Pregnant Workers Fairness Act

Fair Employment – Pregnant Workers Fairness Act

The federal Pregnancy Discrimination Act prohibits employers with 15 or more employers from discriminating against individuals based on pregnancy or related medical conditions. Massachusetts has enacted a similar law that applies to a broader range of employers in the state. This Employment Law Summary provides an overview of Massachusetts’ Pregnant Workers Fairness Act (PWFA), which was signed into law on July 27, 2017, and went into effect on April 1, 2018.

PWFA OVERVIEW

Effective April 1, 2018, the PWFA requires Massachusetts employers that have six or more employees to provide reasonable accommodation for their employees’ pregnancies or pregnancy-related conditions upon request, unless it would cause undue hardship. The law also prohibits these employers from discriminating against employees and applicants based on pregnancy or related conditions. Under the PWFA, conditions related to pregnancy include (but are not limited to) lactation and the need to express breast milk for a nursing child.

REASONABLE ACCOMMODATION REQUIREMENTS

If an employee or applicant is capable of performing the essential functions of a job but requests an accommodation for pregnancy or a related condition, the PWFA requires the employer to either:

  • Provide the requested accommodation; or
  • Engage in an interactive process with the individual to determine an effective, reasonable accommodation.

Examples of reasonable accommodations for pregnancy and related conditions include:

  • More frequent or longer breaks (paid or unpaid);
  • Time off to attend to a pregnancy complication or recover from childbirth (with or without pay);
  • Acquisition or modification of equipment or seating;
  • Temporary transfers to less strenuous or hazardous positions;
  • Job restructuring;
  • Light duty;
  • Private non-bathroom spaces for expressing breast milk;

Assistance with manual labor; and

  • Modified work schedules.

Other types of accommodations may be reasonable as well. However, the PWFA does not require employers to:

  • Discharge or transfer any employees who have more seniority than an individual who needs an accommodation; or
  • Promote any employee who is not capable, with or without a reasonable accommodation, of performing the essential functions of the job.

MEDICAL DOCUMENTATION

Under the PWFA, employers may require employees to provide medical documentation regarding:

  • The need for an accommodation; and
  • Any extension of an accommodation beyond its original terms.

However, employers may not require medical documentation for any of the following accommodations:

  • More frequent restroom, food or water breaks;
  • Seating;
  • Limits on lifting more than 20 pounds; and
  • Private, non-bathroom space for expressing breast milk.

UNDUE HARDSHIP EXCEPTION

An employer may deny a reasonable accommodation only if it can demonstrate that the accommodation would impose an undue hardship on its program, enterprise or business. “Undue hardship” is defined as an action requiring significant difficulty or expense. In making a determination of undue hardship, the following factors are considered:

  • The nature and cost of the needed accommodation;
  • The overall financial resources of the employer;
  • The overall size of the employer’s business, in terms of the number of its employees and the number, type and location of its facilities; and
  • The effect on expenses and resources or any other impact of the accommodation on the employer’s program, enterprise or business.

PROHIBITED PRACTICES

The PWFA prohibits employers from:

  • Denying an employment opportunity to an individual based on the employer’s need to make a reasonable accommodation for the individual’s known pregnancy or related condition;
  • Failing to reinstate an employee to her original employment status or to an equivalent position with equivalent pay and benefits once she no longer requires a reasonable accommodation for pregnancy or a related condition;
  • Requiring an individual to accept an accommodation that is not necessary to enable her to perform the essential functions of the job;
  • Requiring an employee to take a leave of absence instead of another reasonable accommodation that may be provided without undue hardship on the employer’s program, enterprise or business; and
  • Discharging or in any other manner discriminating or retaliating against an individual because she requests or uses a reasonable accommodation.

ENFORCEMENT

The PWFA is administered and enforced by the Massachusetts Commission Against Discrimination (MCAD). Individuals who believe their rights under the PWFA have been violated must file a complaint with the MCAD within 300 days after the date of an alleged violation.

