California Human Resource Blog

The employee’s regular rate of pay is the basis for calculating overtime. The regular rate is not simply an employee’s normal hourly amount. The regular rate is a term used to mean the employee’s actual rate of pay once all hourly earnings plus many other types of compensation are considered. The regular rate must include nearly all forms of pay received by that employee, including commissions, production bonuses, piece work earnings, and value of meals and lodging. Base overtime on the employee’s regular rate of pay including all the above forms of payment.

Amounts not included in the regular rate of pay are:

• Gifts (such as those received for holidays or birthdays, as a reward for service, the amounts of which are not based on hours worked, production, or efficiency);
• Hours paid but not worked (such as vacation, holidays and sick leave; reporting time; and split shift pay);
• Reimbursement of expenses;
• Discretionary bonuses (these are bonuses in recognition of services performed during a given period, provided that the fact that payment is to be made and the amount of payment are determined at your sole discretion at or near the end of the period);
• Profit-sharing plans (payments made in recognition of services performed during a given period, made to a profit-sharing plan or trust or bona fide thrift or savings plan, without regard to hours of work, production, or efficiency);
• Employment Retirement Income Security Act (ERISA) plan payments (irrevocable contributions for old age; retirement; life, accident, or health insurance; or similar employee benefits); and
• Overtime pay.

For an employee whose compensation is based wholly or partly on bonuses, commissions, or multiple hourly rates, you must calculate the regular rate of pay each workweek, because the employee’s overtime rate each week must be based on the regular rate of pay, not just the normal hourly rate of pay.

Calculating the regular rate of pay requires that all compensation received for the week (including multiple hourly rates, bonuses, commissions, etc.) be divided by the total number of hours worked.

For example:

Hourly Wage:                                                  $8.00

Commissions:                                                $50.00

Hours Worked in the Pay Period:                   45 (40 regular & 5 overtime hours)

Hourly Rate of Pay for Overtime:                    $9.11 (($8×45)+($50/45))

Did you ever think an HR Professional would tell you not to do performance appraisals?  While these are considered an essential part of human resources “best practices”, your YPP HR Professionals would actually prefer you not do them at all if you are not going to do them right.  We routinely see performance appraisals that were poorly done, creating far more potential issues than if they had not been done at all.

One common problem is that clients complete appraisals with “meets standards” in areas where they have had performance issues with employees.  How does an employee “meet standards” who repeatedly fails to show up for work on time, is rude to clients, violates company policies, or does not have the level of skill needed for the position?   This is the common pitfall of an owner, manager or supervisor who is afraid to be honest with employees, and as a result they create more liability with the appraisal.

If you want to do these right, here’s some Essential Guidelines, and we always recommend that you have your YPP HR Manager review your appraisals before you give it to employees so we can help you achieve your goals.

Essential Guidelines for Appraisals

1. Carefully document how all employees are performing

You might be tempted to document only your problem employees. A better practice is to keep performance records on all of your workers. This means carefully recording your observations, praise, counseling, and warnings—in writing—in clear, objective language.  Establish an electronic document for each employee and add notes as needed, including the date and identification of the person who added those notes.   If you congratulate an employee for doing a good job, make sure that is documented as well as the issues addressed.

2. Be candid and explicit

Although many managers are uncomfortable with this, it’s important to be frank. Don’t use euphemisms, such as, “There’s room for improvement,” or duck out of giving an employee strong, but necessary, constructive criticism. Be specific about what’s gone wrong and offer concrete steps for improvement. It is unfair and unrealistic to expect an employee to improve unless he or she knows exactly what is amiss.  Just as important, juries do not like it when an employee has not been told what the expectations are and where they need to improve.

An example:  “John does not have the level of skills using computer hardware, software, and the other equipment required to do his job. As a result, he frequently needs help and distracts others from their work.  For example, he was recently asked to create labels using an Excel list, and was not able to complete it without assistance from other staff because of a lack of skills in this essential software”.

3. Don’t give raises to marginal employees

Some employers give poor performers a raise in the hope it will motivate them to improve. Without counseling an employee about his or her inadequate performance, however, this strategy is doomed to fail. What’s more, if the employee is terminated and sues, he or she can point to the history of pay raises to show that he or she was doing a good job.

