs