Technology Employment Law

Technology Employment Law

Legal Insight for Technology, Media, and Telecommunications Employers

Governor Andrew D. Cuomo Introduces Employee Protective Mandates in New York State

LinkedIn Tweet Like Email Comment

Our colleagues Judah L. Rosenblatt, Jeffrey H. Ruzal, and Susan Gross Sholinsky, at Epstein Becker Green, have a post on the Hospitality Labor and Employment Law Blog that will be of interest to many of our readers in the technology industry: “Where Federal Expectations Are Low Governor Cuomo Introduces Employee Protective Mandates in New York.”

Following is an excerpt:

Earlier this week New York Governor Andrew D. Cuomo (D) signed two executive orders and announced a series of legislative proposals specifically aimed at eliminating the wage gap in gender, among other workers and strengthening equal pay protection in New York State. The Governor’s actions are seen by many as an alternative to employer-focused federal policies anticipated once President-elect Donald J. Trump (R) takes office. …

According to the Governor’s Press Release, the Governor will seek to amend State law to hold the top 10 members of out-of-state limited liability companies (“LLC”) personally financially liable for unsatisfied judgments for unpaid wages. This law already exists with respect to in-state and out-of-state corporations, as well as in-state LLCs. The Governor is also seeking to empower the Labor Commissioner to pursue judgments against the top 10 owners of any corporations or domestic or foreign LLCs for wage liabilities on behalf of workers with unpaid wage claims. …

Read the full post here.

Are You Prepared to Ban the Box? New Ordinances Prohibit Los Angeles Employers from Asking About Criminal Convictions Before Making Conditional Job Offers

LinkedIn Tweet Like Email Comment

On December 9, 2016, Los Angeles Mayor Eric Garcetti signed ordinances no. 184652 and 184653, collectively referred to as the “Fair Chance Initiative.” These ordinances prohibit employers and City contractors (collectively “Employers”), respectively, from inquiring about job seekers’ criminal convictions until after a conditional offer of employment has been made. Both ordinances will go into effect on January 22, 2017 and will impact all employers in the City of Los Angeles and for every position which requires an employee to work at least an average of two hours per week within the City of Los Angeles and all City contractors and subcontractors, regardless of their location.

No Criminal Inquiry Until After Offer

Specifically, these ordinances prohibit Employers from inquiring about a job applicant’s criminal history, at any time or in any manner, unless and until a Conditional Offer of Employment has been made to the applicant. Following the Conditional Offer of Employment, Employers are permitted to request information regarding the applicant’s criminal history. However, Employers can only withdraw or cancel the conditional offer as a result of the applicant’s criminal history after engaging in the “Fair Chance Process.”

New “Fair Chance Process” Required

The “Fair Chance Process” requires Employers to prepare a written assessment highlighting the specific aspects of the applicant’s criminal history that pose an inherent conflict with the duties of the position sought by the applicant. Employers must provide the applicant with written notification of the proposed withdrawal of the conditional offer, a copy of the written assessment regarding the risks posed by the applicant’s criminal history, and any other relevant documentation. The applicant is then given an opportunity to provide the Employer a response to the written assessment, including any supporting documentation. Employers must wait at least 5 business days after the applicant is informed of the proposed withdrawal before taking any action, including filling the position for which the applicant applied.

New Posting and Recordkeeping Requirements

Additionally, Employers’ job postings must now include a notice stating that they will consider all qualified applicants regardless of their criminal histories, in compliance with these ordinances. Employers must also conspicuously post a notice regarding the “Fair Chance Initiative” in a location in the workplace visible to all job applicants; this notice must also be sent to each union or workers’ group with which the employers have any agreement that governs over employees. Further, Employers must retain all job application documents for three years. Penalties for violations of these ordinances may be assessed at up to $500 for the first violation, up to $1,000 for the second violation, and up to $2,000 for subsequent violations. The City may then, at its discretion, distribute a maximum of $500 from that penalty directly to the applicant. The penalty provision of the ordinances will not go into effect for employers in Los Angeles City until July 1, 2017. However, the penalty provision for City contractors is effective immediately.

Exceptions from these ordinances include: (1) employers who are required by law to seek a job applicant’s criminal history; (2) positions for which an applicant would be required to possess or use a firearm; (3) positions which, by law, cannot be held by an individual with a criminal history; and (4) employers who are prohibited, by law, from hiring persons with criminal convictions.

Employers with operations in the City of Los Angeles should:

  1. Remove questions regarding criminal history from job applications;
  2. Ensure future job postings include required equal employment notices;
  3. Defer inquiries regarding criminal history until making conditional job offers; and
  4. Ensure the Fair Chance Process is followed before denying employment based on criminal history.

Top Issues of 2016 – Featured in Employment Law This Week

LinkedIn Tweet Like Email Comment

The new episode of Employment Law This Week offers a year-end roundup of the biggest employment, workforce, and management issues in 2016:

  • Impact of the Defend Trade Secrets Act
  • States Called to Ban Non-Compete Agreements
  • Paid Sick Leave Laws Expand
  • Transgender Employment Law
  • Uncertainty Over the DOL’s Overtime Rule and Salary Thresholds
  • NLRB Addresses Joint Employment
  • NLRB Rules on Union Organizing

Watch the episode below and read EBG’s Take 5 newsletter, “Top Five Employment, Labor & Workforce Management Issues of 2016.”

Texas Federal Court Enjoins New FLSA Overtime Rules: Employer Impact

LinkedIn Tweet Like Email Comment

Our colleague Michael S. Kun, national Chairperson of the Wage and Hour practice group at Epstein Becker Green, has a post on the Wage & Hour Defense Blog that will be of interest to many of our readers in the technology industry: “Stop! Texas Federal Court Enjoins New FLSA Overtime Rules.”

Following is an excerpt:

The injunction could leave employers in a state of limbo for weeks, months and perhaps longer as injunctions often do not resolve cases and, instead, lead to lengthy appeals. Here, though, the injunction could spell the quick death to the new rules should the Department choose not to appeal the decision in light of the impending Donald Trump presidency. We will continue to monitor this matter as it develops.

To the extent that employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will at the very least allow employers to postpone those changes. And, depending on the final resolution of this issue, it is possible they may never need to implement them.

The last-minute injunction puts some employers in a difficult position, though — those that already implemented changes in anticipation of the new rules or that informed employees that they will receive salary increases or will be converted to non-exempt status effective December 1, 2016. …

Read the full post here.

Proposed Increases Under New York State’s Overtime Laws: Not Blocked by Federal Overtime Rule Change Injunction

LinkedIn Tweet Like Email Comment

Our colleague Jeffrey H. Ruzal, Senior Counsel at Epstein Becker Green, has a post on the Wage & Hour Defense Blog that will be of interest to many of our readers in the technology industry: “Decision Enjoining Federal Overtime Rule Changes Will Not Affect Proposed Increases Under New York State’s Overtime Laws.”

Following is an excerpt:

As we recently reported on our Wage & Hour Defense Blog, on November 22, 2016, a federal judge in the Eastern District of Texas issued a nationwide preliminary injunction enjoining the U.S. Department of Labor from implementing its new overtime exemption rule that would have more than doubled the current salary threshold for the executive, administrative, and professional exemptions and was scheduled to take effect on December 1, 2016. To the extent employers have not already increased exempt employees’ salaries or converted them to non-exempt positions, the injunction will, at the very least, appear to allow many employers to postpone those changes—but likely not in the case of employees who work in New York State.

On October 19, 2016, the New York State Department of Labor (“NYSDOL”) announced proposed amendments to the state’s minimum wage orders (“Proposed Amendments”) to increase the salary basis threshold for executive and administrative employees under the state’s wage and hour laws (New York does not impose a minimum salary threshold for exempt “professional” employees).  The current salary threshold for the administrative and executive exemptions under New York law is $675 per week ($35,100 annually) throughout the state.  The NYSDOL has proposed the following increases to New York’s salary threshold for the executive and administrative exemptions …

Read the full post here.