4.  Separate raises from performance appraisals

You should establish an annual or semi-annual review of compensation for all employees.  This helps manage your compensation costs, and eliminates the expectation of most employees that they are entitled to a raise when they receive a performance appraisal.

5. Don’t mention age, gender, race, etc.

In addition to these comments being illegal and inappropriate, don’t set yourself up for a discrimination complaint.  This means, for example, not telling a 45-year-old, “The younger salespeople seem to grasp our new products better than you do,” or “We need younger people with more energy around here.”   Appropriate feedback for employees would be “you have demonstrated some difficulty understanding new products quickly, which is important for your position so you can discuss the products with customers”.  Performance appraisals also should not discuss leave of absences taken by the employee, particularly when those were for medical reasons.

6. Don’t let marginal performers slide

When an employee’s poor performance goes uncriticized for several weeks or months, negative comments in a performance evaluation lose credibility and are likely to trigger complaints of unfairness or bias.   If the performance issues was serious, it’s appropriate to mention it but also to state how the employee has improved and what improvement is still needed.  The performance appraisal should not be the first time an employee learns they are not performing to expectations.  It should also not ignore performance issues;  if you let those slide in a performance appraisal, those previous issues can be negated.

7. Use relevant, objective standards

Look at the job and how it is being performed, rather than the person. Some examples of objective criteria are:

• Maintaining or increasing sales volume
• Handling customer complaints
• Working with coworkers
• Operating within a budget
• Meeting deadlines
• Written communications and reports
• Complying with certain company policies (such as those regarding absences)
• Reducing costs
• Overall productivity

8. Back up judgments with facts

Use production records, disciplinary reports, attendance records, examples of work quality, etc., to back up your assertions, and be clear about how you arrived at your conclusions.

9. Make sure employees understand all performance standards

If they don’t fully understand their obligations and how their work is being judged, the performance appraisal system will be of little use, either as a performance management tool or a defense in a lawsuit.

10. Keep all performance evaluation materials in a confidential file

While employees should have access to their performance appraisals, others’ access to such information should be strictly on a need-to-know basis.

11. Seek feedback from the employee

A performance appraisal is most effective when you seek the employees’ input and give them an opportunity to tell you where they don’t think they are being as effective as possible, what you or the company could do to help them improve, and what processes or services they may have ideas about improving.  An appraisal meeting should be a collaborative environment instead of the traditional “let me tell you how I ranked your performance” meeting.

You’ve probably heard about the California Space Center Project championed by the California Space Authority, a long-time YPP client.   They have great news in procuring the property lease from the Air Force for the 71 acre lot just outside the gates at Vandenberg AFB.  This giant step forward means this project is  likely to happen and will contribute in many ways to the Central Coast. If you like space, technology, and the central coast you can help make this happen by making a donation to the California Space Authority.

The California Space Center will be located on a site locally known as Hawk’s Nest, a 71-acre lot that fronts Highway 1, immediately south of the Vandenberg AFB Main Gate, in Santa Barbara County, California. The planned facility will include approximately 500,000 square feet of buildings and is to be built over the course of ten years. Formal development activities are planned to commence in January 2011, after securing a long-term lease for the property with the United States Air Force.

The California Space Center is a multi-faceted, multi-year project that will inspire young people with space, science, math and engineering educational activities and offer space-related facilities, entertainment and cultural exhibits. The Center will also educate the public regarding space enterprise, including Vandenberg Air Force Base. This project touches three key elements: History, Cultural and Natural Resources, and Education. This truly makes the California Space Center a unique destination that will attract visitors from the local area as well as the nation and the globe.

The following components are planned for the project:

Questions and Answers regarding the Small Business Health Tax Credit

1. How does a business determine if they are eligible for the Small Business Tax Credit?

Answer: It is a lot more complicated than just counting noses. There is first a formula that a client must use to determine whether they qualify as a “small business.” This is done as follows:

Step 1. Determine the total number of employees (not counting owners or family

members):

Full Time Employees _________ [40 + hours per week]

+ Full Time Equivalents for Part time Employees* _________

Total FTEs: _________

[*Full Time Equivalent of Part-time Employees = Total Annual Hours of Part-time Employees 2080.

