2014 HR Update for Non- Profits

Transcription

1 2014 HR Update for Non- Profits Presented by Susie Gibbons These materials have been prepared by Poyner Spruill LLP for informational purposes only and are not legal advice. This information is not intended to create, and receipt of it does not constitute, a lawyer-client relationship.

2 What We ll Cover Today Wage and Hour Issues for Nonprofits Who is exempt from overtime? Volunteers vs. employees BYOD Compensation Issues for Nonprofits Private Inurement and Intermediate Sanctions Affordable Care Act (ACA) What is the Employer Mandate? Who is subject to penalties? Compliance strategies for employers

3 Wage and Hour Issues for Nonprofits

4 Wage and Hour Issues for Non-Profits Misclassification Unpaid Interns/Volunteers Working off the Clock BYOD (Bring Your Own Device)

5 Employee Classification Issues Paying an employee a salary does not make him or her exempt Exempt employees are not owed minimum wage or overtime Nonexempt employees must be paid at least minimum wage for each hour worked Nonexempt employees must be paid overtime for hours over 40 in a workweek There are only limited deductions that can be made from the salary of Exempt employees

6 Overview of Exemptions Certain computer professionals (overtime only) Farm workers employed on small farms. Young workers on small farms with parental consent Employees of certain seasonal and recreational establishments Executive, administrative, professional, and outside sales employees

7 FLSA Exemptions The most common exemptions for salaried employees are the executive, administrative, and professional exemptions: 1. Employee must be paid a salary of at least $455 per week ($23,660 per year). Must receive predetermined amount each pay period that is not subject to reduction for the quality or quantity of the work Must receive the same amount of salary for any week in which he/she performs any work, with narrow exceptions 2. The actual work performed on a regular basis by the employee must meet the duties test.

8 Exempt v. Non Exempt Employees An executive employee is one: Who receives $455 or more per week in salary Whose primary duty is management of the enterprise Who customarily and regularly directs two or more other employees Who has the authority to hire or fire employees or make suggestions or recommendations about hiring or firing

9 Exempt v. Non Exempt Employees An exempt administrative employee is one: Who receives $455 or more per week in salary And has exempt administrative job duties that are: office or nonmanual work, which is directly related to management or general business operations of the employer or the employer's customers, and a primary component of which involves the exercise of independent judgment and discretion about matters of significance

10 Misclassification What s at risk? Backpay of minimum wage and overtime for 2 years or 3 years (if the misclassification is willful) Liquidated damages Attorney s fees Private class actions in this area have dramatically increased

11 Unpaid Interns In the past few years there have been numerous class action lawsuits alleging federal and/or state wage and hour violations on behalf of unpaid interns against highprofile companies. Fox Searchlight Pictures, Inc., the Hearst Corp., Elite Model Management Corp. and the Charlie Rose show and its production company, Charlie Rose, Inc. all have been sued by unpaid interns claiming minimum wage violations. Charlie Rose and his production company settled the class action lawsuit brought against it by a former unpaid intern and agreed to pay $250,000 in back wages to a potential class of 189 interns. The other lawsuits are ongoing.

12 Unpaid Interns The DOL has indicated that the following six criteria must be fulfilled in order for the services to qualify as an unpaid internship program: (1) the internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment; (2) the internship experience is for the benefit of the intern; (3) the intern does not displace regular employees, but works under close supervision of existing staff;

13 Unpaid Interns (4) the employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded; (5) the intern is not necessarily entitled to a job at the conclusion of the internship; and (6) the employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

14 Volunteers Individuals who volunteer or donate their services, usually on a part-time basis, for public service, religious or humanitarian objectives, not as employees and without contemplation of pay, are not considered employees of the religious, charitable or similar non-profit organizations that receive their service.

15 Can Employees of the Non-Profit Volunteer Time? The U.S. Department of Labor takes the position that employees may not volunteer to do things for their employer that are the same as, similar, or related to their normal job duties Also, if the volunteer s services are provided at the employer s request or direction or during the employee s normal working hours, they are not volunteer work even if the duties being performed are dissimilar from the employee s regular job duties.

