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Should You Let Employees Buy and Sell PTO?
06/12/2013
By: Boyd Byers

School is out, summer is upon us, and many workers soon will be taking vacations. With visions of sandy beaches, national parks, and Wally World (Chevy Chase's destination in the movie Vacation) dancing in our heads, now is a good time to take stock of your vacation or paid time off (PTO) policy.

More employers are allowing workers to buy and sell vacation time, according to a Society for Human Resource Management study. The study shows that 52 percent of employers (up from 42 percent in 2009) now offer PTO plans that combine vacation time, sick leave, and personal days into one comprehensive plan, to give employees more flexibility in managing their time off. Of these, almost 20 percent offered a cash-out option. And five percent of all employers are taking the more-novel approach of letting workers buy more vacation time through a payroll deduction. 

Could such a policy provide a low-cost perk to help with employee recruitment and retention, and improve more morale and productivity, at your organization? Give it some thought. But be sure to work with an experienced employment lawyer to help develop such a program before you roll it out, to ensure you don’t run afoul of some tricky wage payment law and tax law issues these policies present (“constructive receipt” and “condition subsequent” anyone?).

 
Do You Know? Forfeiting Unused Vacation Time
01/23/2013
By: Boyd Byers

You may be familiar with Benihana, the Japanese-cuisine restaurants that feature knife-wielding, joke-cracking chefs who prepare your food. In 2011 a group of former managers filed a class action, alleging that Benihana’s vacation policy violated California law by requiring employees to forfeit accrued, unused vacation time when their employment ends. This month Benihana agreed to pay $600,000 to settle the case.  

Do you know that the Kansas Wage Payment Act similarly prohibits employers from imposing a forfeiture of earned but unused vacation time? But that does not necessarily mean employers are always obligated to let employees cash out their unused vacation time upon termination. Confused? You should be, as Kansas law on this issue is tricky. Read on and I’ll explain.
 
The KWPA provides that employers must pay all wages due, which includes vacation time and paid time off (PTO), provided the employee has met all the conditions required to be eligible for and earn that compensation. Kansas Department of Labor regulations prohibit employers from imposing a “condition subsequent” to an employee’s entitlement to compensation that results in a forfeiture or loss of earned wages. This is in contrast to a condition precedent, which is something that must happen before the agreement becomes effective.

Still confused? The key point to understand here      Continue Reading...

 
IRS Authorizes Leave-Based Donation Programs to Benefit Hurricane Sandy Victims
11/08/2012
By: Jason Lacey

In new guidance, the IRS has provided tax relief for leave-based donation programs established to aid victims of Hurricane Sandy. Similar guidance was provided after the September 11, 2001 terrorist attacks and after Hurricane Katrina in 2005.

Under a leave-based donation program, an employer allows employees to elect to forego paid leave time (e.g., vacation, sick, or personal leave), and the employer then donates the value of the foregone leave to a charitable organization.

The guidance clarifies that employees will not have taxable wage income solely because they make, or have the right to make, an election to donate leave under a qualifying leave-based donation program. Employers are allowed a full deduction for the donations, without regard to the percentage limitations on charitable contributions.

To qualify for this treatment, payments of foregone leave time must be made:

  • To a qualifying charitable organization.
  • For the relief of victims of Hurricane Sandy.
  • Before January 1, 2014.

Employees who elect to participate in a leave-based donation program may not claim a charitable contribution deduction for the value of the foregone leave.

 

 
Free Housecleaning Services for Employees: All the Cool Kids Are Doing It
10/23/2012
By: Jason Lacey

Looking for a little extra perk to offer your employees next year?

There's always pet insurance, but let's face it - that's just old news. If you want to be on the leading edge, you've got to be thinking about housecleaning services. The New York Times has an article describing the trend: "It is the latest innovation from Silicon Valley: the employee perk is moving from the office to the home."

Yes, this comes to us from that land of milk and honey populated by giants like Google and Facebook and Apple who will spare no expense to engage and inspire the creative minds that deliver tomorrow's technology, not to mention a stellar stock price (at least for some - sorry Mark Zuckerberg).

But these companies do seem to be onto something broader than just a fringe-benefit arms race. There is a sense that employees don't just want to be compensated with more money; they want relief from the stresses of daily living. "And the goal," according to the Times, "is not just to reduce stress for employees, but for their families, too. If the companies succeed, the thinking goes, they will minimize distractions and sources of tension that can inhibit focus and creativity."