Note: this does not include seasonal workers working less than 120 days during the tax year]

>> If Total FTE is less than 25, proceed to Step 2

Step 2. Determine the total annual wages paid to employees (excluding wages paid to

owners or family members):

Total Annual Wages __________

Number of Employees (from Step 1) __________

= Average Wage __________

>> If the Average Wage is less than $50,000, proceed to Step 3

Step 3. Determine if the client pays at least 50% of the health insurance premium of

employees at the single (employee only) coverage rate. If yes, then the client is

eligible.

1. What is the amount of the credit?

Answer: The credit varies based on the number of FTEs and Average Annual Wage and is less

for a tax-exempt employer. The credit is based on the amount of premium that the company

pays, not to include the amount paid by employees and also excludes any amounts paid for

coverage on owners and their family members.

According to the IRS, the credit is worth up to 35 percent of a small business’ premium costs for

years 2010 through 2013 (25 percent for tax-exempt employers). On Jan. 1, 2014, this rate

increases to 50 percent (35 percent for tax-exempt employers) for years 2014 and 2015. No

further credits are expected at that time.

The credit is 100% for small businesses with less than 10 employees. Also the credit is for

payments made during the entire year and not just since enactment.

Note: This credit phases out gradually for firms with average wages between $25,000 and

$50,000 and for firms with the equivalent of between 11 and 25 full-time workers.

1. Can you give examples of this determination?

Answer: The IRS has provided three examples:

Example 1: Auto Repair Shop with 10 Employees Gets $24,500 Credit for 2010

• Employees: 10
• Wages: $250,000 total, or $25,000 per worker
• Employee Health Care Costs: $70,000
• 2010 Tax Credit: $24,500 (35% credit)
• 2014 Tax Credit: $35,000 (50% credit)

Example 2: Restaurant with 40 Part-Time Employees Gets $28,000 Credit for 2010

• Employees: 40 half-time employees (the equivalent of 20 full-time workers)
• Wages: $500,000 total, or $25,000 per full-time equivalent worker
• Employee Health Care Costs: $240,000
• 2010 Tax Credit: $28,000 (35% credit with phase-out) (See Question 4)
• 2014 Tax Credit: $40,000 (50% credit with phase-out)

Example 3: Foster Care Non-Profit with 9 Employees Gets $18,000 Credit for 2010

• Employees: 9
• Wages: $198,000 total, or $22,000 per worker
• Employee Health Care Costs: $72,000
• 2010 Tax Credit: $18,000 (25% credit)
• 2014 Tax Credit: $25,200 (35% credit)

1. Is there a sliding scale or phase out that applies to the credit?

Answer: Yes. The credit is reduced to the extent the number of FTEs is above ten and/or the average annual wage is above $25,000.

The calculation is the sum total of the following reductions to the otherwise applicable credit (but not to reduce the credit below zero):

• If the number of FTEs exceeds 10, then multiply the credit times a fraction (that is the
• number of FTEs in excess of 15 over the number 15)
• If the average annual wage exceeds $25,000, then multiply the credit times a fraction (that is the amount of the average annual wage in excess of $25,000 over the number 25,000)

Is there an example of how this sliding scale applies to the credit?

Answer: The IRS has provided the following example:

Example: For the 2010 tax year, a qualified employer has 12 FTEs and an average Annual wage of $30,000. The employer pays $96,000 in health care premiums for those
employees (which does not exceed the average premium for the small group market in the employer’s State and/or region) and otherwise meets the requirements for the credit.

The credit is calculated as follows:

(1) Initial amount of credit determined before any reduction: (35% x $96,000) =

$33,600

(2) Credit reduction for FTEs in excess of 10: ($33,600 x 2/15) = $4,480

(3) Credit reduction for the average annual wage in excess of $25,000: ($33,600 x

$5,000/$25,000) = $6,720

(4) Total credit reduction: ($4,480 + $6,720) = $11,200

(5) Total 2010 tax credit: ($33,600 – $11,200) = $22,400.