16 Look at the totality of circumstances Is there an expectation of payment? Does the company or the volunteer receive the immediate or primary benefit? Is the work being done integral to the business? Did the organization coerce or pressure the individual to volunteer their services? Are the services provided during normal working hours? Are the services similar to work done by the individual? How long has the relationship existed? Is the work done on a part or full time basis?

17 Determining Hours Worked Hours worked is the time for which an employee is entitled to receive compensation under the Fair Labor Standards Act. Calculating hours worked is essential to compliance with FLSA minimum wage and overtime pay requirements.

18 Determining Hours Worked Because the Employer is in control, it must ensure that work is not performed outside of normal work hours if it does not want to pay for the work. Promulgation of a rule is not sufficient; if the Employer knows about extra work, it must pay for it. Discipline employees who work unauthorized hours.

19 Determining Hours Worked (cont d) Employ : To suffer or to permit an employee to work Time spent on work duties is hours worked even if performed before or after normal working hours Test for liability: Whether the employer knew or had reason to know of work performed outside of regularly assigned hours.

20 Hours Worked Time spent on principal activities should be counted. Time spent of principal activities includes preparing to perform. Time spent on incidental activities may be included in hours worked.

21 Work at Home First look to the definition of employ to suffer or permit to work The employer is not liable if it does not know and has no reason to know that the employee is working at home. If the employee is permitted to work at home, the time is hours worked.

22 Bring Your Own Device (B.Y.O.D) Bring your own device is a policy where employees are allowed or encouraged to use their personal mobile devices (such as smartphones and tablets/notebook PCs) to access enterprise data and systems to perform work related duties. A B.Y.O.D. policy may provide: Unlimited access for personal devices. Access only to non-sensitive systems and data. Access, but with IT control over personal devices, apps and stored data. Access, but prevent local storage of data on personal devices.

23 Benefits of B.Y.O.D. Increased productivity and innovation: Employees are more comfortable with a personal device and become expert using it making them more productive. Employee satisfaction: Your people use the devices they have chosen and invested in rather than what was selected by IT. Cost savings: BYOD programs sometimes save budget by shifting costs to the user, with employees paying for mobile devices and data services.

24 Not so fast... B.Y.O.D can present significant wage and hour problems: Off the clock work: Time spent on work duties is hours worked even if performed before or after normal working hours. Test for liability: Whether or not employer knew or had reason to know of work performed outside of regularly assigned hours. For nonexempt employees, consider potential overtime implications. Expense reimbursement?

25 Other Potential B.Y.O.D Complications Data Security. What happens in the event of a security breach involving information on the employees personal phone? Are there company requirements for locking devices or enabling password protections? Preservation of Information. What happens to data when employees leave the company? What happens when that information relates to litigation the company is involved in? Unlawful conduct or harassment. How can you police unlawful harassment or the existence of a hostile work environment which is orchestrated through an employee s personal phone used for business purposes?

26 Compensation Issues: Private Inurement and Intermediate Sanctions

27 The Compensation Landscape Public scrutiny of executive compensation IRS increasingly challenging the reasonableness of executive pay for tax-exempt organizations Board members facing pressure to pay attention to compensation issues To mitigate risk, tax-exempt organizations should: Be aware of regulations governing exec. comp. Document compliance, and Be prepared to explain why salary and benefits are appropriate

28 What are the Rules? IRS permits tax-exempt organizations to pay executives fair and reasonable compensation No universal standard facts and circumstances Determine market rate or fair market value Tax exempt organizations are prohibited from using their income or assets to benefit persons with a significant relationship to the organization for a private, non-exempt purpose. Excessive compensation is a non-exempt purpose

29 What are the Rules? No part of the organization s net earnings can inure to the benefit of any private individual or shareholder This is known as Private Inurement Penalties for violation range from revocation of tax-exempt status to excise taxes Excises taxes known as Intermediate Sanctions are the most likely penalty

30 Excess Benefit Transaction Disqualified person engages in a transaction with a taxexempt organization that is not at fair market value In other words, the value of the economic benefit exceeds the value of the consideration that the organization received for providing the benefit. Examples: excessive compensation or fringe benefits, purchase of property by the organization or sale to a disqualified person

