Archive for July, 2014

California Supreme Court Whittles away at Inside Sales Exemption

The California Supreme Court has opened a can of worms for employers after holding that they cannot apply commissions paid in one pay period to another pay period in order to satisfy state law governing the overtime-exempt status of inside salespeople.

The case is significant and any company that has inside salespeople needs to pay close attention to this ruling and apply it to how they pay their sales staff.

And while the decision seems simple enough, it will increase payroll costs for companies and could end up causing some inside salespersons to not qualify for the overtime exemption under state law.

Remember, under California law, an inside salesperson will be exempt from overtime pay if they earn more than 1.5 times the state minimum wage and more than half their income comes from commission.


<b>The case</b>

Susan Peabody was a Time Warner account executive selling advertising on the company’s cable television channels. Every other week, she was paid $769.23 in hourly wages, which works out to $9.61 per hour for a 40-hour work week. About every other pay period, Time Warner paid commission wages.

Peabody said she worked more than 40 hours per week, and in some weeks as many as 48 hours. She contended in her lawsuit that in those weeks, she was essentially paid less than the minimum wage per hour if she was not paid commission in that week.

Meanwhile, Time Warner claimed Peabody was an exempt, inside salesperson. To qualify under the inside sales exemption, she must, among other things, satisfy two compensation criteria, particularly that “an employee’s earnings exceed one and one-half times the minimum wage” – that is, $12 per hour.

But on weeks that she worked overtime and was not paid commission, she actually earned closer to $8 an hour in base pay. The court wrote that for the exemption to apply, commissions would have to make up the difference.

Because Time Warner paid its commissions about once a month, it argued that the commission payment should be allocated over the course of the month for purposes of determining overtime pay, since she technically earned the commissions throughout the month.

Time Warner argued that the commissions it paid Peabody counted towards the period during which the commissions were earned.  So, if the commission check was paid on March 23 for commissions earned in February, then the minimum wage calculation had to take into consideration those commission wages.

The court disagreed, saying that it was clear that Peabody did not receive 1.5 times the minimum wage for the hours worked on many of her paychecks.

The court held that commissions may be earned over time. It may be that a sale occurs in January, but is not earned until payment is received in April. That’s fine with respect to wage-hour law governing commissions.

But if the commission check is paid in April because the commissions are finally earned, then those commissions are counted towards minimum wage only during the (bi-weekly or semi-monthly) pay period for which the paycheck is paid.

Whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period.

In other words, an employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.


<b>The takeaway</b>

The ruling can make accounting a bit tricky for some employers if they are not paying commissions in every pay period.

And under this decision, based on California’s current minimum wage, to satisfy the exemption, the employee must receive in each paycheck at least 1.5 times the minimum wage, for the hours worked during the applicable workweeks covered by that paycheck. That means $13.50 per hour worked as of July this year.

An employer who pays commissions less frequently than semi-monthly or bi-weekly must pay a sufficient hourly rate to ensure the 1.5 times minimum wage threshold is met.

If you don’t pay commission every pay period and are thinking that you can get away paying sales staff less than $13.50 an hour in base pay, you may need to change your commission payment policies.

If you don’t, this ruling will increase inside salespersons’ non-commission earnings, by increasing the hourly pay required to maintain the exemption. And it will be more expensive in other ways:

Payroll expense will increase absent a reduction in the commission rate.

Remember that the inside sales exemption depends on a second criterion:  the employee must make more than 50% of wages from commission. Well, if you end up paying a higher hourly rate to avoid getting caught up in the overtime quandary, you will make it harder for employees to meet that 50% threshold.



Firms That Cut Birth-control Coverage Must Notify Covered Workers in Advance

In the wake of the U.S. Supreme Court’s Hobby Lobby decision, the U.S. Department of Labor has said that “closely held” employers that want to remove birth-control methods from the menu of covered pharmaceuticals in their health plan must formally notify their employees.

Employers will be required to be transparent about their move to remove birth control drugs. In Burwell vs. Hobby Lobby Stores, the U.S. Supreme Court held that family-run companies and other “closely held” corporations may exercise religious beliefs.

