2013 Flexible Spending Account Limits

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The Affordable Care Act (sometimes called Obamacare) imposes a new limit on the annual salary reduction contributions that employees may make to a health care flexible spending account.  The new limit is $2,500 per year and starts January 1, 2013.

The limit applies only to the amount the employee contributes.  It does not limit the amount the employer may contribute on behalf of the employee.  The limit applies on per participant basis.  So if husband and wife are both employed, each can contribute $2,500.

Employer's that sponsor cafeteria plans with flexible spending accounts will need to amend their plans to incorporate the new contribution limits.  But this is not the only change imposed by the Affordable Care Act.  More on other aspects of the new law will be included in an upcoming blog.

Please call or email if you have any questions about the Affordable Care Act, the new FSA contribution limits or how to amend your cafeteria plan at Jsenney@pselaw.com or 937-223-1130.

AND ONE MORE THING:   Over the last few years, banks mortgage companies were very aggressive in collecting mortgage loans and foreclosing on residential properties.  When a property is foreclosed on, or a deed is given in lieu of foreclosure, the bank will forgive the unpaid balance of the loan.  The amount forgiven is reported to the IRS on IRS Form 1099-C and is generally treated as taxable income.  However, for debt forgiveness that occurs prior to January 1, 2013, forgiveness of qualified principal residence debt is not taxable.  Call if you want to know more about this qualified principal residence debt exclusion or any other tax matter.  Jsenney@pselaw.com or 937-223-1130.

Do I Need an Employee Handbook for My Business?

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If you have more than 3 or 4 employees or more, you should seriously consider adopting an employee handbook.  An employee handbook can be an effective mechanism for setting the culture of your business and limiting your liability exposure. 

An employee handbook offers you the opportunity to answer common employee questions and address issues before they arise.  Your employee handbook can be used by managers and supervisors as a reference book so they act in a consistent and reasonable manner when dealing with employee issues.  Your employee handbook can also contain a code of ethics for employee behavior, while setting forth job performance expectations and award requirements.  And, not to be forgotten, your employee handbook can be used as a tool to remind your employees of all the compensation and benefits they enjoy as a result of their employment with your company.

There are certain things that should be in all employee handbooks.  At a minimum your employee handbook should generally explain to employees your policies and procedures governing “at will” employment, normal work hours, overtime pay, sexual harassment and non-discrimination policy, alcohol and drug policy, maternity leave, dress code, and use of computers, email, social media and internet for personal matters.

You should avoid putting legalese and references to statutes and code sections in your employee handbook.  The employees often won’t understand what these references mean, and you can set a trap for yourself.  For example, the Family and Medical Leave Act (“FMLA”) allows eligible employees to take up to 12 weeks off work during a 12 month period when the employee or a family member has a serious health condition, gives birth, adopts a child, or has any qualifying emergency related to the military.  But FMLA does not apply to your business unless you employ 50 or more employees within a 75 mile radius.  So if your employee handbook says you comply with FMLA, you can be compelled to comply even if you otherwise would not be required to. 

Before creating an employee handbook it is wise to seek advice from a qualified employment law attorney.  We can help you if you want to create or review an employee handbook.  Please call or email if we can assist you in any way with your employee handbook  at  Jsenney@pselaw.com or 937-223-1130.

AND ONE MORE THING.     Social media enables people to communicate via the internet to share resources.    The National Labor Relations Board has issued a report regarding the protected nature of employees' Facebook, Twitter and YouTube postings. This report is a guide not only for Union employers, but also non-Union employers.  Attorney Matt Stokely of PS&E has reviewed and written an article summarizing the NLRB Report.   Give him a call at 937-223-1130 to discuss any questions you have about the NLRB Report or would like a copy of Matt's article.

How Do I Fire a Problem Worker?

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Ohio is an “employment at-will” state.  That means in Ohio you can generally fire anyone, at any time, with or without a reason.  But there are some situations that are not within the scope of the employment at-will doctrine or that require special handling.

If you have executed an employment agreement with the employee, and such agreement provides for a specified term of employment, then firing the employee prior to the end of the term would be breach of contract and subject you to damages.  If you have a union workforce and you are firing a union worker, you will need to comply with the firing procedures set forth in the collective bargaining agreement or risk having the union bring labor relations charges against you.

If the employee you are terminating is over 40, disabled, a female or a minority, you may find that the terminated employee makes claims of wrongful discharge based on age, disability, race or sex discrimination.  To defeat such claims you need to properly document the "non-prohibited" reason you are firing the employee.

When terminating an employee, it is best to have a system and to follow the system. You should have regular reviews where the employee’s performance and problems are evaluated and addressed.  If an employee is tardy, or absent, or fails to follow instructions, or is insubordinate, or is simply incompetent, you need to document such matters when they occur.  The employee should be given a “pink slip” and such slips should become part of the employee’s personnel file.  The employee personnel files should be kept under lock and key so employees can’t remove evaluations and reprimands from their file.

Please call or email if you have any questions about how to terminate a problem employee.

AND ONE MORE THING.     Thinking about selling your business?  Do you know how to determine the value of your business?  Are you getting paid cash at closing or in installments? Are you selling stock or assets?  Is the buyer assuming any liabilities?   Are you staying on as an employee or consultant to help transition the business?  Is the buyer keeping your employees?  Do you know what the tax consequences of the sale will be?  There are a lot of things to consider when selling a business.  Call or email me if you want to talk about it.  Jsenney@pselaw.com or 937-223-1130.

Is there Any Relief Available if I Misclassified Workers?