The Independent Worker: An Interview with Gene Zaino, CEO of MBO Partners

LinkedIn Tweet Like Email Comment

Gene ZainoGene Zaino, a nationally recognized expert in the contract workforce market, launched MBO Partners to re-invent the way independent consultants and organizations work together. MBO Partners provides technology solutions and personal service that both simplify and expedite business processes for self-employed professionals including: incorporation, contract setup, billing, financial management, payroll, tax compliance, and health and retirement benefit programs. MBO Partners also provides access to the largest network of “engagement ready” enterprise companies, as well as portable benefits to independent workers.  Zaino is a major force in the independent workforce movement, committed to making it easier for self-employed professionals and their clients to work together.

The meaning of the “workplace” continues to evolve in the Digital (also referred to as the “gig,” sharing or on-demand) Economy. From shared workspaces, to the introduction of machines, artificial intelligence and robots into the workplace, traditional employer-employee relationships that we have known in our lifetimes are being reconfigured at a rapid pace. I caught up with Gene Zaino to explore some of his thoughts in response to the following questions regarding a growing segment of the workforce-the self-directed or independent worker.

How do you define independent or contingent workers, and are they one broad category or would you classify them into different segments?

MBO Partners defines independent workers as adult Americans aged 21 and over of all skill, education, and income levels who turn to consulting, freelancing, contract work, temporary assignments, or on-call work regularly each week for income, opportunity, and satisfaction.

The entire contingent workforce is a broad category. Anyone working in a nontraditional job – that is, outside a 9 to 5 desk job – could be considered a contingent, temporary, or “gig” worker.  But the ride-share driver you frequently see on the road faces different challenges than the independent consultant working for a major accounting firm, so it’s important to make distinctions between these groups when discussing issues like providing portable benefits and meeting their business needs.

How much of the American workforce is currently comprised of independent workers, and how do you think that will change in the next 5 years?

There are just under 40 million independents in the American workforce, which includes 16.9 million in full-time positions, 12.4 million who work part-time, and 10.5 million in occasional independent roles. Based on our latest State of Independence report – the longest running annual survey of the independent workforce in the nation – we expect the number of independents to grow to an impressive 48.9 million by 2021. By this time, nearly one in two people will work independently, or will have done independent work at some point in their careers. Suffice it to say, the independent workforce is rapidly growing and the workforce we knew even five years ago will look vastly different in another five years.

What do you see as the main drivers behind the rise of the independent worker?

The numbers and testimony from our annual survey show that independents overwhelmingly find independent work is a satisfying, and self-determined, choice. Both full and part-time independents say their career choices stem from a desire to have greater flexibility, freedom, control, and purpose. In terms of flexibility, 63 percent of independents cite control of their schedule as a top reason to work independently, and 59 percent say their top motivator is the increased flexibility independent work provided not only in their careers but across all aspects of their lives.

Forty-seven percent of full-time independent workers report making more money on their own than they would in a traditional employment setting. Specifically, three million independents earned more than $100,000 last year, a 50 percent increase from the two million who earned the same just five years ago.

Generationally, Baby Boomers now constitute 31 percent of the independent population, driven in part by the desire to supplement retirement benefits that are facing sharp declines over the next decade. But the independent workforce is also growing younger, millennials accounting for 40 percent which is higher than their makeup among the labor force at large. In contrast to Baby Boomers, Millennials see independence as an opportunity to get a toehold in the labor force and as a resume-builder.

What are the main needs of independent workers?

One of the major needs of independent workers is the ability to maintain a robust network of clientele for future work. MBO ConnectTM, considered the industry’s leading preferred talent network and direct sourcing product for engaging independent workers, is just one platform through which independents might find future projects and connections.

Like all workers, independents also need benefits to support themselves and their family, including retirement/401(k) and health insurance. Since those benefits are often employer-provided, it can be difficult for independents to find security working on their own. MBO Partners helps by providing access to group plans for its qualifying associates as well as by educating independents on how to acquire portable benefits.

Do you find that independent work is more appropriate for experienced workers in their field of expertise, or can those new to the working world successfully embark upon independent work arrangements?