That means they cannot be forced into violating those beliefs by having to comply with the Affordable Care Act requirement that all employer health plans provide all Food and Drug Administration-approved contraceptives with no out-of-pocket costs for enrollees.

The case was brought by two Christian families and their businesses. The Greens own Hobby Lobby, a chain of craft shops, and Mardel, a Christian bookstore. The other family, the Hahns, own cabinet-maker Conestoga Wood Specialties.

The Greens and Hahns objected on religious beliefs that their company health plans should have to cover four of the FDA-approved drugs known as “abortifacients,” which can keep a fertilized egg from implanting in the uterine wall. One such drug is the “morning-after pill.”

While the case covered only four forms of birth control, other lawsuits challenging requirements to cover all forms of birth control are still pending in court.

Under the new rule, announced by the Department of Labor on its ACA frequently asked questions page, employers will have up to 60 days to tell employees after making such a change.

If an employer-sponsored medical plan excludes all or a subset of contraceptive services from coverage, the DOL says that the plan’s summary plan description “must describe the extent of the limitation or exclusion of coverage.”

This jibes with the DOL’s current regulation that the summary plan description shall include a description of the extent to which preventive services (which includes contraceptive services) are covered under the plan.

The department makes special note that while its rules are federal regulations, states may have in place their own regulations and laws concerning health plans’ moves to exclude contraceptives.

For plans that reduce or eliminate coverage of contraceptive services after having provided such coverage, expedited disclosure requirements for material reductions in covered services or benefits apply. See ERISA section 104(b)(1) and 29 CFR 2520.104b-3(d)(1), which generally require disclosure not later than 60 days after the date of adoption of a modification or change to the plan that is a material reduction in covered services or benefits.

Other disclosure requirements may apply, for example, under state insurance law applicable to health insurance issuers.

Keith McMurdy, a labor and employment lawyer and partner with the national law firm Fox Rothschild, wrote in his blog after the rule change:

“I am not suggesting companies immediately take this step. But a couple of things about this FAQ that are worth noting if a plan sponsor is considering eliminating contraceptive coverage.

“One, the question references a ‘closely held for-profit company’ which pretty clearly indicates that the DOL is applying a very narrow reading of the Court’s decision and non-closely held companies would be in for a fight later.

“Second, if the company is eliminating contraceptive coverage, it has to follow the ACA and ERISA notice requirements for plan changes. The change is not immediate and can only be completed after the appropriate notification time periods. Simply eliminating the coverage will not do.”

The announcement of the new rule shows how court decisions may continue to affect the ACA in the future, and that employers need to stay on top of a law that will likely continue to evolve.

We will continue to keep you informed in this newsletter of any new guidance that is issued by the various government bodies that regulate the ACA.

Cal/OSHA Cracks Down on Construction Firms

California construction firms should be prepared for Cal/OSHA inspections after the agency announced that it has been deploying its investigators to worksites throughout the state.

The goal, according to Cal/OSHA, is to “determine whether adequate measures have been taken to identify safety hazards and prevent injury.” The inspection drive came after four consecutive construction workplace deaths in as many days in May.

The recent incidents in California illustrate the danger of falls in the construction industry:

  • On May 18, a construction worker was killed when a railroad bridge he was dismantling in downtown Riverside collapsed, crushing him.
  • On May 20 in San Diego, a worker near the top of a 22-foot rebar column was killed when the column fell on him.
  • On May 20, a worker on a San Mateo project tumbled 9 feet from a wall, sustaining fatal head injuries.
  • On May 21, a worker at a residential project in San Jose fell to his death from a three-story building.


Investigators will be specifically checking safety railings, personal fall protection devices and equipment, and tie-offs. They will also be looking for trench hazards, equipment safety and proximity to power lines.

In announcing the inspections, Cal/OSHA reminded employers that if its investigators find a lack of fall protection or serious hazards, they can issue stop-work orders at the site, which will be in force until the hazard is abated. Additionally, employers deemed to be in violation of safety standards will likely be cited and ordered to correct the violations.