This is also why the tax credit in the second example to question 3 equals $28,000 and not simply 35% of $240,000 (which would equal $84,000). The following would be the Phase-out for that above example:

(1) Initial amount of credit determined before any reduction: (35% of $240,000) =

$84,000

(2) Credit reduction for FTEs in excess of 10: ($84,000 x 10/15) = $56,000

(3) Credit reduction for average wage in excess of $25,000 = none

(4) Total credit reduction: ($56,000)

(5) Total 2010 tax credit ($84,000 – $56,000) = $28,000

1. What amount of premium is used in the calculation?

Answer: An employer may only count the amount of premium paid by the employer. It may not count the portion paid by the employee. For example, if the employer pays 75% and the employee pays 25% of the premium, only the 75% is used in calculating premiums paid by the employer. An employer may not count the amount of premium paid by the employer for coverage on owners and their family members.

CAVEAT: Premium paid under a salary reduction arrangement under a section 125 cafeteria plan is not treated as paid by the employer.

CAVEAT: There will be a cap on the amount of the employer’s premium payments cannot be greater than the amount that would have been paid for the average premium for the small group market in the state. So in the case above, not more than 75% of what the average premium would have been in the small group market. (That amount is to be determined by HHS and published by the IRS)

8. Will all premiums in 2010 be counted, including those incurred before the passage of the

Act?

Answer: Yes

9. Where can I go for further help on this?

Answer: It is expected that the IRS will continue to develop information and guidance on this issue. Go to IRS.gov or directly to their health care tax credit page for information.

The provisions of the new healthcare reform law take effect over several years. The following is a summary of the most important provisions of the Patient Protection and Affordable Care Act (PPACA) as amended by the Health Care and Education Reconciliation Act of 2010 (HCERA) arranged by the year during which the provision first takes effect and impacts employers, including both those that do and do not sponsor group health plans.

2010  (beginning plan years on or after September 23, 2010 unless noted otherwise)

Dependent Coverage to Age 26. Health plans that cover dependents will have to cover dependents on a parent’s plan until their 26th birthday.

Ban on Lifetime Limits and Restriction on Annual Limits. Plans and insurers may not place lifetime dollar limits and unreasonable annual limits on coverage of participants and beneficiaries.

Preexisting Condition Restrictions on Children. Plans and insurers may not deny coverage of children because of preexisting conditions.

Coverage Rescissions. Insurers and plans may not rescind coverage except in cases of fraud or intentional misrepresentation,

Minimum Coverage Without Cost Sharing for Preventive Services. Qualified health plans must provide coverage without cost sharing for preventive services, including immunizations; preventive care for infants, children, and adolescents; and additional preventive care and screenings for women. HHS is to define “preventive services”.  This provision is effective for the first plan year beginning on or after September 23, 2010, but does not apply to plans in existence on March 23, 2010.

Tax Credits to Small Employers. Small employers with no more than 25 employees and average annual wages of less than $50,000 may claim a tax credit for the cost of providing health insurance to their employees. For tax years beginning in 2010, the credit is 35 percent of the cost.   See YPP’s Small Business Health Tax Credit for more information.

Reinsurance Program for Employers Providing Health Insurance Coverage to Retirees over Age 55. A reinsurance program for employers providing health insurance coverage to early retirees who are over age 55 but are not yet eligible for Medicare is available from June 21, 2010, until insurance Exchanges are available on January 1, 2014.

Requirement to Report Medical Loss Ratio. Health insurers and plans must annually report the percentage of premiums spent on health care effective for plan years beginning on or after March 23, 2010. Plans in the individual and small group market must maintain a medical loss ratio (MLR) of 80 percent and plans in the large group market to maintain an MLR of 85 percent.

Nondiscrimination Testing. The existing rules barring discrimination in favor of the highly compensated apply to insured group health plans established after March 23, 2010, effective for plan years beginning on or after September 23, 2010.

