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Will employers soft pedal health reform implementation until Supreme pronouncement?

April 25, 2012 – 6:14 pm | By Todd Leeuwenburgh | 1 comment

As the U.S. Supreme Court decides the fate of health reform, America is getting the chance to try the law on for size while waiting for the people in the robes to say how much of it will remain in effect.  Some employers are probably soft-pedaling implementation – they don’t like the law much anyway, and why not bank on the expectation that the individual mandate will sink and bring down the employer mandates with it. Other employers are moving diligently forward with elements they think would probably stand or eventually become industry standard anyway. One such example: dependent coverage to age 26. Not something once in place, plans will reel back, some observers say. (Folks, we'd like your opinions, so feel free to use the comments bar.) A digest of current articles on health reform shed light on those issues. In this article, health plan executives say they will continue implementing health reform without heed for the next months until the Supreme Court ruling. Certain elements would either not be eliminated from the final ruling, or would be reintroduced and passed by Congress. One such provision would be fixing the fee-for-service system that rewards volume of care (perhaps by maximizing billable office visits, for example); and replacing that with a payment system that pays based on outcomes, thereby incentivizing more effective care. Here, we see a survey saying employers will hold the line on providing health coverage to workers but they expect to pay more to do so, and that ultimately could fuel an employer exodus from providing coverage. It says 76% of employers already have – or expect to – experience an increase in their organizations’ health benefit costs, as a result of health care reform. Here, a Wisconsin columnist lauds health reform for helping small business contain health coverage costs. In Federal Register rules, the government limited the percentage increase an insurer can impose on an insured company plan. Complaints and enforcement have commenced. The IRS has too few employees to be able to collect health reform's tax penalties on employers that don't offer insurance, according to a Republican witness, who testified for the Small Business and Entrepreneurship Council. One might expect they’ll have to hire more tax collectors.

IRS Proposes Regulation on Local Lodging Expenses

April 25, 2012 – 4:23 pm | By Dan Macy | No comments yet

Some business-related lodging expenses incurred in the vicinity of home will be deductible, if the IRS amends the rules under Code Section 162. The agency moved to do that in rules proposed on April 25. In general, the tax Code does not allow a deduction for expenses paid or incurred for lodging when not traveling away from home. Under the proposed rule, there would be exceptions to that general prohibition within a safe harbor provision on which the IRS is seeking public comment. The public has until July 24 to file comments. Safe Harbor for Local Business Conferences  The proposed rule would provide a safe harbor for “certain local lodging at a business meeting, conference or other activity or function.” Other local lodging expenses would be treated according to the facts and circumstances. Under the proposed rule, local lodging expenses could qualify for a deduction or income exclusion if it met all of the following conditions:

1. the lodging is necessary for the employee to participate in or be available for a bona fide business meeting or function of the employer;
2. the lodging is for a period that does not exceed five calendar days and does not recur more frequently than once per calendar quarter;
3. the lodging is not lavish or extravagant under the circumstances and does not provide any significant element of personal pleasure, recreation or benefit; and
4. the individual is an employee, or the employee’s employer requires the employee to remain at the activity or function overnight.

The IRS provides six examples that meet or do not meet the four conditions above in the notice of rulemaking, which is published in the Federal Register at 77 Fed. Reg. 24657. Professional Sports Teams In addition to a local conference facilitating training or team building among employees of a company, the IRS envisioned another example in the proposed rule preamble. It stated, “a professional sports team may require its employees (players and coaches) to stay at a local hotel the night before a home game to ensure physical preparedness and allow for last minute training.” Notice 2007-47 Superseded The rulemaking has been expected for years; the IRS had it on its list of priorities as far back as 2008. In June 2007, the IRS issued temporary guidance on the subject, which became obsolete with the issuance of the proposed regulation, on April 25. Until a final regulation is published, employers may apply the proposed regulation (see “Effective/Applicability Date” below). That was IRS Notice 2007-47, which provided that if certain conditions were satisfied, expenses incurred for local lodging could be deductible by an employee under Section 162. The change meant that if the expense were to be paid by the employer, the amount could be excluded from the employee’s income as a working condition fringe benefit. Under Notice 2007-47, there were three conditions that must be satisfied in order for local lodging expenses to qualify for a deduction or income exclusion:

