Archive for January, 2016

The Delicate Subject of Cash in Lieu of Coverage

hdhp building blocks

What if you hire a new employee, who rejects your offer of health benefits because they want to stay on their spouse’s plan and they ask for a higher rate of pay instead?

The “employer shared responsibility” requirement of the Affordable Care Act bars employers – with the threat of a $36,500 penalty – from giving an employee cash with which to purchase health insurance on their own.

But how about if you are just increasing their pay based on the fact that you are not shelling out a higher amount for the employer portion of their premium?

Employment law attorneys have been receiving more queries about how to deal with such a request, and in this article we’ll explore how employers can legally do so as long as they are willing to deal with the downsides and potential for conflict with regulators.

To make sure they protect themselves, some employers require employees that opt out of the company health plan to certify that they have other coverage. This is also a questionable move that can have certain ramifications for employers.

It is legal to offer employees cash in lieu of health plan benefits, but it has to be done appropriately through a cafeteria plan that includes a “cash-in-lieu” agreement. If they opt out for cash in the agreement, they will be taxed on those funds as if they were wages.

Just remember that:

  • Cash should not be provided to enable an employee to purchase an individual policy in the open market or an exchange.
  • The written language of your cafeteria plan must clearly state that each eligible employee has the option to either enroll in the benefits or receive cash.
  • The agreement must be under the auspices of your Section 125 cafeteria plan. It cannot be an oral arrangement. The language in your plan must include wording explaining that only those employees who choose the cash option will be taxed on the cash that they receive.
  • The cash amount must be uniform for all employees. If not, you could be creating another problem for yourself: that your plan could fail the non-discrimination test of the ACA.


What you should do

If you offer or are planning a cash-in-lieu arrangement, you should talk to us or an employee benefits attorney first. You need to make sure that:

  • You are not opening yourself up to scrutiny by regulators or the tax authorities, and the resulting penalties.
  • You ask if you should require that employees sign a statement affirming they have coverage from another source.
  • The option does not result in employees who opt in to your group health plan being taxed.
  • You offer the option only through a cafeteria plan.
  • Your Section 125 plan document is updated with the appropriate language to show that employees choose either to enroll in benefits or to receive cash.
  • Your plan-related materials are updated to ensure that the option is disclosed to all eligible employees.
  • All written waivers for coverage include the cash-in-lieu option, and that employees clearly indicate that they are waiving coverage that the employer has offered as required under the ACA and the employer mandate.
  • You offer the opt-out option to all eligible employees, not to just a select few.







Court Says Okay to Fire Medical Pot User Who Fails Drug Test


As more and more states legalize marijuana for personal or medical use, employers have grown increasingly concerned about what they can and cannot do to enforce their existing drug policies.

A federal court in New Mexico has dismissed a case brought by an employee who was terminated after testing positive for marijuana, despite the worker having a medical marijuana card. The worker had claimed disability discrimination.

The lawsuit is a victory for employers who maintain a zero-tolerance policy towards drug use, even if it’s not being done at work.

In the case, Garcia vs. Tractor Supply Company, a new employee at a New Mexico company had told the hiring manager during his job interview that he was using marijuana for medical purposes (as allowed by state law) to alleviate his Aids symptoms.

Despite that, he was hired and, like all new hires, he was administered a drug test, which he failed.

The following day, he was fired in accordance with the company’s zero tolerance towards employee drug use.

Shortly thereafter, the employee filed a lawsuit accusing the company of disability discrimination and that under the Americans With Disabilities Act the employer was obliged to accommodate his medical condition by allowing his medical marijuana use.

The judge disagreed and dismissed Garcia’s claim.


What you need to know

While this case was in New Mexico, the federal court’s ruling mirrors similar cases in other states with medical marijuana laws or outright legal pot use, including California, Washington, Oregon and Colorado.

In each of these states, the highest court in the jurisdiction ruled that employers did not have to accommodate the medical marijuana by job applicants or current employees.

The gist of all these lawsuits and decisions is that even though a state decriminalizes pot for medicinal use, it does not mean that employers have to allow their workers to use it.

All of the courts have also cited the fact that marijuana is still illegal under federal law.

Employers, then, can have policies that prohibit its use on the job, or even if an employee or job applicant tests positive for the drug.

That said, three states – Arizona, Connecticut and Delaware – have laws requiring employers to accommodate medical marijuana users.

So, even if you are located in a state where the law permits you to terminate anyone who fails a drug test, you need to make sure that you are enforcing your policies consistently in order to avoid legal liability.