Fall Prevention

OSHA recommends a three-step strategy for preventing construction workplace falls. It includes the following:

Planning ahead When working from heights, such as ladders, scaffolds and roofs, you must plan projects to ensure that the job is done safely. Begin by deciding how the job will be done, what tasks will be involved, and what safety equipment may be needed to complete each task.

When estimating the cost of a job, employers should include safety equipment, and plan to have all the necessary equipment and tools available at the construction site. For example, in a roofing job, think about all of the different fall hazards, such as holes or skylights and leading edges, then plan and select fall protection suitable to that work, such as personal fall arrest systems.

Providing proper equipment – If your employees are working at elevations that are 6 feet or higher, they are at risk of serious injury or death if they take a tumble. Under OSHA regulations you are required to provide fall protection and the right equipment for the job, including the right kinds of ladders, scaffolds and safety gear.

Different ladders and scaffolds are appropriate for different jobs. Always provide workers with the kind they need to get the job done safely.
For roof work, there are many ways to prevent falls. If workers use personal fall arrest systems, for example, provide a harness for each worker who needs to tie off to the anchor. Make sure the system fits. Prior to a shift, inspect your fall protection equipment to ensure it’s in good condition and safe to use.

Training in how to use equipment safely – While equipment can save lives, your employees still need to know how to use it properly. Train your workers in proper set-up and safe use of the specific equipment they will use to complete the job. Train them in recognizing hazards and in the care and safe use of ladders, scaffolds, fall protection systems and other equipment they’ll be using on the job.

If you want more information, federal OSHA has put together a fall-prevention web page with training materials, educational materials and resources, as well as video presentations focusing on fall prevention in various construction environments. You can find more information here: www.osh

The Cloud Can Be Gray Even for Companies That Stay Grounded

Even if your company is not storing data in the cloud, it may still be at risk for having some company information pushed into it inadvertently.

And even companies that think they have done their homework and chosen a cloud service provider with strong security measures in place may be surprised to know that some providers contract with other cloud providers to store their customers’ information.

That’s according to a presentation by John Howie, chief operations officer of the Cloud Security Alliance, at the Cloud Leadership Forum held in June 2012. He also outlined the legal issues to watch out for, particularly liability under data breach laws and how they apply to a cloud services arrangement.

In some cases, a cloud service provider may subcontract out the storage of data, and the subcontractor may in turn sub-subcontract out the work. Other CSPs may offer packages of cloud software services that seem to be part of one application, but are actually made up of several third-party providers that perform different services within one application. The more subcontractors or third parties that are involved, the more legal risk a company will be subject to since it will be difficult to ascertain the physical location of the data and how protected the company’s data is at any given time.

According to a paper by Fonss & Estigarribia LLP, a San Diego-based law firm, any cloud service agreement that the company enters into should address the following:

  • Who will be physically storing your company’s data,
  • Whether the CSP or third-party subcontractors will be allowed to contract out the storage of your company’s data,
  • Whether your company will be notified when the CSP switches subcontractors, and
  • The data security the CSP has in place, and whether the same measures apply to any subcontractors.

And don’t be tempted to save money and use free cloud storage services, as they typically don’t have the same level of security in place as business-to-business cloud storage providers, Howie said.

Furthermore, even if your company isn’t using cloud storage, your employees may be doing so. Howie said that employees often subscribe to mostly free cloud services on their own. He cited the example of a worker who couldn’t upload a file that was too large using his smart phone, so he uploaded it to DropBox, an Internet-based file-sharing service that he personally subscribed to.

Howie said consumer-oriented cloud file-sharing or storing services such as DropBox, Google Drive or Microsoft SkyDrive are free because they index the user data to glean information from it on what ads to deliver to the client. The data in the files uploaded to these sites is indexed not by a human, but a computer, so it’s not like someone will be rifling through your data.

But, as an organization, you should not take that risk, he said.

In short, find paid file-sharing services that are better designed for enterprise users and their important security needs.

As the information age blossoms, the federal and state governments have been struggling to keep up by creating new laws to regulate data security. The laws and regulations set standards for data security and imposing penalties for companies that fail to keep their employee and customer data secure.