31 Disqualified Persons Disqualified persons cannot participate in or approve excess benefit transactions Any person in a position to exercise substantial influence over the affairs of the organization in the last 5 years Officers CEO, CFO, treasurer, president, founder Board Members Certain Donors Family members of disqualified persons

32 The Penalties: Intermediate Sanctions Excise tax may be imposed on both the recipient of the excess benefit and on any officer or director who approved the payment Excise tax payable by the disqualified person is either: 25% of the value of the excess benefit if the benefit is returned to the organization; or 200% of the value of the excess benefit if the benefit is returned after the IRS issues a notice of deficiency. IRS may abate the tax in some circumstances

33 Officer/Director Liability Officer/director who approved the payment could also be liable for 10% excise tax Knowingly participated in the excess benefit transaction, participation was willful, and not due to reasonable cause $10,000 max Keys to avoiding the penalty Ask an Expert: Legal counsel, CPA with tax expertise, independent valuation, compensation consultant Fair market value of the property

34 Presumption of Reasonableness If the organization takes certain precautions, there is a rebuttable presumption that the transaction is at fair market value. 1. Approval in advance by an authorized body 2. Reliance on comparable data 3. Documentation

35 Presumption of Reasonableness Benefits of establishing a rebuttable presumption IRS will rarely second guess Prevents IRS from doing its own valuation Protects board members from excise tax Mitigates risk of overcompensation Sheds light on the process

36 Establishing Reasonableness Approve compensation in advance by the Board of Directors or a Board committee authorized to approve compensation arrangements. Comprised entirely of those who do not have a conflict of interest. Don t include: Relatives of disqualified person Employees of disqualified person Individuals receiving compensation from a disqualified person Those with a financial interest in the transaction

37 Presumption of Reasonableness Rely on comparability data Ask an expert Compensation by similar organizations for functionally comparable positions Availability of similar services Compensation surveys Actual written offers from similar institutions competing for the services of the disqualified person For property transfers independent appraisals, offers received in an open and competing bidding process

38 Presumption of Reasonableness Document the basis for decision concurrently or within 60 days Documentation must include: Terms of transaction and date it was approved Members of the authorized body who were present for the debate and who voted on it Comparability data obtained and relied on If the compensation or FMV differed from comparable data, the basis for determination Conflict of interests

39 Healthcare Reform for Non-Profit Organizations

40 Impact on Nonprofits The ACA applies equally to nonprofits and for-profit businesses Nonprofits are subject to the Employer Mandate Nonprofits are subject to penalties for providing coverage that is unaffordable to employees Nonprofits are subject to the information reporting requirements in the ACA

41 Overview of Health Coverage Mandate Individual Mandate Beginning in 2014 (not delayed!) individuals will pay a penalty if they do not have health coverage Exchanges Individuals can purchase coverage on government run exchanges Employers must provide notice of exchanges by 10/1/2013 for current EEs and within 14 days of new hire Subsidies Individuals between 100% and 400% of FPL will receive subsidized coverage on government exchanges Graded Subsidy Individuals will pay only 2% to 9.5% of income for coverage; remainder of premium may be taken as a tax credit

42 What is the Employer Mandate? Also Called Pay or Play or Shared Responsibility Requires Large Employers: Offer minimum value, affordable health coverage to their full-time employees and their dependents or pay a penalty Effective on or after 1/1/15 for ERs with 100+ EEs Employers with employees have an additional year to comply (on or after 1/1/16), but Must maintain previously offered health coverage as of 2/9/14 Not reduce workforce or employee hours to reach

43 Who is Subject to the Mandate? Applicable Large Employers Are Subject to the Mandate On average 50 or more full-time plus full-time equivalent employees on business days in prior year Full-time - 30 or More Hours Per Week (or 130 Hours/Month) There are safe harbors for determining average hours Full-time Equivalent - Sum Hours of All Non-FT Employees and Divide Total Hours Worked by 120 = FTEs for the Month FTEs are relevant only in determining applicability of employer mandate, NOT in calculating penalties!