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Surprisingly, the answer is often “yes.”  Section 530 of the Revenue Act of 1978 generally allows a business to treat a worker as an independent contractor for employment tax purposes regardless of whether the worker would otherwise be treated as an employee under the IRS 20 factor test, so long as the business has a “reasonable basis” for so treating the worker and certain other requirements are met.  The relief provided by Section 530 was originally scheduled to expire in 1979, but was extended permanently.

Under Section 530, a reasonable basis for treating a worker as an independent contractor is considered to exist if the business relied on:  (1) published rulings or case law; (2) long-standing practice in the industry; (3) past IRS audit results for the business; or (4) some other reasonable basis.  The legislative history to Section 530 provides that it is to be liberally construed in favor of the business.

Section 530 relief does not apply if the worker or any other person doing similar work has been treated by the business as an employee at any time (after 1977) in the past.  Section 530 also does not apply if the worker is a "leased employee" and provides services for another person, as an engineer, designer, drafter, programmer, analyst or similar skilled worker.   There are additional very specific situations, such as workers who serve as school room supervisors or test proctors, where Section 530 does not apply.

Proper classification of workers is important. But if the IRS determines you have misclassified a worker as an independent contractor, and the worker would be an employee under the IRS 20 factor test, you might be able to use Section 530 to avoid reclassifying the worker, and avoid the tax, penalties and interest the IRS attempts to impose.  Please call or email me to discuss any issues you may have with proper worker classification at  Jsenney@pselaw.com or 937-223-1130.    

AND ONE MORE THING.  The Department of Homeland Security recently announced that certain young people who were brought to the United States as young children, do not present a risk to national security or public safety, and meet several key criteria will be considered for relief from removal from the country or from entering into removal proceedings. Those who demonstrate that they meet the criteria will be eligible to receive "deferred action" for a period of two years, subject to renewal, and will be eligible to apply for work authorization.  If you know someone who might be eligible for deferred action, or want more information about the deferred action program, please have them call (937-223-1130) or email me (jsenney@pselaw.com) or Shahrzad Allen (sallen@pselaw.com).

Should My Workers be Employees or Independent Contractors?

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Treating a worker as an employee typically costs the employer more than treating the worker as an independent contractor.  If a worker is properly characterized as an employee, the employer will be required to pay the employer-portion of the social security and medicare taxes, withhold the employee-portion of social security and medicare taxes, pay unemployment tax, pay workers compensation premiums, pay the employer-portion of any pension or profit-sharing plan contributions, health plan contributions and other employee fringe benefit programs, provide vacation, sick days and maternity leave for the worker, and otherwise permit the worker to participate in all employer-sponsored employee benefit and welfare programs.

On the other hand, if the worker is properly characterized as an independent contractor, the employer is not required to provide any of the above benefits, or pay or withhold any of the above taxes.  The employer is simply required to provide the worker with whatever payments are specified in the independent contractor agreement, and the worker is responsible for paying the appropriate income tax, self-employment tax, workers compensation and other taxes related to such payments.

The IRS looks closely at how employers characterize their workers.  The IRS has a 20 factor test it applies to evaluate whether a particular worker, or group of workers, should be treated as an employee or independent contractor.  Although the IRS test includes 20 factors, theses 20 factors can be summarized into 2 main points of inquiry.  These points of inquiry are: (1) does the employer have the right to control the details of how the worker does his or her job or only evaluate the final product or performance; and (2) does the worker have a real risk of loss.  If the employer has the right to tell the worker how to do his or her job, when to do it, where to do it, when and where not to do it, the worker looks more like an employee.   On the other hand, if the employee is free to do the job when he or she wants to, using whatever procedures or methods he or she wants to, wherever he or she wants to do the job, using assistants or sub-contractors, and the employer controls only the evaluation of the final product or job performance, then the worker is more like an independent contractor.

If the worker is reimbursed for expenses, paid a salary or an hourly wage and is provided a car or tools necessary to do the job, the worker has little risk of loss on the job and looks more like an employee.  To the contrary, if the worker is not reimbursed for expenses, is paid a specified sum for the job and is required to provide his or her own shop or office, transportation and tools, the worker looks more like an independent contractor who runs his or her own business.

Proper classification of workers is important.  If one or more of the workers treated as an independent contractor fails to properly pay income and self-employment tax, and the IRS determines (in its opinion) the worker should have been treated as an employee, the IRS will go after the employer to collect unpaid employee income tax withholding, and both employer and employee social security and medicare taxes.  If this happens, there are some defenses.  The first line of defense is that the IRS is wrong and the worker is properly treated as an independent contractor.  If this does not work, there is a second line of defense based on Section 530.  Section 530 is a piece of legislation that permits the employer to continue treating misclassified workers as independent contractors if certain conditions are met.  More about section 530 in the next Blog posting.   Please call or email if you have any questions about proper classification of your workers.   Jsenney@pselaw.com or 937-223-1130.

AND ONE MORE THING.  Under a Notice issued by the IRS in 2010, if the estate of a deceased spouse fails to use all of his or her federal estate tax exemption, the surviving spouse may inherit the unused portion.  But to obtain this benefit, the estate of the deceased spouse is required to file an estate tax return, even if no return would otherwise be required.  Earlier this year, the IRS announced an automatic extension of time for smaller estates to make an election to transfer the unused estate tax exemption to the surviving spouse.  This automatic extension applies to estates of married individuals with assets of $5,000,000 or less, but only if the deceased spouse died in the first 6 months of 2011, and the executor requests the extension no later than 15 months after the date of death.  Call or email if you have any questions about taking advantage of this extension.