Archive for June, 2012
This morning the U.S. Supreme Court upheld President Obama’s Health Care Affordability Act. The court essentially ruled its penalty provisions were akin to a tax. So what does this mean for insurance brokers and their clients? Here are a few of my quick thoughts:
- If you have been avoiding learning the law hoping it would somehow be overturned, it’s time get reading. The best place to start is http://www.dol.gov/ebsa/healthreform/. It is important to know the law not just as a broker or boss, but to also protect your family. Knowledge is power, so read it.
- Revisit the thinking behind benefits in the first place. Why do we even have them? To attract employees, to retain employees, and to motive them by showing that we care. And to do those things better than our competitors. Remember that while pay is an economic contract, benefits have been traditionally been viewed as a social contract. Bang for the buck; a dollar spent on a social contract offering is worth more than one spent on an economic one. Currently employees view their benefits as more important than their base pay. Even if it eventually flips back the other way it’s a 50/50 deal. If we choose to offer benefits, the more an employee pays for them, the less it becomes a social contract. We must also constantly market the benefit to get the value in hiring, retention, and motivation. As in the words of Barbers Book of 1000 Proverbs, “The greatest benefit is the one last remembered.”
- The main point is this: Don’t underestimate the value of benefits and make sure to squeeze every ounce of value out of providing them!
- Of course, the ultimate solution is better health. For starters, obesity is killing us. Employers would be wise to invest in wellness programs and healthy food offerings. Provide free healthy food, easy to access filtered water, etc., no matter the size or make-up of your company. The payback in productivity, etc. will more than offset the cost. Think of it this way: Would you rather have your employee go for fast food 5 days a week or the free salad in the lunchroom? Who do you think performs better all afternoon?
- We will conduct a Webinar on this decision and what it means for you in the next few days.
Below is a brief summary of the decision. You can read it in its entirety by going to http://www.supremecourt.gov/opinions/11pdf/11-393c3a2.pdf.
National Federation of Independent Businesses v. Sebelius (US 11–393 6/28/12) Patient Protection and Affordable Care Act
In 2010, Congress enacted the Patient Protection and Affordable Care Act in order to increase the number of Americans covered by health insurance and decrease the cost of health care. One key provision is the individual mandate, which requires most Americans to maintain “minimum essential” health insurance coverage. 26 U. S. C. §5000A.For individuals who are not exempt, and who do not receive health insurance through an employer or government program, the means of satisfying the requirement is to purchase insurance from a private company. Beginning in 2014, those who do not comply with the mandate must make a “[s]hared responsibility payment” to the Federal Government. §5000A(b)(1). The Act provides that this “penalty “will be paid to the Internal Revenue Service with an individual’s taxes, and “shall be assessed and collected in the same manner” as tax penalties. §§5000A(c), (g)(1).Another key provision of the Act is the Medicaid expansion. The current Medicaid program offers federal funding to States to assist pregnant women, children, needy families, the blind, the elderly, and the disabled in obtaining medical care. 42 U. S. C. §1396d(a). The Affordable Care Act expands the scope of the Medicaid program and increases the number of individuals the States must cover. For example, the Act requires state programs to provide Medicaid coverage by 2014 to adults with incomes up to 133 percent of the federal poverty level, whereas many States now cover adults with children only if their income is considerably lower, and do not cover childless adults at all. §1396a(a)(10)(A)(i)(VIII). The Act increases federal funding tocover the States’ costs in expanding Medicaid coverage. §1396d(y)(1). But if a State does not comply with the Act’s new coverage requirements, it may lose not only the federal funding for those requirements, but all of its federal Medicaid funds. §1396c.
Twenty-six States, several individuals, and the National Federation of Independent Business brought suit in Federal District Court, challenging the constitutionality of the individual mandate and the Medicaid expansion. The Court of Appeals for the Eleventh Circuit upheld the Medicaid expansion as a valid exercise of Congress’s spending power, but concluded that Congress lacked authority to enact the individual mandate. Finding the mandate severable from the Act’s other provisions, the Eleventh Circuit left the rest of the Act intact.
I recently asked Worklaw® Network attorney Mike Ott to help one of our Members with regard to employers providing incentives to employees for “opting out” of health coverage. Under current law, in general it is OK to offer an incentive to employees that elect not to be covered by a health plan. However, a significant disincentive occurs with constructive receipt under IRS income tax rules. Basically, if you give cash in lieu of benefits, the IRS sees this as an option to all employees, not just the ones that elected coverage. So, suppose an employer gives a rebate of $50/month for an employee that opts out of coverage. The employee that opts out of coverage is paid 600/year. The $600 is treated as compensation and the employee has to pay income tax on the additional compensation and the employer and employee has to pay FICA tax on the additional compensation. That result is anticipated. However, the employees that elected health coverage are also required to pay tax on the benefit they could have received as cash. As such, the employer is responsible for imputing $600 of income to those employees, including deduction for taxes and the payment of the employer portion of FICA taxes on the imputed income. Failure to impute the income could result in the employer being liable for the entire tax obligation for all of the participating employees.