44 Tip Know Who Your Employees Are Employees Are Your Common Law Employees Carefully Evaluate Commonly Misclassified Employees: Independent contractors Staffing agency employees PEO employees Volunteers Risk of Misclassification Employer determined it was not subject to mandate, but now has more than 50 FTEs

45 Dependent Defined For purposes of pay-or-play dependent means: Biological or adopted son or daughter Excludes stepchildren and foster children Excludes tax-dependents Under age 26 Spousal coverage not required Special transition rule for employers that don t currently provide spousal coverage Employer subsidies are not required for dependents but coverage must be offered

46 What about Small Employers? Employers with 50 or fewer employees are not required to offer health coverage Small employers may access the Small Business Health Options Program (SHOP) exchange to provide insurance coverage to employees Small business tax credit for coverage through SHOP Up to 35% of contribution toward employee premium costs for tax-exempt employers Limited to those with fewer than 25 employees making an average of $50,000 or less

47 No Penalties Pay or Play Overview No Are you subject to the mandate? Yes Do you offer coverage to substantially all FT employees? No Potential Subsection (a) ( Sledge Hammer ) Penalties Yes Yes Is the coverage min. value and affordable? No Potential Subsection (b) ( Tack Hammer ) Penalties

48 Compliance Techniques Avoiding Sledge Hammer Penalties To Avoid Potential Subsection (a) Penalties, You Must Offer Minimum Essential Coverage To at least 70% of FT Employees and their Dependents until 2016, then increases to 95% Subsection (a) Penalty If you don t meet the above AND one FT employee obtains subsidized coverage $ x (# FT employees - 80) = monthly penalty ($2,000 annually) through Decreases to - 30 for plan years on and after 1/1/16

49 Compliance Techniques Avoiding Sledge Hammer Penalties Offer Coverage to All FT Employees Skinny Plans appear ok (for now) Includes 100% employee-paid coverage offer Exclude Small Group of FT Employees May exclude less than 5% of FT population (30% before 1/1/16) Reduce FT Employees below 30 (or 80 b/f 1/1/16) $ x (# FT employees - 30) = monthly penalty If under 30/80 FT employees, penalty is $0

50 Assessing the Penalty Initially, IRS will calculate the employer penalty, notify employers of assessments, and provide the employer with a chance to appeal.

51 No Penalties Pay or Play Overview No Are you subject to the mandate? Yes Do you offer coverage to substantially all FT employees? No Potential Subsection (a) ( Sledge Hammer ) Penalties Yes Yes Is the coverage min. value and affordable? No Potential Subsection (b) ( Tack Hammer ) Penalties

52 Compliance Techniques Avoiding Tack Hammer Penalties To Avoid Potential Subsection (b) Penalties, You Must Offer FT Employees Coverage That Is: Minimum Value Affordable Subsection (b) Penalty If you don t meet the above AND one FT employee obtains subsidized coverage $250 x #FT employees with subsidized Exchange coverage = monthly penalty ($3,000 annually) Capped at subsection (a) penalty

53 Compliance Techniques Avoiding Tack Hammer Penalties Set Employee Contribution to Meet Affordability Self-only coverage is no more than 9.5% of household income Don t have to consider cost of family coverage May use highest of 3 affordability safe harbors W-2 - Premium doesn t exceed 9.5% of W-2 wages Rate of Pay Premium doesn t exceed 9.5% of hourly rate x 130 (or monthly salary) Federal Poverty Level Premium doesn t exceed 9.5% of FPL (for example, $90 per month based on 2013 FPL)

54 Compliance Techniques Avoiding Tack Hammer Penalties Minimize Number of FT Employees Reduce hours of current employees Might result in ERISA 510 lawsuit Only hire new employees at less than 30 hours/week Be Intentional About Who Becomes a FT Employee Assigning shifts to employees with best performance not just employees with tenure or who request shifts Best employees will be the employees who qualify as FT and are offered health coverage

55 Additional ACA Considerations Do You Want to Prevent Low-Paid Employees From Receiving Subsidies? Employees between 100% and 400% of FPL will pay only 2% to 9.5% of income for coverage received through exchanges Employees offered affordable, min value, employer coverage will not be eligible to receive a subsidy (even if employer s family coverage is unaffordable!) Be Ready to Communicate About Interaction Between Employer Plan and Individual Exchange Employees will likely ask employer questions Healthcare.gov has good tools for employees

56 Questions? Kate Paradise