1. the lodging is on a temporary basis;
2. the lodging is necessary for the employee to participate in or be available for a bona fide business meeting or function of the employer; and
3. the expenses must otherwise be deductible by the employee under Section 162(a).

Effective/Applicability Date The regulations are proposed to apply to expenses paid or incurred on or after the date these regulations are published as final regulations in the Federal Register. The proposed rule preamble states that until then, “taxpayers may apply the proposed regulations to expenses paid or incurred in taxable years for which the period of limitation on credit or refund under section 6511 has not expired.” For further information about the proposed regulation, taxpayers may contact R. Matthew Kelley at the IRS, at (202) 622-7900. For information about how to submit comments, contact Funmi Taylor at (202) 622-7180. More information about fringe benefits is available in Thompson Publishing Group’s Employer’s Guide to Fringe Benefit Rules.

Nail Salon Must Pay Almost $236K After Court Rejects Immigration Defense Under FLSA

April 25, 2012 – 9:00 am | By Liza Casabona | No comments yet

A New York-based luxury nail salon apparently wasn’t very polished in contending that its illegal immigrant workers were not subject to the Fair Labor Standards Act. After a federal district court pointed out clear case law to the contrary, the salon was ordered to pay $235,920 in damages and back wages to 32 employees. The decision, announced March 27 by the U.S. Department of Labor, concluded a lawsuit filed in the U.S. District Court for the Southern District of New York in 2010 by DOL (Solis v. Cindy’s Total Care, Inc., No. 10-CV-7242 (S.D.N.Y. 2010)). DOL charged that Cindy’s Total Care and its owner failed to pay workers the appropriate minimum wage and overtime due under the FLSA. According to the agency, salon employees were required to work more than 40 hours a week without earning overtime, were paid a day rate instead of an hourly wage and worked 10 hour-days for six days a week. “These employees worked long hours and were unjustly denied their rightful wages,” said Maria Rosado, director of the Wage and Hour Division’s New York Office. “Vulnerable, low-wage workers in this industry often are afraid to step forward and complain when subjected to wage violations like the ones committed by this employer.” Earlier in the court proceedings a federal court in New York issued an opinion confirming that immigration status is not a defense against accusations of FLSA violations after the defendants’ surprising initial defense argued that employee immigration status was a factor in the case. Initially Cindy’s Total Care argued that because its workers were illegal immigrants they were not covered by FLSA provisions. The defendants eventually consented to withdraw their affirmative defense, but the court still issued an opinion on that defense in October. In line with a substantial body of previous decisions, District Judge Paul Engelmayer stated unequivocally that the salon employees were protected by the FLSA. “In this case, an employee’s immigration status, or national origin, is clearly irrelevant [sic] to a claim for back pay for overtime wages under the FLSA. By its terms, the FLSA applies to ‘any individual’ employed by an employer, as the term ‘employer’ is defined by the Act [sic].” Engelmayer’s opinion went on to stress that there are no FLSA exceptions for non-U.S. citizens or people in the United States illegally. One of the FLSA’s stated purposes , the opinion noted, is to prevent payment of substandard wages from being used as an unfair competitive advantage by businesses. Ultimately the salon and its owner were ordered to pay a combined $117,960 in back wages, plus an equal amount in liquidated damages. Additionally, the court ordered that the salon be enjoined from future FLSA violations, and that it pay almost $9,000 in trial costs. DOL has cited other nail salons in recent months, most notably conducting a targeted initiative focused on salons in Seattle that were allegedly misclassifying workers as independent contractors.