The regulations your company has to comply with depend on where the CSP’s data centers are located, as well as on where your company’s data centers are situated, Howie said.

Which laws apply should be determined by counsel that specializes in electronic records security and privacy compliance, and not by the service provider – don’t take their word for it.

State and federal laws relating to privacy also include provisions for the steps an organization must take in case of a security breach that affects personal or sensitive information. But if you don’t have control over your data, you may never know that a breach has occurred.

As part of your agreement, you should require the provider to notify your company of any security breaches. The contract should specifically define the term “security breach” in great detail so there is no confusion, Fonss & Estigarribia recommends.

In addition, the agreement should address what investigative and mitigation measures the provider must take in the even of a security breach occurring, as well as whether your company will have the ability to conduct its own investigation. You want it spelled out that your company would have access to all relevant information surrounding a breach, and would have control over how the breach is dealt with.

This is one of the weak points of the cloud: the loss of transparency to monitor, investigate and mitigate security breaches.

In addition, it is important that the agreement identify who will be held liable for any security breaches that occur.

“The company should take note of any limitations on liability provisions in the agreement,” writes Fonss & Estigarribia in its paper. “Perhaps one of the most important provisions that the company should make sure to include in the agreement is a provision indemnifying the company for all costs associated with a security breach, including the costs the company may incur in investigation, litigation and any fines and penalties.”

The takeaway
If you are planning to enter the cloud, or if your data is already aloft, just remember this: as a cloud service customer you cede control over security of the computing environment even if the provider has firewalls, hacking prevention systems and anti-malware protections in place.

While storing data in the cloud is beneficial and cost effective, transferring data to the cloud may be fraught with unintended state, federal and international legal consequences.


Wellness Plans Evolve as Employers Get Serious about Cost-cutting

With a 40% excise tax looming on high-cost employer-sponsored health coverage in 2018, many employers are preparing to change their plans and implement wellness programs.

According to a new report by Mercer LLC, the number one concern for larger employers since the Affordable Care Act took effect is the impending excise tax, also known as the “Cadillac” tax.

To avoid having to pay this high tax, employers must keep the total cost of health insurance premium less than $10,200 a year for single coverage and $27,500 for family coverage, starting in 2018.

Thanks to the ACA, wellness programs are again in the spotlight because they can improve the overall health of a company’s workforce and hence reduce premiums. There are other benefits to a healthier workforce, including reduced absenteeism and higher productivity.

And under the ACA, a company can offer its employees up to a 30% discount on their health insurance premiums if they participate in its wellness program.

Thirty-five percent of employers surveyed by Mercer had wellness programs in place, while another 47% were considering implementing them.

While wellness programs have been around for years, there is a growing consensus that outcome-based programs seem to have the most success in yielding a return on investment.

Companies are taking various approaches to offering wellness plans that either reward or penalize employees depending on their actions:

  • Action-based incentives or penalties – In this this type of program, to earn rewards – and sometimes avoid penalties – employees are required to take action to improve their health after going through a risk assessment, such as joining a weight-management or dietary-change program, or getting a preventive screening.
  • Progress-based incentives – Employees are rewarded for taking steps to hit and reach optimal benchmarks for cholesterol, blood pressure and weight. Steps can include enrolling in a weight-management program and reducing body mass index to receiving dietary counseling to reduce cholesterol, blood sugar or weight. It does not mean they have to reach goals to receive incentives, but they must take some action.
  • Outcome-based incentives – In these programs, companies will link incentives and penalties to reaching health metric benchmarks, such as a certain cholesterol, blood pressure or body mass index level. This is by far the most popular wellness arrangement with 41% of employers with wellness programs offering it, according to a study by Fidelity Investments and the National Business Group on Health.
    According to the survey, employers don’t penalize employees for not achieving results, but reward those who do with lower premiums, cash or deposits into their health savings or flexible savings account.
  • Targeted incentives – The insurer or an analytics company crunches data from the employees’ health risk assessments and claims to offer personalized wellness programs and incentives. Companies may offer premium reductions for completing an assessment and further rewards to employees that participate in activities tailored to the employee.