There is an alternative to the adverse tax consequences for current employees by using a 125/cafeteria plan and/or a flexible spending account model. In this case, the employer could provide excess flexible spending account dollars to all eligible employees (the employer can define who is eligible as long as it passes nondiscrimination testing). The employer would raise the employer provided cost of the medical premium by the amount of the anticipated incentive. For example, suppose the incentive is anticipated to be $50/month and the employer subsidizes coverage by $150/month for each employee. The employer could lower its subsidy to $100/month and provide an FSA account benefit of $600 to those electing coverage. The $600 can be used by the employee to pay toward health coverage, up to $50/month. The employees that elect coverage are effectively left in the same position. The employees that choose not elect coverage can use the $600 to pay for benefits on a tax free basis. Another option would simply be to lower the employer subsidy and raise all of the employees’ wages by the $50/month. Those that elect coverage would effectively get the $50 on a tax free basis by using it to pay for the employees share and those that don’t elect coverage get an additional $50/month in cash. In this case, the employer should treat the compensation differently and provide descriptive communication materials so that it gets recognized by the employees.
The IRS has now agreed that mandatory (i.e. opt-out) 125 plans are permissible. This makes the “perception” of providing an opt-out cash benefit much easier to communicate. Basically, under this scenario all employees can be mandated to participate in the health program and if they opt-out, they get a designated amount of cash. This can be accomplished by combining an opt-out health benefit plan with a mandatory participation in a flexible spending account plan. It’s always been permissible as an opt-in program, but the use of the mandatory FSA effectively forces the employee to recognize the benefit provided from the employer since the employee has to choose to receive the cash.
The imputed income issue generally is not a problem with the Medicare opt-outs, since in those cases, the employer generally is requiring that the participants provided the incentive or supplemental benefit also be covered by Medicare. Because all of the employees covered by Medicare get the benefit, there are no adverse tax consequences. Also, many employers provide the supplement as a reimbursement for health benefit only (e.g., payable for co-pays, deductibles or out-of-pocket costs for covered prescription drugs) and are not eligible to receive the benefit in the form of cash.
As far as Obama Care, it’s uncertain where we will end up at this time. We are awaiting a decision by the Supreme Court as to the constitutionality of the new law. At this time there is no consensus as to how the Supreme Court will rule. The last figures reviewed indicated that 55% of the practitioners surveyed though it would be repealed significantly (i.e. possibly eliminating mandatory coverage, which will effectively cause the entire statute to fail), and 45% felt that it would be substantially upheld. Personally, I’m in the minority and feel that it will be found constitutional. I have reviewed applicable case law, and although the Fed did a very poor job in presenting its case, I still believe it will be substantially upheld. However, again, we are really in a waiting mode now.
On June 18, 2012 in a 5-4 ruling, the U.S. Supreme Court decided pharmaceutical representatives are “outside salesmen,” exempting them from the overtime requirements of the FLSA. Click here to read the article posted by Bill Pokorny of the Worklaw® Network firm Franczek Radelet. This ruling has implications for all employers that have exempt sales executives.
In yet another effort to tap into the wage and hour jackpot, in the case of Muldrow v. Surrex, the plaintiffs brought a claim for overtime and a failure to provide meal periods, among other claims, arguing that the senior consulting managers at the recruiter, Surrex, were not covered by the sales exemption, as they were not in “sales” positions. The court distinguished these recruiters from mechanics and drivers and ruled, “they are salespeople.” Fact was, the plaintiffs were involved principally in selling the product or service of recruiting.
A few points were made by the court:
- An employer is not precluded from calculating commissions based on anything other than a straight percentage profit.
- The employer may offset costs to determine profits as part of a commission scheme.
- The commissions must be sufficiently related to the price of services sold to constitute commissions for purposes of the exemption.
Each June, the National Safety Council encourages organizations to get involved and participate in National Safety Month. NSM is an annual observance to educate and influence behaviors around the leading causes of preventable injuries and deaths. Each week carries a theme that brings attention to critical safety issues.
The live webinars are only $119 and come with a great deal of information! The recorded webinars are free! Check them out yourself and I know you will to use some of the excellent tools. Great job NSC!
No matter who we hire, there are a number of critical steps in the process; all of which should be familiar to you:
- Specifically identify the need and then reduce it to a good start is the free O*NET website.