Other Coverage Requirements. Effective for plan years beginning on or after September 23, 2010, group health plans established on or after March 23, 2010, will:

• Have to allow plan participants to choose any participating primary care provider
• Be prohibited from requiring prior authorization or referrals for visits to an obstetrician/gynecologist
• Have to treat an obstetrician/gynecologist as a primary care provider
• Have to provide emergency care services without prior authorization and with the same cost sharing both in and out of network
• Have to provide coverage for costs of participating in a clinical trial

Grandfather Rules. Grandfather Rules exempt group health plans that were in existence on March 23, 2010, from many of the new insurance requirements. Regulations are expected to clarify what kind of changes could be made to a plan without losing grandfather status. The reconciliation law substantially narrowed the grandfather protections and makes the following provisions applicable to both existing and new plans:

• Dependent coverage until age 26
• Preexisting exclusions
• Lifetime maximums
• Annual maximums
• Rescission of coverage

2011

Wellness Grants for Small Employer. An amount of $200,000,000 is authorized to be appropriated for the period of fiscal years 2011 through 2015 to fund grants to employers with fewer than 100 employees to provide their employees with access to comprehensive workplace wellness programs.

Exclusion of the Costs for Over-the-Counter Drugs for Reimbursement from HRAs, HSAs, FSAs, and MSAs. Effective for taxable years beginning after December 31, 2010, the costs of over-the-counter drugs not prescribed by a doctor may no longer be reimbursed through a health reimbursement account (HRA) or health flexible spending account (FSA) and may no longer be reimbursed on a tax-free basis through a health savings account (HSA) or Archer Medical Savings Account (MSA).

Tax on HSA and MSA Distributions Not Used for Qualified Expenses Effective for taxable years beginning after December 31, 2010, the tax on distributions from a health savings account or an Archer MSA that are not used for qualified medical expenses increases to 20 percent of the disbursed amount.

Medical Loss Ratio Reimbursement. Beginning not later than January 1, 2011, plans in the individual and small group market must maintain an MLR of 80 percent, and plans in the large group market must maintain an MLR of 85 percent. For each plan year, plans must provide a rebate to each enrollee on a pro rata basis equal to the amount of premium revenue spent on nonmedical costs that exceed the percentage limits.

Form W-2 Reporting. Effective for tax years beginning after December 31, 2010, employers are required to report on Form W-2 the total cost of employer-provided group health coverage that is excluded from the employee’s gross income. The amount to be reported does not include amounts excluded from income through an Archer MSA, an HSA, or employee salary reductions to a flexible spending arrangement.

CLASS Act. The Community Living Assistance Services and Supports Act (CLASS Act) creates a national voluntary insurance program for purchasing community living assistance services and supports to provide individuals with functional limitations with tools that will allow them to maintain their personal and financial independence and live in the community through a new financing strategy for community living assistance services and supports, establish an infrastructure that will help address community living assistance services and supports needs; and alleviate burdens on family caregivers. Employers will be encouraged to participate in the CLASS Act and adopt automatic enrollment rules that default employees into the CLASS Act, starting January 1, 2011.

Benefits Summary Requirement. By March 23, 2011, national standards for use in compiling and providing a summary of benefits and coverage explanation that accurately describes the benefits and coverage under group health plans and group or individual health insurance coverage are to be issued.

Simple Cafeteria Plans for Small Employers. Effective beginning after December 31, 2010, Internal Revenue Code Sec. 125 is amended to provide for simple cafeteria plans for small businesses that include a safe harbor from nondiscrimination requirements for employers that employed an average of 100 or fewer employees during either of the 2 preceding years. If an employer qualifies as a small employer, it retains the status until it employs an average of 200 or more employees during the preceding year.

2012

Benefits Summary Requirement. By March 23, 2012, a summary of benefits and coverage explanation that meets the national standards for providing a summary of benefits and coverage must be provided to applicants at the time of application, to the enrollee prior to the time of enrollment or reenrollment, and to a policyholder or certificate holder at the time of issuance of the policy or delivery of the certificate.