Families count too

As the design of wellness programs continues to evolve, an increasing number of companies are expanding wellness-based incentives to include spouses and domestic partners.

Fidelity found that 37% of companies surveyed indicated their program includes spouses and domestic partners, and the average spouse/domestic partner incentive is about $500.

When analyzing the data by company size, the results showed that employers with more than 20,000 employees expect to spend an average of $611 on spouses/domestic partners in 2014.

Five Critical Questions about Cyber Liability

Thanks to following the news, you are likely aware of the threat of businesses being hacked. The list of large companies hacked and their customers’ data compromised is like a laundry list of bad information.

And you likely also have heard that if you store any client information, including credit card information, you are at risk. And this is truer than ever, as hackers are more often targeting small to mid-sized companies as they typically have lower defenses, if any.

We’ve told you before about the need to have cyber liability insurance, which promises to cover costs associated with a breach. And if you are like most employers, you have questions. Hopefully they are among the five below, which are the most common questions employers have about such coverage.

1. Don’t my other policies cover me?

No. Your general liability policy’s property form protects your physical computers and servers, but not the data that is stored on them. The ISO general liability form specifically excludes claims of copyright, trademark and trade secret infringement.

The personal injury provisions of a GL form generally rely on “publication” – an undefined term. Although there have been limited instances of coverage for privacy breach under GL forms, relying on this for coverage is not in your best interest.

Business interruption coverage, an essential part of any businesses risk management plan, will not respond to outages caused by computer viruses or hackers. In addition, 47 U.S. states now have laws requiring notification in the event of a potential loss of PII (personally identifiable information), as well as fines and penalties for not reporting the breach.

Currently, a number of insurers offer cyber policies that can cover regulatory fines or penalties your clients might incur because of a data breach. No other policies will reimburse you for the costly first-party expenses required to comply with regulatory requirements and out-of-pocket legal expenses incurred to navigate the process.

2. How much does it cost?

For many small to mid-sized companies, the costs can be less than $1,000. One insurance company provided us with the following prices they recently quoted:

  • Online retailer with revenue of $500,000 and a $1 million policy limit. Premium: $1,100. (Risk: customer credit card numbers and other PII.)
  • Psychologist’s office with revenue of $1 million and a $1 million policy limit. Premium: $1,600. (Risk: Client records with PII.)
  • Doctor’s office with revenue of $700,000 and a $500,000 policy limit.
    Premium: $649. (Risk: Client records with PII.)
  • Professional consulting services with revenue of $400,000 and a $1 million policy limit. Premium: $1,200. (Risk: Client records with PII.)
  • Fast-food restaurant with revenue of $15 million and a policy limit of $1 million.
    Premium: $9,000. (Risk: customer credit card numbers, debit card information and other PII.)
  • Data storage center with revenue of $15 million and policy limit of $20 million.
    Premium: $120,000.


Because cyber liability insurance is still a new and evolving concept, coverage will vary from policy to policy and there is often some room for negotiation. The key though is that if you don’t have a policy and your and your clients’ data is breached, you will be liable for first-party expenses, including hiring forensic IT experts, notification of customers, providing annual credit monitoring, lawyer expenses and any applicable state or federal fines or penalties.


3. Aren’t our IT department and firewalls enough?  

Usually not. Many data breaches occur because of an employee error or an “inside job” from rogue employees. From passwords tacked on computer screens in plain sight and employees opening suspicious e-mail and downloading malware to lost laptops and smart phones, a large portion of security breaches occur because of your employee actions.

Also, keep in mind that a data breach can occur from paper records, as well. Outdated customer information, old credit card receipts and employee files that have been thrown into the dumpster are just as vulnerable as if a hacker logged into your network.

4. If we use a third party for credit cards, do we still need coverage?  

If you take credit card payments online, you are likely using a third-party or cloud vendor and your network is not storing the data. However, your customers’ personal information, in case of a data breach, is still your responsibility.