After a complaint is filed, the MCAD will conduct an investigation to determine whether probable cause exists for crediting the allegations in the complaint. If the MCAD determines that probable cause does exist, it may:

  • Engage the employer in conference, conciliation or persuasion to eliminate the unlawful practice;
  • Conduct a hearing;
  • File a lawsuit in court against the employer; or
  • Grant permission to the individual who filed the complaint to sue the employer in court.

In addition, an individual who files a complaint with the MCAD becomes authorized to file a lawsuit against the employer once 90 days have passed since the complaint was filed. To be valid, a lawsuit must be filed within three years after the date of the alleged violation.

If the MCAD or a court determines that an employer has violated the PWFA, the employer may be ordered to:

  • Hire, reinstate or promote any individual who was affected by the violation;
  • Pay back wages to any affected individual;
  • Pay any costs or attorney’s fees associated with the action; and
  • Pay civil fines of up to $50,000.

NOTICE TO EMPLOYEES

Employers subject to the PWFA must provide written notice to each of their employees regarding the right to be free from employment discrimination based on pregnancy and related conditions. This notice may be included in a handbook, pamphlet or other written document and must be distributed to all existing employees no later than April 1, 2018. On and after that date, employers must give the notice to:

  • Each new employee, at or prior to the commencement of his or her employment; and
  • Any employee who notifies the employer of a pregnancy or related condition, within 10 days after receiving the employee’s notification.

MORE INFORMATION

Contact Group Benefits Strategies or visit the MCAD’s website for more information on employment discrimination laws in Massachusetts.

Section 125 – Part 2

Section 125 – Eligibility Requirements

In order to qualify for tax advantages, a Section 125 plan must satisfy the requirements of Code Section 125 and underlying IRS regulations, as summarized below.

 

  • A description of the benefits available through the plan, including the periods of coverage;
  • The plan’s rules for employee eligibility;
  • The procedures governing employees’ elections under the plan, including when elections may be made, when they are effective, and any exceptions to the irrevocability rule;
  • The manner for making contributions (for example, pre-tax employee contributions, employer contributions or both) and the maximum amount of contributions; and
  • If the plan includes a flexible spending arrangement, a description of the special rules that apply to these accounts (for example, the uniform coverage and use-or-lose rules for health FSAs).

The plan document for a Section 125 plan may be comprised of more than one document. For example, the Section 125 plan document may incorporate by reference benefits that are offered through separate written plans, such as a health FSA, without describing these benefits in full. Also, other Code sections require plan documents for certain qualified benefits, including a health FSA, DCAP and adoption assistance. These requirements can be satisfied by including these benefits in the Section 125 plan document.

A Section 125 plan may be amended, or changed, at any time during a plan year.  However, amendments must be made in writing and can only be effective for periods after the later of the adoption date or the effective date of the new amendment, unless otherwise permitted by the IRS.

 

Eligibility Requirements

Any employer may sponsor a Section 125 plan for its eligible employees. This includes private sector businesses, including corporations, partnerships, limited liability companies and nonprofit organizations, as well as public sector employers.

Also, as a general rule, an employer may allow any common law employee to participate in its Section 125 plan. In addition, former common law employees (for example, COBRA participants receiving severance pay) and leased employees, as defined under Code Section 414(n), may participate in an employer’s Section 125 plan.

While only employees are allowed to make elections under a Section 125 plan, a Section 125 plan may provide non-taxable benefits for an employee’s spouse, dependent child who is under age 27 or tax dependent. A “spouse” means an employee’s spouse as defined under federal tax law, including same-sex and opposite-sex spouses. This definition, however, does not include domestic partners. Thus, a Section 125 plan cannot provide non-taxable benefits for an employee’s domestic partner who is not a tax dependent.

Additionally, although individuals who are not considered employees, such as self-employed individuals, partners in a partnership and more than 2 percent shareholders in a Subchapter S corporation, can sponsor a Section 125 plan for their employees, these self-employed individuals cannot participate in a Section 125 plan on a tax-favored basis. Likewise, directors of a corporation who are not also employees cannot participate in a Section 125 plan on a tax-favored basis.

Next Part 3- Qualified Benefits

Return to Part 1

Compliance Tip:

Many of the benefits that may be provided through a Section 125 plan are subject to the Employee Retirement Income Security Act (ERISA). ERISA includes its own set of requirements for written plan documents and SPDs, which are different from the Section 125 plan document requirements. Employers should confirm that their employee benefit documents comply with both sets of requirements, as applicable.