Quality of Care Reporting. No later that March 23, 2012, requirements for use by group health plans and health insurance issuers offering group or individual health insurance coverage to report benefits and healthcare provider reimbursement structures that improve health outcomes through the implementation of activities are to be issued. Examples of activities to be reported include quality reporting, effective case management, care coordination, chronic disease management, and medication and care compliance initiatives; activities to prevent hospital readmissions through a comprehensive program for hospital discharge that includes patient-centered education and counseling, comprehensive discharge planning, and postdischarge reinforcement by an appropriate healthcare professional; activities to improve patient safety and reduce medical errors through the appropriate use of best clinical practices, evidence-based medicine, and health information technology under the plan or coverage; and wellness and health promotion activities. Plans and insurers must annually report whether the benefits under the plan or coverage satisfy these elements.

2013

Health Insurance Administration Simplification. Rules establishing a single set of operating rules for eligibility verification and claims status must be adopted July 1, 2011, and take effect January 1, 2013. Rules for electronic funds transfer and healthcare payment and remittance rules must be adopted by July 1, 2012, and take effect January 1, 2014. Rules for health claims or equivalent encounter information, enrollment and disenrollment in a health plan, health plan premium payments, and referral certification and authorization rules are to be adopted by July 1, 2014, and take effect January 1, 2016. Health plans must document compliance with these standards or face a penalty of no more than $1 per covered life. The penalty takes effect April 1, 2014.

Medicare Tax. Effective January 1, 2013, the Medicare Part A (hospital insurance) tax rate on wages goes up by 0.9 percent (from 1.45 percent to 2.3 percent) on earnings over $200,000 for individual taxpayers and $250,000 for married couples filing jointly. There is also a 3.8 percent Medicare tax assessment on investment income from interest, dividends, royalties, rents, gross income from a trade or business, and net gain from disposition of property for individuals earning over $200,000 and families earning over $250,000.

FSA Contribution Limit. Effective January 1, 2013, contributions to an FSA for medical expenses are limited to $2,500 per year increased annually by the cost-of-living adjustment.

Elimination of Tax Deduction for Part D Subsidy Payment. Effective January 1, 2013, the tax deduction for employers that receive Medicare Part D retiree drug subsidy payments is eliminated.

Requirement on Employers to Inform Employees of Coverage Options. Employers are to provide to each employee at the time of hiring (or with respect to current employees, not later than March 1, 2013), written notice informing the employee of the existence of an Exchange, including a description of the services provided by such an Exchange, and how the employee may contact the Exchange to request assistance; if the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, the employee may be eligible for a premium tax credit under Section 36B of the Internal Revenue Code of 1986 and a cost-sharing reduction under Section 1402 of the PPACA if the employee purchases a qualified health plan through the Exchange; and if the employee purchases a qualified health plan through the Exchange, the employee will lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for federal income tax purposes.

2014

Individual Mandate. U.S. citizens and legal residents will be required to have qualifying health coverage beginning in 2014. Those who do not have coverage will be required to pay a yearly financial penalty of the greater of $695 per person (up to a maximum of $2,085 per family) or 2.5 percent of household income, phased in from 2014–2016. There will be exceptions given for financial hardship and religious objections.

Employer Play or Pay—The Employer Mandate. Effective in 2014, employers with more than 50 employees that do not offer coverage and have at least one full-time employee who receives a premium assistance tax credit, must pay a fee of $2,000 per full-time employee. The first 30 employees are not counted for assessing the fee. Employers with more than 50 employees that offer coverage but have at least one full-time employee receiving a premium tax credit will pay the lesser of $3,000 for each employee receiving a premium credit or $2,000 for each full-time employee. Employers that offer coverage will be required to provide a voucher to employees with incomes below 400 percent of the poverty level if their share of the premium cost is between 8 percent and 9.8 percent of income to enable them to enroll in a plan in an Exchange and will not be subject to the above penalty.

Large Employer Automatic Enrollment Requirement. Effective in 2014, large employers with more than 200 full-time employees that offer coverage will be required to automatically enroll employees in the employer’s lowest cost plan if the employee does not sign up for employer coverage or does not opt out of coverage. Any automatic enrollment program must include adequate notice and the opportunity for an employee to opt out of any coverage.

Insurance Exchanges for Individuals and Small Businesses. By 2014, state-based American Health Benefit Exchanges and Small Business Health Options Program (SHOP) Exchanges, administered by a governmental agency or nonprofit organization, are to be operating so that individuals and small businesses with up to 100 employees can purchase qualified coverage.