5. What are my state’s privacy notification laws, fines and penalties?

In California, the law requires the inclusion of certain content in data breach notifications, including a description of the incident, the type of PII breached, the time of the breach, the toll-free numbers and the addresses of credit-reporting agencies.

In addition, state law requires the breached business to send an electronic copy of the notification to the California Attorney General if a single breach affects more than 500 residents. California also requires notice to the Department of Public Health for breaches involving patient medical information.


If your questions weren’t among the five above, feel free to call us and we will be happy to explain cyber insurance in more detail.


Work Absences Skyrocket for Obesity, Skin Cancer and Back Surgery

Work absences related to obesity, treatment of skin cancer and herniated disc surgery skyrocketed in the past 20 years while hurting productivity for employers, according to a new study by Cigna Corp.

The study of short-term disability claims is a glimpse into some of the main causes of employee absences from work. Interestingly, earlier detection and new treatments have increased the percentage of workers out on short-term disability for skin cancers and other conditions.

And during the period of the study, there was a 45% increase in absences due to surgeries for herniated discs, the bane of workers in sedentary occupations.

Cigna in its study said that lifestyle and behavior factors remain the key drivers of absences and that employers can address these factors with early intervention, vocational rehab services and wellness programs.

“As employers increase their focus on managing lost work time, they need to understand how disability is changing and what opportunities they may have to intervene and improve experience,” said Thomas Parry, president and chief executive officer of the Integrated Benefits Institute.

It’s estimated that 2.8 million workdays are lost every year in the U.S. due to unplanned absences, costing more than $74 billion.

Musculoskeletal disorders currently account for 25% of all non-maternity-related absences – the same as in 1992 – and rank as the most-frequently approved short-term disability claims, also the same as in 1992.

But as the workforce ages and American waistlines expand, other factors are prominently affecting absences due to short-term disabilities.

Musculoskeletal disorders aside, the study points to a new set of factors that are increasing time away from work:


Herniated discs (absences increased 45% between 1992 and 2012) – The results of advancements in back surgery have led to an increase in the number of operations but a decrease in the average time away from work. Absences increased largely because more people have become candidates for back surgery, which has resulted in an overall rise in absences.

Employer strategy: You can help your employees better cope with their specific back conditions, especially those that may not currently need surgery. You can inspect their workstations to ensure they are ergonomically correct.  Also look for other issues in their daily work routine that may contribute to back and muscle problems.

If you do have someone that goes out on leave for back surgery and, if they may not be able to return to their old job, you may want to consider a vocational rehabilitation program.


Obesity (absences linked to obesity rose 3,300%) – The increase in the number of absences due to obesity may be the result of “increasing effectiveness and popularity of bariatric surgeries,” according to Cigna. The numbers don’t reflect the effects of chronic health problems like diabetes and some musculoskeletal problems that can be linked to obesity.

Obesity can also affect your workers in other ways that may not result in absences. Obese individuals who don’t change their lifestyle and become more obese, will see a steady deterioration in their physical abilities, which in turn can lead to depression.

Also, according to Cigna, “presenteeism” – defined as sick or distracted employees who choose to work anyway – accounts for 39% of the total cost of obesity to employers and as much as 75% of lost employee productivity from U.S. employers.

Meanwhile, although many people have benefited from stomach reduction surgeries, which require time off work afterwards, others struggle because they don’t change their eating habits and start gaining weight again.

Employer strategy: Employers that provide resources and coaching, such as employee assistance programs and vocational rehabilitation services, can help employees become more productive and enjoy long-lasting health.


Cancer (absences due to skin cancer increased 300%) – Trends in cancers have been a mixed bag in terms of absences, with a big reduction in lung cancers but increases in skin cancers being the most pronounced. However, absenteeism due to cancer has increased because survival rates have risen and earlier detection has increased cancer duration.

Employer strategy: Employers should consider implementing absence management strategies that integrate wellness programs, disease management programs and vocational rehabilitation services to meet the needs of cancer patients. Cigna’s study showed that a combination of these programs helped 97% of survivors rejoin the workforce.