Impact of Noncompliance: According to the IRS’ 2007 proposed regulations, if there is no written plan document in place or if the written plan document does not comply with the content or timing requirements, employees’ elections between taxable and nontaxable benefits will result in taxable income to the employees.

Relationship to Health Plan Eligibility: An employer’s group health plan may be designed to cover individuals who do not qualify for tax-free health coverage (for example, children who are older than age 27, grandchildren or domestic partners). Under the Section 125 rules, an employee may only pay pre-tax for coverage of a spouse, a child under age 27 or a tax dependent. As a general rule, coverage for other individuals should be paid for on an post-tax basis.

Section 125

Section 125 – Cafeteria Plans Overview

A Section 125 plan, or a cafeteria plan, allows employees to pay for certain benefits on a pre-tax basis. Specifically, employers use these plans to provide their employees with a choice between cash and certain qualified benefits without adverse tax consequences. Paying for benefits on a pre-tax basis reduces the employees’ taxable income and therefore reduces both the employees’ and the employer’s tax liability.

In order to receive these tax advantages, a cafeteria plan must comply with the rules of Internal Revenue Code (Code) Section 125 and related Internal Revenue Service (IRS) regulations. Under these rules, a Section 125 plan must have a written plan document and can only offer certain qualified benefits on a tax-favored basis. While self-employed individuals may maintain a Section 125 plan for their employees, only common law employees may participate in the plan.

In addition, once an employee makes a Section 125 plan election, he or she may not change that election until the next plan year, unless the employee experiences a permitted election change event. Also, in order for highly compensated employees to receive the tax advantages associated with a Section 125 plan, the plan must generally pass certain nondiscrimination tests.

 

Cafeteria plan basics

Code Section 125 allows employers to establish a type of tax savings arrangement, called a Section 125 plan or cafeteria plan, for their employees. A Section 125 plan provides employees with an opportunity to pay for certain benefits on a pre-tax basis, allowing them to increase their take-home pay. Employers may also make nontaxable contributions to a Section 125 plan for their employees.

Under a Section 125 plan, employees choose between at least one taxable benefit (such as taxable compensation) and one or more qualified benefits. Qualified benefits include, for example, the following commonly offered employee benefits:

• Group health plans;

• Vision and dental plans;

• Disability and life insurance;

• Health flexible spending accounts (FSAs)

• Dependent care assistance programs (DCAPs)

• Health savings account (HSAs).

According to the IRS, a Section 125 plan is the only means by which an employer can offer employees a choice between taxable and nontaxable benefits without causing adverse tax consequences to the employees. To avoid taxation, the Section 125 plan must meet the specific requirements of Code Section 125 and underlying IRS regulations.

Tax Rules: Employees who elect to participate in a Section 125 plan agree to contribute a portion of their salaries on a pre-tax basis to pay for the qualified benefits. These contributions, which are called “salary reduction contributions” are not considered wages for federal income tax purposes, and are generally not subject to Social Security and Medicare tax (FICA) or federal unemployment tax (FUTA). This reduces employees’ taxable income, which results in a savings for both employees and employers.

Next- Part 2 Eligibility Requirements

 

 

IRS Issues Pay or Play Enforcement Guidance

IRS Issues Pay or Play Enforcement Guidance

By GBS Team

On Nov. 2, 2017, the Internal Revenue Service (IRS) updated its Questions and Answers (Q&As) on the employer shared responsibility rules under the Affordable Care Act (ACA) to include information on enforcement. Specifically, these Q&As include guidance on:
• How an employer will know that it owes an employer shared responsibility penalty;
• Appealing a penalty assessment; and
• Procedures for paying any penalties owed.
The IRS also maintains a website on understanding Letter 226-J, as well as a sample letter, which will be used to inform employers of their potential penalty liability.

ACTION STEPS

No penalties have been assessed under the employer shared responsibility rules at this time. However, employers subject to these rules are still responsible for compliance. These Q&As indicate that, for the 2015 calendar year, the IRS plans to issue letters informing employers of their potential liability for an employer shared responsibility penalty, if any, in late 2017.