Or maybe free up a little more evening time for employees to spend thinking about company business.

I'm just saying.

But whatever the motivation, there is clearly some new ground being broken with the notion that employers should look at all 24 hours in an employee's day - rather than just the      Continue Reading...

 
Accountable Plans Cannot Recharacterize Wages as Tax-Free Benefits
09/22/2012
By: Jason Lacey

A recent IRS ruling addresses compensation arrangements that purport to provide employees with tax-free expense reimbursements but, in fact, merely recharacterize taxable wages as tax-free income. The IRS treats these arrangements as failing to satisfy the requirements of an "accountable plan," making the expense reimbursements taxable to the employees. 

The ruling describes three examples of invalid accountable plans:

  1. Tool Expense. A cable installation company requires its installers to purchase their own tools. Each year the installers tell the employer how much they expect to spend on tools for the year. The employer divides this amount over the total number of hours the installers are expected to work and then treats a portion of the wages paid for each hour worked as a tax-free reimbursement of this tool expense. For example, if the installers would otherwise make $10 per hour and are treated as incurring $1 of tool expense for every hour worked, the installers are paid $9 in taxable wages and $1 in tax-free tool reimbursement for every hour worked.
  2. Meals and Lodging. A staffing service that places temporary nurses in hospitals pays those nurses a set hourly wage, regardless of where the nurses are working. But for nurses who must travel away from home for an assignment, the contractor treats a portion of the hourly wages they would otherwise receive as a tax-free per diem allowance for food and lodging.
  3. Mileage Allowance. A construction contractor that builds commercial buildings in various locations      Continue Reading...
 
It's No Joke: Al Franken Backs Bill to Repeal FSA Use-It-or-Lose-It Rule
06/08/2012
By: Jason Lacey

The U.S. House of Representatives approved a bill late last week that would partially repeal the use-it-or-lose-it rule for flexible spending account plans. The change would allow for a taxable distribution of up to $500 in unspent employee contributions remaining at the end of the plan year. Legislative attention to this somewhat obscure provision of the cafeteria-plan rules comes just days after the IRS separately announced it was evaluating whether the limitation should continue.

The bill would also repeal the PPACA restriction on reimbursement of over-the-counter drugs through health FSAs and HSAs. 

The Senate has yet to vote, but there appears to be some bipartisan support for the bill, primarily among senators -- including Democrat Al Franken of Minnesota -- who favor a separate provision that would repeal a tax on medical-device manufacturers.

 
IRS Provides Guidance on $2,500 Health FSA Cap
05/31/2012
By: Donald Berner

The IRS issued Notice 2012-40 yesterday (click here for the notice), providing a number of important clarifications regarding the $2,500 cap on health FSA contributions that applies beginning in 2013.  The most surprising development is the IRS's interpretation that the cap applies on a plan-year basis, rather than a calendar-year basis.  This is important for employers with fiscal-year plans.  They will be able to wait until the first plan year beginning after December 31, 2012, to implement the cap, rather than using the transition rule or early implementation of the cap to ensure contributions during the 2013 calendar year do not exceed the cap, as was previously thought necessary.

Other key guidance points include:

  • Clarification that unspent amounts carried over during a grace period will not count against the cap for the plan year in which the grace period occurs.
  • Confirmation that the cap only applies to employee salary-reduction contributions to a health FSA.  Employer contributions (e.g., flex credits) and salary-reduction contributions to dependent-care FSAs do not count, nor do amounts credited to HSAs or HRAs.

In addition to interpretive guidance, the Notice provides a limited correction rule that will allow fixing some good-faith mistakes.  If a mistaken election to contribute more than $2,500 to a health FSA in a year is properly corrected, the error will not jeopardize the plan's status as a qualifying cafeteria plan. 

Of academic interest, the Notice also requests comments on the use-it-or-lose-it rule.  The implication is that the $2,500 cap may be low enough      Continue Reading...

 


Authors
Don Berner Image
Don Berner, the Labor Law, OSHA, & Immigration Law Guy
Boyd Byers Image
Boyd Byers, the General Employment Law Guy
Jason Lacey Image
Jason Lacey, the Employee Benefits Guy
Additional Sources
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