Sometimes an employee may also have to become a caregiver should a family member come down with cancer. You will need to have in place policies for family and medical leave (FML) time. Because of the stress and mental toll caring for a cancer patient takes, nearly 80% of FML absences can also become a short-term disability absence.

Employees of companies that have an FML administration and integrated disability strategy in place and engage with employees will often spend seven fewer days away from work.


Depression (the fifth-leading cause of absence)

While overall, the number of days missed for depression has decreased, it’s still a major drain on companies. More than one-fourth of Americans aged 18 and older suffer from a diagnosable mental disorder in a given year. The use of anti-depressants has likely helped reduce the numbers of people out for depression-related problems, but Cigna believes it may have resulted in increasing presenteeism.

At the same time, fewer people are seeking treatment. While disability claims, durations and overall absences are down, major depressive disorder is still the leading cause of disability in the U.S. for ages 15-44. But presenteeism accounts for more of the total productivity loss than absenteeism.

Employer strategy: Once again, an employee assistance program can help people with mental needs to access the care they need.


ACA Out-of-pocket Limits, Preventative Services Clarified

The Department of Health and Human Services (HHS) has issued new Affordable Care Act regulations on out-of-pocket limits and the law’s requirement that all health plans provide preventative services.

The ACA requires that group health plans that do not have grandfathered status must ensure that annual employee cost-sharing and out-of-pocket costs do not exceed certain levels as set by regulators.

For plan or policy years beginning in 2014, the annual limitation on out-of-pocket costs is $6,350 for individual coverage and $12,700 for family coverage. Beginning with the 2015 plan or policy year, and for plan or policy years thereafter, the annual limitation on out-of-pocket costs will increase annually in accordance with the ACA.

Hence, the HHS has proposed that the annual limitation on out-of-pocket costs for 2015 would be $6,600 for individual coverage and $13,200 for family coverage.

In a set of new frequently asked questions, the DOL states that plan sponsors may have separate out-of-pocket limits on different categories of benefits, like medical and prescription drugs, as long as the combined amount of all such limits does not exceed the allowed amount.

Also, the out-of-pocket limit applies to in-network expenses only and, although it is not required to do so, a plan may place a limit on out-of-network expenses.

With respect to non-covered items, the FAQs state that if an item or service is not covered by the plan, the plan does not have to include the cost of that service or item when doing the annual limits calculation.

The FAQs also state that plans do not have to count towards the out-of-pocket limit the amount paid by health plan enrollees for brand name drugs if alternative generic drugs are available (as long as those pharmaceuticals are medically appropriate substitutes).

The new guidance also covers the issue of preventative services being covered at no cost to health plan enrollees. Group health plans that begin on or after Sept. 24 must cover breast cancer risk-reducing medications, such as tamoxifen or raloxifene, without cost-sharing (which means no cost to the participant in most cases).

Also, since the ACA requires a group health plan or health insurance issuer to cover tobacco-use counseling and interventions, the FAQs state that a group health plan would be in compliance with the requirement to cover tobacco-use counseling and interventions, if the plan or issuer covers without cost-sharing:

  • Screening for tobacco use; and,
  • For those who use tobacco products, at least two tobacco-cessation attempts per year. This means free coverage for four tobacco-cessation counseling sessions of at least 10 minutes each (including telephone counseling, group counseling and individual counseling) without prior authorization; and all Food and Drug Administration-approved tobacco-cessation medications (including both prescription and over-the-counter medications) for a 90-day treatment regimen when prescribed by a health care provider without prior authorization.


Businesses Suffer as Employee Theft Grows

Here’s a scenario that you’d likely not want to see happen at your company: The owner of a motorcycle dealership is suing its former office manager for allegedly stealing nearly $100,000 during the course of her employment.

Crescent City Partners, which runs the Harley-Davidson dealership, filed suit against Valerie Norment in the 24th Judicial District Court of Louisiana on April 28 after it discovered the extent of the alleged misappropriation of funds.

According to the complaint, the dealership’s general sales manager noticed that a cash payment of $4,000 was missing and questioned the defendant about where it was.