The independent workforce is diverse – it includes Americans of all ages, skill, and income levels who turn to independence for income, opportunity and satisfaction. We’ve seen a growth in the experience level thanks to the continuing commitment of more seasoned workers primarily from the Baby Boomer generation. Many independents report getting work assignments because they offer a specialized skill that requires certification, special training, or education. This often means added experience in the form of years on the job.

However, millennials just entering the workforce also represent a growing percentage of the independent workforce – up to 6.76 million last year from 1.9 million in 2011.

Are employers in particular industries more inclined to engage independent workers currently and will this change in the next 5 years? 

As the workforce continues to change, employers across nearly every industry are engaging and hiring independent workers, and we see the flow between traditional and alternative work arrangements increasing in numbers and growing in momentum over the next five years. By 2021, almost half of the private workforce is forecast to have spent time as independent workers at some point in their work lives. As a result, savvy companies are already competing to become a Client of Choice for top independent talent. Forward-thinking companies are already thinking of the best ways to engage independent workers compliantly and efficiently, often using a company such as MBO Partners to do so.

Does the proliferation of the independent worker erode the promise of the so-called social compact or “model social safety net” or do you see ways that these workers can obtain retirement savings security, and other necessary employee benefits? 

The growth of the independent workforce has changed the way we think about providing employee benefits, and companies like ours have adapted to that change. MBO Partners has provided portable benefits to independents for over a decade, giving our associates access to the power of their group purchasing to access healthcare, disability and business insurance, as well as 401(k) options for retirement savings.

Moving forward, the government will need to take steps to help the independent workforce. This may involve further discussion of portable benefits, the creation of a new classification of worker to help independents work compliantly with clients, or something else entirely. MBO Partners is proud to work closely with top leaders in Washington and on Capitol Hill to remain a part of these vital ongoing conversations, now and in the new administration.

 

Editor’s note: As the workplace continues to change, employment arrangements will evolve.  It will become increasingly important for employers to monitor changing employment -related laws and regulations and to ensure that adherence is given to current laws, especially with regard to worker classifications, overall workplace management, employee benefits and immigration issues.   As the nature of the very workers retained to perform services changes in unprecedented ways, new ways of thinking about these issues and regulating them will surely come to pass.

 

Wage Fixing and No Poaching Agreements: New Antitrust Guidance Threatens Criminal Prosecution

LinkedIn Tweet Like Email Comment

Our colleague Daniel J. Green, an Associate at Epstein Becker Green, has a post on the Trade Secrets & Noncompete Blog that will be of interest to many of our readers in the technology industry: “Aggressive New Antitrust Guidance for Human Resources Professionals Threatens Criminal Prosecution for Certain Unlawful Wage Fixing and No Poaching Agreements”

Following up on a string of civil enforcement actions and employee antitrust suits, regarding no-poaching agreements in the technology industry, on October 20, 2016 the Department of Justice (“DOJ”) and Federal Trade Commission (“FTC”) issued Antitrust Guidance for Human Resources Professionals (the “Guidance”). The Guidance outlines an aggressive policy to investigate and punish employers, and individual human resources employees who enter into unlawful agreements concerning employee recruitment or retention.

The Guidance focuses on three types of antitrust violations:

  • Wage fixing agreements: agreements among employers to fix employee compensation or other terms or conditions of employment at either a specific level or within a range;
  • No poaching agreements: certain agreements among employers not to solicit or hire one another’s employees not ancillary to an overarching pro-competitive collaboration; and
  • Unlawful information exchanges: exchanges of competitively sensitive information which facilitate wage matching among market participants.

Read the full post here.

EEOC Convenes Meeting to Discuss “Big Data” Analytics

LinkedIn Tweet Like Email Comment

Big Data People Magnifying GlassHow, and to what extent, should “big data” analytics play a role in workforce recruitment, development, and retention?  These were some of the questions asked on October 13, 2016  at a meeting convened by the U.S. Equal Employment Opportunity Commission on the use of big data analytics in the workplace.  Based on the exchange with the panel of seven experts, it is clear that the EEOC is cautiously approaching companies’ use of big data in informing employment decisions, and is beginning to think about its role in overseeing big data analytics as applied to the workforce.