If you let one of your employees get away with it, you would be eroding your chances of successfully defending a discrimination lawsuit if you fire another worker for medical pot use.

That’s because it might look like you are targeting that employee for punishment because of the underlying medical condition that led them to use marijuana in the first place.

In the above case, the court sided with Tractor Supply Company because it had enforced its policy consistently by terminating all others who had failed the company drug test. It also found no evidence of disability discrimination on the part of the employer.

Employment law attorneys also recommend that you train your managers to not make disparaging remarks about medical pot, particularly when interviewing prospective employees.


Staffing Agency and Temp Workers and Your ACA Obligations

Medical questions

If you use a staffing agency or temp workers, there is an added complexity to how you calculate your employees for the sake of the Affordable Care Act “pay or play” rules.

As you know, if you have 50 or more full-time or full-time equivalent employees, you are required to secure health insurance for your employees or face penalties of about $2,000 a head. As the Internal Revenue Service will be scrutinizing employers in this regard, you need to know the rules of the road if you are using staffing companies for your workforce.
The IRS has indicated that it intends to use a fact-based “common law” definition of employee to determine who is a full-time employer under the ACA.

When an employer uses a staffing agency to supply workers, making the determination as to who is a common law employee becomes more complex. However, the final rules allow for some relief for an employer who might otherwise incur the pay-or-play penalties with respect to workers hired through staffing agencies that are reclassified by the IRS as common law employees of the client employer.

Generally, a worker providing services to an employer is a common law employee if the employer has the authority to direct and control the manner in which services will be performed.

The IRS sets out three main categories of facts that it will consider to determine whether a person is a common law employee or an independent contractor:

  • Behavioral control;
  • Financial control; and
  • Facts about the relationship.


Staffing agency conundrum

But the line blurs when contracting with a staffing agency. In many of these contracts, the workers are often characterized as employees of the staffing agency or jointly employed by the staffing agency and the company client.

The IRS has stated in a Q&A section on its website that the terms used by the parties to such a contract are only one of many facts that will be examined to determine who is the common law employer for ACA purposes.

Because employers do not offer health coverage to workers supplied by staffing agencies, if the IRS decides to classify them as common law employees it could trigger liability ACA penalties.

For example, an employer who offers coverage to 96 out of 100 full-time employees would not owe a penalty under the 95% rule. But if just five additional workers provided by a staffing agency are later determined to actually be common law employees of the employer, the employer could owe a penalty of $150,000 ($2,000 multiplied by 75, which is the number of full-time employees, less 30).


What you should do
One bit of good news is that final ACA regulations allow employers to take credit for an offer of coverage made by a staffing agency only if the firm pays the staffing agency more for a worker who accepts the offer of coverage than the employer would pay if the worker did not accept the offer.

If you have not done so, make sure that your staffing agency contract explicitly addresses this issue in a line item.

The typical staffing agency contract prior to the ACA did not include provisions for distinguishing offers of coverage.

You will want to consider how many staffing agency workers typically are part of your workforce to determine whether ACA penalties may be triggered.

Finally, you should review and, if necessary, amend your agreements with staffing agencies to take advantage of the protection offered by the ACA regulations.

Post Cal/OSHA Form 300A by Feb. 1

Hand reaches out from big heap of crumpled papers

Employers with 10 or more employees are required to post their 2015 Cal/OSHA 300A form starting on Feb. 1 until April 1.

Form 300A reports an employer’s total number of deaths, missed workdays, job transfers or restrictions, and injuries and illnesses as recorded on Form 300. It also includes the number of workers and the hours they worked for the year.

Nonexempt employers with more than 10 employees must post the form..

There are actually three related forms you need to keep up to date:

  • OSHA Form 300 – Log of Work-Related Injuries and Illnesses
  • OSHA Form 301 – Injury and Illness Incident Report
  • OSHA Form 300A – Summary of Work-Related Injuries and Illnesses


The OSHA 300 series forms are written in plain language and are intended to simplify work-related injury and illness record keeping and enhance company safety and health programs.

The resulting data collected by these forms will be used to track and compile statistics on work-related injuries, illnesses, and deaths so that employers and Cal/OSHA can develop a picture of the extent and severity of work-related incidents. They will also help Cal/OSHA identify the scope of employer-assistance needs.


Form 300

OSHA’s Form 300, the “Log of Work-Related Injuries and Illnesses”, must be used to classify work-related injuries and illnesses and to note the extent and severity of each case.