First she said she’d given it to the finance and insurance manager, but later changed her story, saying that she’d left it in an unlocked desk drawer over the weekend, states the complaint.

After conducting a forensic accounting, Crescent City Partners says it discovered that the employee was responsible for the missing cash and that $97,770.75 had gone missing from the dealership since she had begun working there.

An isolated incident? Not according to statistics.

Organizations around the world lose an estimated 5% of their annual revenues to occupational fraud, according to a survey by the Association of Certified Fraud Examiners that looked at cases between January 2012 and December 2013.

The association estimates that U.S. businesses lose some $50 billion a year to employee theft, and that 75% of employees have stolen at least once from their employer – and 37% have stolen at least twice. It also estimates that about 33% of business bankruptcies are in part due to employee theft.

Moreover, small businesses usually take the brunt of the damage. The smallest organizations in the ACFE study suffered a median loss of $154,000 – higher than the overall median loss for fraud cases in the study ($145,000). The reason for this is likely that small businesses typically don’t have the same resources to combat internal theft.
So, what can you do to avoid falling victim to employee theft? The U.S. Small Business Administration and the ACFE recommends that companies:


Use pre-employment background checks – Making the right hiring decision can greatly reduce the risk of future heartache. Basic pre-employment background checks are a good business practice for any employer, especially for employees who will be handling cash, high-value merchandise, or having access to sensitive customer or financial data.

But be aware that laws on background checks vary from state to state and if you go too far in your check, you may be in breach of the law and risk being sued. Recently the U.S. Equal Employment Opportunity Commission has raised concerns that criminal background checks may disproportionately discriminate against some racial groups.


Check candidate references – It’s surprising how few employers check candidates’ references. But make a practice of calling all references, particularly if they are former employers or supervisors. If your candidate has a history of fraudulent behavior, then you’ll want to know about it before you hand them a job offer. While some former employers may be loath to tell you anything bad, they will often give you cues in the conversation that the employee may have had some problems.


Implement a fraud hotline – Occupational fraud is far more likely to be detected by a tip than by any other method. More than 40% of all cases were detected by a tip – with the majority of them coming from employees of the victim organization. There are several providers of hotline services that can help implement an anonymous tip-reporting system for businesses of all sizes and industries.


Conduct regular audits – Regular audits can help you detect theft and fraud, and can be a significant deterrent to fraud or criminal activity because many perpetrators of workplace fraud seize opportunity where weak internal controls exist.

You should identify high-risk areas for your business and audit for violations on a six- to12-month basis. Items to look at include business expense reports, cash and sales reconciliation, vacation and sick day reports, and violations of e-mail/social media or Web-use policies.


Recognize the signs – Studies show that perpetrators of workplace crime or fraud do so because they are either under pressure, feel underappreciated, or perceive that management behavior is unethical or unfair. They rationalize their behavior based on the fact that they feel they are owed something or deserve it.

Some of the potential red flags to look out for include:

  • Not taking vacations. Many violations are discovered while the perpetrator is on vacation.
  • Being overly protective or exclusive about their workspace.
  • Employees that prefer to be unsupervised by working after hours or taking work home.
  • Financial records sometimes disappearing.
  • Unexplained debt.
  • An employee living beyond their means.


Set the right management tone – One of the best techniques for preventing and combating employee theft or fraud is to create and communicate a business climate that shows that you take it seriously. You may want to consider:

  • Reconciling statements on a regular basis to check for fraudulent activity
  • Holding regular one-on-one review meetings with employees
  • Offering to assist employees who are experiencing stress or difficult times
  • Having an open-door policy that gives employees the opportunity to speak freely and share their concerns about potential violations
  • Creating strong internal controls
  • Requiring employees to take vacations

You should also treat unusual transactions with suspicion and trust your instincts.


Secure employee theft insurance
Employee dishonesty insurance coverage – sometimes referred to as fidelity bond, crime coverage or crime fidelity insurance – protects a small business employer from a financial loss as a result of fraudulent acts by employees.

The financial loss can be caused by an employee’s theft of property, money or securities owned by the small business.