Big data analytics in the workplace (sometimes referred to as people analytics) is the pairing of large data sets, comprising information gleaned from a variety of sources, with machine learning techniques in order to make successful, efficient, and non-discriminatory employment decisions.  But panelists cautioned that big data analytics is not a panacea.  Panelist Kelly Trindel, Chief Analyst of the EEOC’s Office of Research, Information, and Planning, expressed concern that the use of big data analytics may inadvertently perpetuate discrimination if the training set on which the analytical algorithms are based comprise a group that itself was the product of discriminatory decision-making.

Commissioner Charlotte A. Burrows suggested that while big data analytics may reduce subjectivity in employment decisions, errors in the data sets or flawed assumptions underlying the algorithms may compound discriminatory effects.  Employers using or considering the use of big data analytics should be careful to take appropriate safeguards in designing (or working with a vendor to design) programs that will rely upon big data in order to make employment decisions.  Such precautions may include validation of any such programs over time, conducting appropriate job analyses, ensuring the variables considered adequately correspond to the representative population, training managers to properly interpret the data and results, and informing candidates whenever big data analytics will be used in hiring, said panelist Kathleen Lundquist, an organizational psychologist.

Appropriate precautions are especially important given the EEOC’s likely focus on this topic going forward.  Chair Jenny R. Yang announced the formation of an internal working group to study big data analytics in the workplace.  Commissioner Chai R. Feldblum suggested that, in the future, EEOC may convene additional panels to further discuss the implications of big data analytics in the workplace, and may play an educational role, among other things.

Complete statements of all of the panelists can be found on the EEOC website.  In addition, the EEOC will hold open the meeting record for 15 days, and members of the public are invited to submit written comments on any issues or matters discussed at the meeting.  If you are interested in contributing, public comments may be mailed to Commission Meeting, EEOC Executive Officer, 131 M Street, N.E., Washington, D.C. 20507, or emailed to: Commissionmeetingcomments@eeoc.gov.

Any employer considering the integration of the use of big data analytics into its workplace management practices should discuss the implications of such usage, and development of best practices for same, with experienced counsel.

Employers Under the Microscope: Is Change on the Horizon? – Attend Our Annual Briefing (NYC, Oct. 18)

LinkedIn Tweet Like Email Comment

Employers Under the Microscope: Is Change on the Horizon?

When: Tuesday, October 18, 2016 8:00 a.m. – 4:00 p.m.

Where: New York Hilton Midtown, 1335 Avenue of the Americas, New York, NY 10019

Epstein Becker Green’s Annual Workforce Management Briefing will focus on the latest developments in labor and employment law, including:

  • Latest Developments from the NLRB
  • Attracting and Retaining a Diverse Workforce
  • ADA Website Compliance
  • Trade Secrets and Non-Competes
  • Managing and Administering Leave Policies
  • New Overtime Rules
  • Workplace Violence and Active-Shooter Situations
  • Recordings in the Workplace
  • Instilling Corporate Ethics

This year, we welcome Marc Freedman and Jim Plunkett from the U.S. Chamber of Commerce. Marc and Jim will speak at the first plenary session on the latest developments in Washington, D.C., that impact employers nationwide.

We are also excited to have Dr. David Weil, Administrator of the U.S. Department of Labor’s Wage and Hour Division, serve as the guest speaker at the second plenary session. David will discuss the areas on which the Wage and Hour Division is focusing, including the new overtime rules.

In addition to workshop sessions led by attorneys at Epstein Becker Green – including some contributors to this blog! – we are also looking forward to hearing from our keynote speaker, Former New York City Police Commissioner William J. Bratton.

View the full briefing agenda here.

Visit the briefing website for more information and to register, and contact Sylwia Faszczewska or Elizabeth Gannon with questions. Seating is limited.