When an incident occurs, you must use the log to record specific details about what happened. You are required to use this form to record information about every work-related death and about every work-related injury or illness that involves loss of consciousness, restricted work activity or job transfer, days away from work, or medical treatment beyond first aid.


Form 301

You have seven days to fill out Form 301, the “Injury and illness Incident Report,” after a work-related injury or illness occurs. The form must be kept on file for 5 years following the year to which it pertains.

Employees, former employees, and their representatives have the right to review the OSHA Form 300 in its entirety.


Form 300A

If you have more than 10 employees you must complete Form 300A even if no work-related injuries or illnesses occurred during the year.

The total number of incidents in each category listed on Form 300 must be transferred to the Form 300A.

Form must be displayed in a conspicuous location where notices to employees are customarily posted. A copy of the “Summary” must also be made available to employees who move from worksite to worksite and employees who do not report to any fixed establishment on a regular basis.

At the end of the three-month period, Form 300A should be taken down and kept on file for a period of five years following the year to which it pertains.


Covering Business Interruptions from System Failures, Cyber Attacks


As businesses become more connected and rely on their networks, websites and outside cloud services to conduct their operations, failure on any of these fronts poses a serious risk.

Your networks, websites and cloud services can all go down for various reasons like system crashes, hardware or electrical failures, or hacking and cyber attacks. Any of these can disrupt or completely freeze your operations, depending on how much your organization has gone digital.

With these risks growing, you need to have plans in place for keeping your operations humming along should you encounter an incident.

This is important because every minute your site or network is down is another minute you could be making money.

Finally, you should consider cyber insurance, which can cover the business interruption costs from system failures, cyber attacks and cloud service failures.


How cyber attacks happen

Cyber criminals are increasingly focused on gaining access to a company’s network through weaknesses in the system. They do this through hacking or sending bogus e-mails urging recipients to click on a link (and surprisingly many do).

As cyber crime evolves, so have the methods of attack and there are many ways criminals launch attacks that can freeze your operations:

  • Malicious code that renders your website unusable.
  • Distributed denial of service (DDoS) attacks that make your website inaccessible to both employees and customers.
  • Viruses, worms or other code that deletes critical information on a business’s hard drives and other hardware.


If any of these occur, your operations could be disrupted or completely shut down, leaving you scrambling. And if you run a small organization without a dedicated IT staff, the effects can multiply for you.


Defenses you can implement

You can reduce your chances of business interruption due to a cyber attack and network failure by following these tips:

  • Create a formal, documented risk management plan that encompasses all of your systems, including each of their weaknesses, the data they store and processes. This plan should also rank each system’s importance to your organization, so you know where to focus your resources.
  • Make sure all firewalls and routers are secure and kept up to date to help defend against a cyber attack.
  • Implement a cyber security policy that educates employees about the damage a cyber attack can cause and teaches them how to identify malicious e-mails and links. Your policy should also include rules for personal mobile devices and for accessing personal e-mail and social media accounts from work computers.
  • Install software updates for your operating systems and applications when they become available.
  • Implement a strict password policy and have employees change passwords every 90 days.
  • Limit employee access to company data and information, and limit authority to install software to just a few key employees.
  • Make sure you are covered by a cyber liability insurance policy.


Covering a business interruption

Insurance coverage will depend on the reason for a disruption to your operations due to a failure of your network, website or cloud service.

If a network goes down because of a fire, for example, rendering the servers inoperable, your property insurance would cover the costs of replacing the servers and a standard business interruption policy would cover lost revenues.

However, if an outage is purely a network issue or due to a cyber attack, then a good cyber insurance program would likely come into play.

Most cyber policies provide an option for covering the costs of business interruption from a network security failure. That includes incidents like DDoS attacks or hackers accessing your network and deleting critical files, or adding malicious code that causes the system to fail.

Some cyber insurance policies will also cover a system failure, such as an “unintentional or unplanned outage” on your network.

Coverage would kick in if the failure was the result of human or system error, or both. For example, this could include an instance of you installing a new inventory management system and it unexpectedly causes your network or website to crash.

Unfortunately, very few insurers offer this coverage extension now, but as more organizations become more reliant on technology, more products will enter the marketplace.


Cloud risk

But what if a cloud service that hosts all of your important data fails? You could be left holding the bag because most outside vendors often contractually limit their liability for outages.

Under a typical business interruption scenario, if your business is disrupted as a result of a vendor or supplier going down, a contingent business interruption policy would cover it. But, few such policies will cover a cloud failure.