- Be very clear what skill sets and personality traits would most likely result in performance given the job expectations. For example, if you’re hiring a CFO, you can test them on their GAAP knowledge, QuickBooks knowledge, and assess to see whether they have the detailed knowledge for the position. Not doing so will introduce unnecessary variance into the hiring process. Go to www.shl.com
- Conduct extensive background checks – there is no excuse today to not know who you are interviewing. You should conduct a criminal background check on every hire, credit background checks on those where permitted, past employer checks on everyone, degree checks where necessary, and immigration status. As always, I recommend you outsource these tasks to www.globalhrresearch.com.
- Conduct extensive interviews – this includes prescreening, multiple individual interviews, as well as group interviews.
- Prepare necessary offer letters and contracts.
- Lastly, conduct any drug tests and pre-hire physicals.
The above is excellent Hiring 101. I find that people engage in nonsense for illogical reasons. Not following these steps is nonsense and driven by emotional garbage. Sometimes that garbage is desperation, other times it’s infatuation, and other times it is flat out exhaustion. The best way to fight against these variances is by having your hiring process in writing every step of the way and make sure no manager hires anyone without checking off every box in the process. Then you know you have your hiring act together.
One of my favorite questions to ask in the hiring process is “What is one thing that felt unfair to you in your last job?” Of course, if they tell you “nothing” they are lying. When they do tell you what felt unfair, do as a Six Sigma trainer would do and ask “five whys”. Doing so will put their personality on full display. Things are going to feel unfair to an employee at some point in a relationship, just as things have felt unfair to you at work. What you want to know is how people deal with what feels unfair to them before you hire them. Here are additional questions I would ask if hiring a sales person:
- What’s the most important thing you do every day? How do you know if you’re doing these things well or not?
- Who do you like selling to best?
- Have you only blown a sale where it made no sense to lose that sale?
- Did you ever surprise yourself with a sale where you didn’t expect to get it?
- How do you prepare yourself for a prospect meeting?
- How did you get good at ________________________?
- What’s more important to you: making money or making a difference?
- What do you consider to be your greatest weaknesses? What have you done about them?
- Who is the most successful person you’ve met in your position (ask why they didn’t answer themselves).
- Why should I trust you?
- In a perfect world, where would you like to be in five years from now?
- How would you describe your ability to communicate?
Remember this: The cost of a poor hire can be substantial. For example, one of my agency partners made the wrong hire of a sales manager. Not only did they have reduced sales for two straight years, when they fired him they were hit with a lawsuit that cost them thousands more. Even the poor hire of an account manager will cost you $50,000 or more. The point is this: Take hiring seriously. If you’re not willing to take it seriously on your own, then hire someone who is willing to take it seriously on your behalf. It will be worth your time and expense in the end. Remember to also think like a marketer. When we market, we think about the long-term benefits of having a customer or client. If their lifetime value is $5,000, then we would have no hesitation spending $1,000 to land them as a customer or client. Likewise, if an employee is expected to net you $20,000 over the next five years, question what you’d be willing to spend to get $100,000 in return.
- Find out your numbers – Use the HR That Works Cost Calculator and get to the bottom line of your HR practices.
- Create a rolling 90-day game plan – You must plan to succeed and without a plan, you plan to fail. Focus on one strategic objective per month and update your 90-day game plan every 30 days. Make sure the leadership team knows what you’re up to.
- Reinvent performance management – First of all, realize that most managers and employees will be glad that you finally ditched the old system. Then, watch the Performance Management Training and the ROWE (Results Only Work Environment) recorded webinar and then conduct a workshop to see how you can generate a performance management system that works organically for your company.
- Introduce the Creativity Checklist and Employee Suggestion Form and require that people use it The ideas you generate should help pay for the HR That Works program for many years to come.
- Create a social media policy that works – Involve the head of IT, marketing, and a group of employees to fashion an approach that works for all parties.
- Use the HR That Works Compliance Survey every six months – Doing so will ride you of unwanted claims in the process.
- Conduct an HR survey of your management team – The HR That Works Management Survey will let you know how the management team views the strength of your contributions and where they need more help from you.
- Bring your employee handbook to life – Fact is, most employee handbooks are boring at best. On the Employee Handbook page is the contact information for our graphics expert, Summer Bonne, who will help you getting your handbook act looking right.
- Ask yourself this when you hire: Am I more interested in creating the future or preserving the past?
- Have some fun! Be creative! Get out of the box! HR has a real opportunity to generate some positive dramas at your company- and we all know we need those!
Congratulations goes out to four outstanding women who completed the year-long HR That Works Black Belt training program!
From left to right Leslie Thomas, Lisa Hecker, Tootie Norton, and Brenda Boyer.