ACA Information Reporting: Ensuring Big Data Analyses Do Not Lead to Big Penalties

LinkedIn Tweet Like Email Comment

By Michelle Capezza (Member of the Firm, Epstein Becker Green) and Howard Gerver (President, ACA Managed Services)

Big DataAs employers prepare the Affordable Care Act information reporting filings for the 2016 year that will be due in 2017 (notably the 1094/1095 B&C), the good faith standard of compliance, and the potential for inaccuracies, is no longer available.  In order to seek a waiver of penalties for the 2016 filings made in 2017, an employer will need to meet a standard of reasonable cause and no willful neglect.  With this standard, an employer must show that there are significant mitigating factors or the failure was due to certain events outside their control and the filer acted responsibly.  While “responsibly” remains subjective, the employer must be able to demonstrate that the same level of quality assurance and audit rigor that is applied to other governmental reporting must be applied to the 1095 and 1094 IRS reporting processes. Also, at this time, anticipate that the filings will need to be made with the government, and to the employees (and other recipients), under the regular schedule without extensions: (i.e., the disclosures to employees will be due the last day of January following the calendar year in which coverage was provided; forms must be filed with the IRS by the last day of February if filing on paper or March if filing electronically (which is required for employers with 250 plus returns)).

Failure to timely file the Forms with the IRS and provide them to employees can lead to significant penalties (for example, currently large businesses are subject to a penalty of $260 per return up to a maximum of $3,178,500, as adjusting in successive years); this is not tax deductible.

The following is a checklist of issues that employers should consider when getting ready for 2017 ACA information reporting:

  1. Understand the Big Data Environment. Using Big Data algorithms, the IRS has the ability, as it increasingly works in conjunction with other Federal agencies, to identify contradictory data submitted on both individual employee forms and across multiple employees, which can lead to audits, as well as enforcement of the individual and employer mandate For example, in the March 2016 Congressional Budget Office Report concerning the federal subsidies for health insurance coverage for people under the age of 65, the government has already estimated that 3 million people will pay the individual mandate penalty in 2016.  In 2014, 7.9 million taxpayers paid approximately $1.6 billion in individual mandate penalties.

Moreover, from 2017-2026-the government projects employer mandate penalties of $228 billion.  Thus, there is clear anticipation that revenue will be generated and violations will be ascertained through the information reporting filings.  As carriers continue to withdraw from key markets and continue to incur material losses (billions of dollars are owed to carriers by the Federal government) the need to quickly enforce the employer penalties is even greater so the government can reimburse payors and providers the billions that are owed.

Given 1) the multi-billion dollar employer penalty budget and 2) the billions of dollars that have been/will be paid vis-à-vis the individual mandate, employers should thoroughly review their 2015 1095-C forms data and provide on-going QA of their 2016 data to mitigate risk.

It is imperative that employers confirm the integrity, accuracy and completeness of their employee data including: collection and verification of social security numbers of employees and dependents (as applicable), waiver information, eligibility determinations, offers of coverage (1095-C, line 14) and employee status/safe harbor codes (1095-C, line 16)

Employers should also know where the data resides, how to extract it, and confirm that it is consistent with unique employee identifiers (e.g. SSN). In addition, ensure that the responses on the forms do not contain conflicting codes (e.g., an employee would not be made a qualifying offer (Code 1A on Line 14 of Form 1095-C) while being in their respective limited assessment period (Code 2D on Line 16 of Form 1095-C).  These are the types of inconsistencies that can trigger a red flag with the government. Clearly the applicable data should be reviewed early and often.

In order to ensure that 2015 reporting was accurate, employers should audit last year’s forms data.  This way, errors as well as the underlying root cause can be identified and remedied to mitigate future risk.  Employers should also adequately plan for and execute internal controls.  For example, employers should perform a Data Diagnostic to calculate the expected number of offers (either 1A or 1E on line 14).  The same should be done for Series 2 codes on Line 16.  This way the actual results can be compared to the expected results.

  1. Ensure Proper Worker Classifications. Misclassified workers raise many issues not only from an employment law standpoint but also an employee benefit plan standpoint.  For group health plans, a key requirement is properly defining full time employees and equivalents to determine if an employer is an applicable larger employer under the employer mandate and that the requisite number of full time employees and their dependents are offered qualifying coverage.  We are now in an environment where applicable large employers must cover the requisite 95% of full time employees or risk exposure to penalties (it was 70% last year).  Properly identifying which workers are actually the employer’s employees, in addition to their hours of work, is a critical step.   This gets even more complicated when the employer has workers through alternative arrangements such as relationships with staffing firms. It should be noted that a service contract does not override the common law test for making a determination regarding employer status.  An employer should consider a self audit of worker classifications.
  1. Monitor changes in the applicable guidance.

