Compliance Memos: March 2018

DMEC Staff@Work

Compliance Memos_March 2018Final ERISA Disability Claim Regulations In Force on Apr. 1

New Employee Retirement Income Security Act (ERISA) regulations governing disability claim administration take effect on Apr. 1. This rule-making process began in the Obama administration and had another review/comment cycle due to Trump administration efforts to reduce regulatory burden. While many of these rules are parallel to provisions in insurance or third-party administrator contracts, some may increase administrative burden.

Compliance action plans will be important for six critical provisions: conflict of interest, expanded benefit, denial notification, claimant right to review and respond, consequences for claim processing irregularities, non-English language notice, and limitation periods to bringing suit for denial of benefits. For more details, visit http://dmec.org/2018/02/09/changes-to-erisas-disability-claims-regulations-coming-apr-1/ and https://tinyurl.com/dol-ebsa-ERISA-regs4-1-18.

Tax Reform Provides Employer Tax Credit for Family Leaves

The Tax Cuts and Jobs Act passed on Dec. 22, 2017, offers employers a substantial tax credit for providing paid family and medical leave (FML) to employees. The new tax credit sunsets at the end of 2019 unless Congress renews it. It has several requirements:

  • Minimum qualifying leaves of two weeks, maximum of 12
  • Employers must post a separate written FML benefit policy
  • The policy must include a pro rata FML benefit for part-time employees, which yields a reduced tax credit for employers
  • The full tax credit applies to qualifying full-time employees
  • Pay is at least 50% of employees’ regular earnings
  • The ceiling amount for calculating the tax credit is 100% pay replacement of up to $6,000 per month per employee
  • The tax credit is not available when paid vacation, personal, or sick leave are used concurrently with FML
  • The credit is available to all employer sizes, with no minimum or maximum number of employees

For employees earning more than $6,000 per month, the credit applies only to the FML benefit paid on the first $6,000 earned per month. The base tax credit is 12.5% of the leave pay, with increments of 0.25% for each percentage point above 50% of the employee’s regular wages (not to exceed a 25% credit). For example, if an employee earns $6,000 per month, one month of paid FML at 50% wage replacement would yield a tax credit of $375 (or 12.5% x $3,000), at 60% wage replacement the credit would be $540 (or 15% x $3,600), and at 100% wage replacement the credit would be $1,500 (or 25% x $6,000).

Every dollar of tax credit reduces an employer’s tax obligation. This is a substantial credit that may incent some employers to offer the FML benefit, if they do not already. For some employers that have concurrent use of multiple benefits, the decision to pursue a paid FML benefit may involve decisions about other benefits as well. Employers can use a Paid Leave Tax Credit Calculator to estimate the potential tax savings their voluntary paid leave programs can generate. To learn more, visit http://dmec.org/2018/02/23/paid-leave-can-contribute-employers-bottom-line/.

Are You Prepared for New York Paid Family Leave?

The New York Paid Family Leave law (NY PFL) took effect on Jan. 1, 2018. Before the start date, employers were invited to take a survey quiz to assess if they were prepared for the new law, which had been in the news for more than 12 months. Only 28% of participating employers were assessed as fully prepared, while one-third were “barely prepared.” Educating employees about the new benefit was the biggest challenge: 73.7% had yet to educate and prepare employees around PFL, and more than two-thirds (68.4%) still had to create written guidance for employees. The NY PFL benefit is only one of the new state and local laws creating a fragmented patchwork of compliance for employers to navigate. To learn more about the survey and access NY PFL readiness tips, visit http://pfl.shelterpoint.com/blog/pflchecklist-employer. To learn more about NY PFL benefits and administration, visit http://dmec.org/2018/02/14/new-york-paid-family-leave-one-month-check/.

Austin Passes Paid Sick Leave

The new paid sick leave (PSL) ordinance passed in Austin, TX, on Feb. 16 highlights the fragmented compliance patchwork that employers must navigate. In elections nationwide, a jurisdiction’s ‘blue’ political status increases the chances that a PSL will pass. Travis County, of which Austin is the seat, is a deep blue enclave in the red sea of Texas. Two-thirds of Travis County voters cast ballots for Hillary Clinton in the 2016 election.

Now that Austin has adopted PSL, will Texas pass a preemption law banning political subdivisions from enacting local PSL laws, to invalidate the Austin ordinance? A state representative from Austin reportedly has already stated his intent to pursue that strategy. Employers not only must comply with laws passed at the municipal or county level, but may also have to navigate the choppy waters of a state vs. local conflict over some of these PSL laws. The Pennsylvania Supreme Court decided recently to hear an appeal of a decision to invalidate Pittsburgh’s PSL law of 2015 because Pittsburgh allegedly did not have the authority to enact the law.

The new Austin PSL ordinance takes effect Oct. 1, 2018 for employers with more than five employees. For smaller employers, it is effective Oct. 1, 2020. It requires private sector employers with 15 or fewer employees to provide employees who work at least 80 hours within the city in a calendar year to accrue one hour of PSL for every 30 hours worked, up to 48 hours annually. The accrual cap for employers with more than 15 employees is 64 hours annually. To learn more, visit http://dmec.org/2018/02/16/austin-plants-paid-sick-leave-flag-in-the-south/.