That said, some cyber policies offer this coverage. So, if a cloud failure would be catastrophic to your operations, talk to us about this option.

2016 ACA Compliance Checklist


This is the year that the rubber really hits the road for employers with 50 or more full-time workers.

The Affordable Care Act employer mandate for organizations with 50 to 99 employees takes effect this year, meaning that if you haven’t been offering your staff coverage before, you are now required to do so. There are also new reporting requirements for employers both in terms of submitting documents to the Internal Revenue Service as well as to your employees.

As the New Year gets underway, read this refresher so you don’t miss a beat and expose your business to penalties.

Check your grandfathered status

Review your plan’s grandfathered status:

  • If you have a grandfathered plan, determine whether it will maintain its grandfathered status for the 2016 plan year. Grandfathered plans are exempt from some of the ACA’s mandates. A grandfathered plan’s status will affect its compliance obligations from year to year.
  • If your plan will lose its grandfathered status for 2016, confirm that it has all of the additional patient rights and benefits required by the ACA for non-grandfathered plans. This includes, for example, coverage of preventive care without cost-sharing requirements.
  • If your plan will keep grandfathered status, continue to provide the Notice of Grandfathered Status in any plan materials provided to participants and beneficiaries that describe the benefits provided under the plan (such as the plan’s summary plan description and open enrollment materials).


Cost-sharing limits

The ACA’s overall out-of-pocket limit applies for all non-grandfathered group health plans, including self-insured health plans and insured plans.

Under the ACA, a health plan’s out-of-pocket maximum for essential health benefits may not exceed $6,850 for self-only coverage and $13,700 for family coverage, effective for plan years beginning on or after Jan. 1.


Employer mandate

Under the ACA’s employer mandate, organizations with between 50 and 99 full-time employees must start offering health coverage to eligible workers starting this year. Implementation for employers with 100 or more full-time workers took effect in 2015.


To determine if you are an ‘applicable large employer’ (ALE) under the ACA, you need to:

  • Calculate the number of full-time employees for all 12 months of 2015. A full-time employee is one who works at least 30 hours a week.
  • Calculate full-time equivalent employees (FTEs). Take the aggregate number of hours worked (but not more than 120 hours of service for any employee) for all employees who were not full time for that month, and divide the total hours of service by 120. This will give you the number of FTEs you have.
  • Add the number of full-time employees and FTEs (including fractions) calculated above for all 12 months of 2015.
  • Add up the monthly numbers from the preceding step and divide the sum by 12. Disregard fractions.


If your result is 50 or more, you are likely an ALE for 2016.


Reporting requirements

Starting in 2016, employers with 50 or more full-time or full-time equivalent employees are required to make additional filings with the IRS, as well as supply their staff with forms.

ALEs (with 50 or more full-time and full-time equivalent employees in the preceding calendar year) will use Form 1094-C and Form 1095-C to satisfy reporting requirements.

If filed on paper, these forms must be put in the mail no later than Feb. 28. If filing is done electronically, the due date is March 31.

You must also provide 1095-C to your employees before the end of January, along with their W-2 forms.

Top 10 Laws, Regulations Affecting You in 2016 (Part 2)


This is part 2 of our blog on new laws and regulations that can affect your business in 2016.


  1. Family leave expanded a little

A school activities law has expanded the right of employees to take protected time off from work when searching for a school or childcare provider.

The law, which applies to employers with 25 or more employees, requires employers to allow an employee to use eight hours in a calendar month, with a total of 40 hours in a calendar year, to find a school or a licensed childcare provider and to enroll or re-enroll a child, as well as time off to address childcare provider or school emergencies.


  1. Inappropriate use of E-Verify

Effective Jan. 1, employers are barred from using the E-Verify system to check the work eligibility status of an existing employee or an applicant who has not received an offer of employment, as required by federal law, or as a condition of receiving federal funds.


  1. Stiffer workplace safety penalties

Federal OSHA fines will increase for the first time in 25 years, with fines almost doubling from current levels.

The Federal Civil Penalties Inflation Adjustment Act of 1990 exempted OSHA from increasing its penalties to account for inflation. The new budget, signed into law on Nov. 2 by President Barack Obama, contains an amendment that strikes the exemption.

Now, OSHA is required to issue an interim final rule increasing its penalties to account for current inflation levels, which would raise proposed fines by about 80%.

This would mean the maximum penalty for a willful violation would rise to about $127,000 from the current $70,000. The adjustment must occur before Aug. 1, 2016. In subsequent years, OSHA also will be allowed to adjust its penalty levels based on inflation.