Draft Forms. The new draft information reporting forms include changes such as: (a) the eliminated from form 1095-C  the transition relief codes for 2015 regarding 70% coverage of employees as opposed to 95% and the exemption from penalties if the employer had  less than 100 employees–code 1l and Code 2I (for noncalendar year plans); (b) Line 14 has a new Code IJ—used if minimum essential coverage providing minimum value is offered to an employee and conditionally offered to a spouse but not dependents. A common conditional offer occurs when coverage is offered to a spouse only if the spouse certifies he or she is not eligible for coverage under a plan sponsored by his or her own employer or not eligible for Medicare.  If this code is used it can lead to a penalty because coverage is not offered to dependents. Code I K is used if qualifying coverage is offered to the employee, dependents and conditionally to a spouse.  If either new code IJ or IK is used-line 15 of the 1095-C must be completed, (c) Offers of COBRA following a termination of employment should be coded with 1H (line 14) and 2 A (line 16) whether or not COBRA is elected.  For COBRA offers after a reduction in hours, treat as an offer of coverage on Line 14 1095-C, (d) Line 15 instructions clarify that the employee required contribution for Line 15 of Form 1095-C is the employee’s share of monthly cost for the lowest cost self only minimum essential coverage with minimum value offered.

Proposed Regulations.

a) Note that under proposed regulations issued July 6, 2016 regarding the premium tax credit, if an employee opts out of coverage and does not substantiate other coverage, this increases the costs of coverage for the employee when making an affordability determination and can mean that the employee was not offered affordable coverage.  This opt out payment must be added to the employee’s premium contribution and reported on the Form 1095-C.  If there is a conditional opt-out where the employee provides substantiation of other minimum essential coverage for the employee and their tax family (for example through a spouse’s plan but not individual coverage through the Marketplace) at least annually, this will not increase the cost for the affordability determination. The comment period on these regulations has just ended so it will be important to monitor any changes in final rules. Under transition rules, these rules will be effective with the 2017 plan year for opt out programs in effect prior to 2016.

b) In Proposed Regulations issued July 29, 2016 under Code Section 6055 and relating to the Form 1095-B and 1095 C part III, it is worth noting that if the employee is covered by multiple plans providing minimum essential coverage by the same sponsor, reporting is only required by one of the plans.  These rules apply month by month per individual.  Therefore, if for a month an employee is enrolled in a self-insured health plan and HRA by the same employer, the employer only reports one type of coverage but, if the employee drops coverage under the health plan, the employer reports coverage for the HRA for the remaining months.  Also reporting is not required for supplemental coverage where the employee is already covered by minimum essential coverage for which reporting is required or through Medicare, TRICARE or Medicaid.

  1. Ensure Accurate Names and Social Security Numbers.
  • Employers should remind employees to report any name changes due to life events such as marriage or divorce to both the Social Security Administration and the employer.
  • Employers should establish procedures for securing Forms W-4 and using that information to prepare forms W-2.
  • An initial solicitation must be made for a correct SSN when completing the information reporting requirements unless the employer has the employee’s SSN and uses it for all transactions with the employee.  When an employee begins work, it is usually considered an initial solicitation with completion of a Form W-2, W-4 and I-9.
  • When the employee’s SSN is missing or incorrect after the initial solicitation, the employer will generally need to conduct annual solicitations for a correct SSN and there should be a process for re-solicitation of required information. SSN solicitations are also made at time of an open enrollment.

The July 29, 2016 proposed regulations noted above provide that an employer acts responsibly if it engages in proper solicitation of SSNs which includes an initial and 2 subsequent annual solicitations (i.e, the first annual solicitation being within 75 days after open enrollment and the second by the December 31st of the following year). Employers should retain employee responses in employer records and note that solicitations were made.