Guaranteed Issue, Renewability, and Rating Variation Requirements Effective January 1, 2014, insurers will be required to guarantee issue and renewability and allow rating variation based only on age (limited to 3-to-1 ratio), premium rating area, family composition, and tobacco use (limited to 1.5-to-1 ratio) in the individual and the small group market and the Exchanges.

Annual Limits. Effective for plan years beginning on or after January 1, 2014, plans and insurers may no longer impose annual dollar limits on coverage.

Limit on Waiting Periods. Effective for plan years beginning on or after January 1, 2014, insurers and plans must limit any waiting periods for coverage to 90 days.

Wellness Incentives. Effective for plan years beginning on or after January 1, 2014, employers may offer employees rewards of up to 30 percent (increasing to 50 percent, if appropriate) of the cost of coverage for participating in a wellness program and meeting certain health-related standards.

Preexisting Condition Exclusions. The application of preexisting condition exclusions for plan years beginning on or after January 1, 2014, is prohibited.

Comprehensive Health Insurance Coverage. Effective for plan years beginning on or after January 1, 2014, a health insurance issuer that offers health insurance coverage in the individual or small group market must ensure that such coverage includes the essential health benefits package that includes at least the following general categories and the items and services covered within the categories:

• Ambulatory patient services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Mental health and substance use disorder services, including behavioral health treatment
• Prescription drugs
• Rehabilitative and habilitative services and devices
• Laboratory services
• Preventive and wellness services and chronic disease management
• Pediatric services, including oral and vision care

Limits on Cost Sharing and Deductibles. Effective for plan years beginning on or after January 1, 2014, a group health plan may not provide any annual cost sharing in excess of those that apply to HSAs.

2018

Excise Tax on Cadillac Plans. Effective January 1, 2018, an excise tax is imposed on insurers of employer-sponsored health plans with total values that exceed $10,200 for individual coverage and $27,500 for family coverage.

The Hiring Incentives to Restore Employment (HIRE) Act (H.R. 2847) has two major job creation incentives that are outlined below.  The following are key elements:

• Payroll Tax Forgiveness- The 6.2% OASDI Social Security tax liability is lifted for “qualified employees” for any 2010 period starting after enactment of the legislation.

• Maximum Amount- Based on a FICA wage cap of $106,800, the maximum value of this incentive would be $6,621 per “qualified employee”.
• Impact on WOTC- Payroll tax forgiveness is coordinated with the Work Opportunity Tax Credit (WOTC).  “Wages” for WOTC does not include any amount paid or incurred during the one year period starting on the hiring date unless the qualifying employer makes an election not to have payroll forgiveness apply.
• “Qualified employee” Limitations- A qualified employee

1. Must start work after February 3, 2010 and before Jan 1, 2011.
2. Must not have been employed for more than 40 hours during the 60 days before his or her start date.
3. Must not replace a current employee (unless that employee was separated from employment voluntarily or for cause).
4. Must not be related to the employer or directly or indirectly own more than 50% of the business.
5. May be previously laid-off employees.
6. May be part-time or less than full time employees.

Application: The payroll tax forgiveness does not apply to wages paid in the first quarter of 2010.  Any amount that would have been allowed in the first quarter would be credited against the employer’s OASDI liability for the second quarter.  Beginning for new hire wages paid beginning April 1, 2010, the employer would take the OASDI forgiveness into account for regularly deposited payroll taxes.

• Retention Credit- Employers who qualify for payroll tax forgiveness and keep the new worker on the payroll for 52 consecutive weeks can receive a tax credit.  This is via the Section 38(b) business tax credit.  The credit is increased with respect to each qualified retained worker by the lesser of $1,000 or 6.2% of the wages paid to the worker during the 52 week period.

• The new worker must be employed 52 consecutive weeks.  A prorated credit for a short period is not allowed.
• Domestics and workers eligible for a “foreign earned income exclusion” are not eligible.
• The tax credit will be available to most employers on the 2011 income tax return.  It should be noted, however, that the HIRE Act does not allow carry back of any unused Section 38 business credit that is attributable to the provision for retained workers.