  1. OSHA’s new filing requirements

OSHA is expected to roll out a new rule that requires employers with 250 or more employees to electronically submit injury and illness records to OSHA on a quarterly basis. Also, some smaller employers will be required to electronically submit their OSHA Form 300A, which summarizes their annual injury and illness data, on an annual basis.


  1. Paid sick leave

This law actually took effect on July 1, 2015 and new amendments took effect on July 13. Under the law, California employees are entitled to one hour of sick leave for every 30 hours worked.

The changes included clarifying who is a covered worker; alternative methods of accruing paid sick leave, other than one hour for every 30 hours worked; clarifying protections for employers that already provided paid sick leave or paid time off before Jan. 1, 2015; and providing alternative methods for paying employees who use paid sick leave.

Top 10 Laws and Regulations Affecting Business in 2016 (Part 1)

Top 10 gold

AS WITH every New Year, businesses are faced with a slew of new laws and regulations. We’ve condensed them into a list of the top 10 most likely to affect your operations.


  1. New teeth to gender equal pay laws

A new state law adds teeth to the laws on gender pay equality.

Before SB 358, employees seeking to prove pay discrimination had to demonstrate that they are not paid at the same rate as someone of the opposite sex at the same establishment for “equal work.”

Under the new law, the requirement of “same establishment” has been deleted, and the employee need only show he or she is not being paid at the same rate for “substantially similar work.”

Substantially similar work means a composite of skill, effort and responsibility, performed under similar working conditions.

Employment law attorneys say the employer has the burden to affirmatively demonstrate the pay difference being complained about is based on any or all of these specific factors:

  • A seniority system,
  • A merit system,
  • A system that measures earnings by quality or quantity of production, or
  • Another factor, such as education, training or experience.


  1. Minimum wage increase

On Jan. 1, the state minimum wage increased to $10 an hour, the last of two incremental increases since legislation was passed in 2013. The first came on July 1, 2014, which moved the rate up to $9 an hour, where it has been until now.


  1. Employer mandate part II

At the end of 2015, the Affordable Care Act reprieve for business with 50 to 99 full-time or full-time equivalent employees ends.

Employers of this size are required to provide health insurance to at least 95% of their full-time employees and dependents up to age 26 starting this year.

For employers who don’t provide coverage, the fee is $2,000 per full-time employee (minus the first 30 full-time employees).

Companies with 100 or more full-time employees were required to cover their workers, starting in 2015.


  1. Health coverage reporting

Starting in 2016, employers with 50 or more full-time or full-time equivalent employees are required to make additional filings with the IRS, as well as supply their staff with forms.

Applicable large employers (with 50 or more full-time and full-time equivalent employees in the preceding calendar year) will use Form 1094-C and Form 1095-C to satisfy reporting requirements.

If filed on paper, these forms must be put in the mail no later than Feb. 28. If filing is done electronically, the due date is March 31.

You must provide 1095-C to your employees before the end of January, along with their W-2 forms


  1. Leeway to avoid frivolous lawsuits

AB 1506 gives employers 33 days to fix technical violations on an itemized wage statement before an employee can pursue civil litigation under the Private Attorneys General Act.

The California Chamber of Commerce championed the bill, which took effect on Oct. 2, 2015, saying it will greatly reduce frivolous litigation over an issue for which “injury” is hard to prove.


You can find out about the next five laws in our Thursday blog entry.

IRS extends ACA reporting deadline for employers


The IRS has extended the deadline for reporting health plan information for 2015 under the Affordable Care Act.

Starting this year, applicable large employers (those with 50 or more full-time or full-time equivalent employees) must report whether an individual is covered by minimum essential coverage and that an offer of minimum essential coverage that provides minimum value was made to each full-time employee. This is done in form 1095-B and 1095-C.

Under a notice issued on Dec. 28, the deadlines for furnishing employees with the 2015 Form 1095-B (Health Coverage) and Form 1095-C (Employer Provided Health Insurance Offer and Coverage) have been extended from Feb. 1, 2016, to March 31, 2016. These forms explain to the employees their health benefits that you provide, if any.

The same notice also extended the deadline for filing with the IRS Form 1094-B (Transmittal of Health Coverage Information Returns), Form 1095-B, Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) and Form 1095-C.

The deadline for filing electronically has been moved to May 31 from Feb. 29. If filing by paper, the deadline has been moved to June 30 from March 31.