  1. Corrected Returns. It’s worth commenting that in addition to getting ready for 2017 filings, there may be some clean up required for the 2015 forms that were just filed earlier this year.
  • Errors could be identified by an IRS error message, internal audit or by an employee.
  • A corrected return corrects an inaccurate return (such as Form 1095 B/C) or transmittal (1094-C) that was previously filed and accepted (with or without errors) by the IRS.
  • If a transmission or submission was REJECTED by the IRS-then a rejection requires a replacement -it is necessary to replace all records in the transmission or submission that was rejected.
  • Correcting errors is part of the good faith effort to file accurate and complete information returns.
  • Employers should have an internal review process to ensure correction of forms will not be necessary.
  1. Record Retention. It is important to document and retain proof to substantiate responses on the ACA information reporting forms, and, record retention policies should be updated to include ACA information reporting records.  Among the records employers should retain are (i) records of employees who were provided with an offer of coverage and corresponding dates, (ii) eligibility methodology and determinations, (iii) signed waivers or opt out forms, (iv) SSN solicitation records, (iv) controlled group determinations, (v) participant communications, (vi) affordability calculations.
  1. Marketplace Notice and IRS Penalty Notice. For the Marketplace Notices which some employers started to receive in early July, note that these are not the IRS Penalty Notices for employer mandate penalties which may start to be issued later this year.  The Marketplace Notice can be issued to large and small employers.  It is a notification that the particular employee purchased coverage in the current year and received a subsidy.  An employer has 90 days after the date of the notice to appeal and claim that the employee should not receive the premium tax credit.It is especially important for large employers to check records to determine if this employee was offered qualifying coverage, that the employee was properly classified and then to determine if it is necessary to challenge the employee’s receipt of the subsidy because this could be a trigger for later receipt of an IRS penalty notice.Therefore, thought should be given to setting the record straight and preparing defenses to a potential IRS penalty notice.  If the employer wins the Marketplace Notice appeal, the employee must pay back the subsidy received or offset any tax refunds.  The Marketplace appeals center will issue the decision.  An IRS penalty notice will indicate that the IRS believes the employer did not offer qualifying coverage during the prior year.  Employers will have a chance to respond and appeal the IRS penalty notices.  It is important to establish an approach for reviewing and responding to these notices.
  1. Corporate Transactions. In the merger and acquisition context, be mindful of representations and warranties regarding ACA compliance and information reporting requirements.  Diligence could include review of a sample of the forms that were filed by the target to assess whether they appear to have been completed properly, looking for incomplete or inconsistent codes on the forms, and anticipating potential liabilities.  Consideration should be given to factoring in potential penalties to purchase prices and escrow arrangements. A best practice is to perform a 1095-C and 1094-C audit during the due diligence process.
  1. Fiduciary Responsibility and Governance.  Health and welfare plans are subject to ERISA and the plan fiduciaries should ensure that they are maintaining these plans in compliance with applicable law, meeting the applicable reporting and disclosure requirements, and prudently selecting and monitoring those that assist in meeting these responsibilities.  Consideration should be given to enhancing fiduciary governance procedures, such as benefit committee guidelines and health plan administrative procedures to include ACA information reporting duties, if not done so already.
  1. Establish an ACA Information Reporting Team.  ACA compliance has many facets, and information reporting is a complex requirement.  Consideration should be given to designating a specific individual or team to address these disclosures. It is important for these individuals to examine data collection and integrity issues so that any mistakes from last year are not repeated.  Quality control and data privacy issues should also be addressed.  As part of their mission, the ACA Information Reporting Team should make on-going QA an embedded part of their process.

The ACA Information Reporting Team should also perform a 1095-C audit (and 1094-C audit) to make sure information was accurately reported. Employers should audit last year’s forms data.  This way, errors as well as the underlying root cause can be identified and remedied to mitigate future risk.  Employers should also adequately plan for and execute internal controls.  For example, employers should perform a Data Diagnostic to calculate the expected number of offers (either 1A or 1E on line 14).  The same should be done for Series 2 codes on Line 16.  This way the actual results can be compared to the expected results.

Consideration of these best practices and implementation of same will make a difference when completing the Forms and defending the responses in an audit or an appeal.  For more information regarding IRS reporting best practices and how to mitigate penalty and public relations risk, please visit www.ACAIRSbestpractices.com.

.