Background

The ACA’s employer shared responsibility rules require applicable large employers (ALEs) to offer affordable, minimum value health coverage to their full-time employees or pay a penalty. These rules, also known as the “employer mandate” or “pay or play” rules, only apply to ALEs, which are employers with, on average, at least 50 full-time employees, including full-time equivalent employees, during the preceding calendar year.

The employer shared responsibility rules took effect for most ALEs beginning on Jan. 1, 2015. However, some ALEs may have had additional time to comply with these requirements. An ALE may be subject to a penalty only if one or more full-time employees obtain an Exchange subsidy (either because the ALE does not offer health coverage, or offers coverage that is unaffordable or does not provide minimum value).

Prior to 2017, the IRS has been unable to identify the employers potentially subject to an employer shared responsibility penalty or to assess any penalties. The IRS previously indicated that it expected to begin sending letters in early 2017 informing ALEs that filed Forms 1094-C and 1095-C of their potential liability for an employer shared responsibility penalty for the 2015 calendar year (with reporting in 2016). However, at this time, no letters have been sent to any ALEs.

Enforcement Guidance

The general procedures the IRS will use to propose and assess the employer shared responsibility penalties are described in Letter 226-J. The IRS plans to issue Letter 226-J to an ALE if it determines that, for at least one month in the year, one or more of the ALE’s full-time employees was enrolled in a qualified health plan for which a premium tax credit was allowed (and the ALE did not qualify for an affordability safe harbor or other relief for the employee).

These letters are separate from the Section 1411 Certification sent by the Department of Health and Human Services (HHS) that employers began receiving in 2016. The Section 1411 Certifications are sent to all employers with employees who receive a subsidy to purchase coverage through an Exchange (including both ALEs and non-ALEs). Section 1411 Certifications do not trigger or assess any penalties for any employers.

Letter 226-J will include:

  • A brief explanation of Section 4980H;
  • An employer shared responsibility penalty summary table itemizing the proposed penalty by month and indicating for each month if the liability is under Section 4980H(a) or Section 4980H(b) (or neither);
  • An explanation of the employer shared responsibility penalty summary table;
  • Form 14764, Employer Shared Responsibility Payment (ESRP) Response, an employer shared responsibility response form;
  • Form 14765, Employee Premium Tax Credit (PTC) List, which lists, by month, the ALE’s assessable full-time employees (individuals who for at least one month in the year were full-time employees allowed a premium tax credit and for whom the ALE did not qualify for an affordability safe harbor or other relief—see instructions for Forms 1094-C and 1095-C, line 16), and the indicator codes, if any, the ALE reported on lines 14 and 16 of each assessable full-time employee’s Form 1095-C;
  • A description of the actions the ALE should take if it agrees or disagrees with the proposed employer shared responsibility penalty in Letter 226-J; and
  • A description of the actions the IRS will take if the ALE does not respond to Letter 226-J on time.

The response to Letter 226-J will be due by the response date shown on Letter 226-J, which generally will be 30 days from the date of Letter 226-J. Letter 226-J will contain the name and contact information of a specific IRS employee that the ALE should contact if the ALE has questions about the letter.

For the 2015 calendar year, the IRS plans to issue Letter 226-J informing ALEs of their potential liability for an employer shared responsibility penalty, if any, in late 2017.

For purposes of Letter 226-J, the IRS determination of whether an ALE may be liable for an employer shared responsibility penalty and the amount of the potential penalty is based on information reported to the IRS on Forms 1094-C and 1095-C and information about full-time employees of the ALE that were allowed the premium tax credit.

Appeals

ALEs will have an opportunity to respond to Letter 226-J before any employer shared responsibility liability is assessed and notice and demand for payment is made. Letter 226-J will provide instructions for how the ALE should respond in writing, either agreeing with the proposed employer shared responsibility penalty or disagreeing with part or all or the proposed amount.

If the ALE responds to Letter 226-J, the IRS will acknowledge the ALE’s response with an appropriate version of Letter 227 (a series of five different letters that, in general, acknowledge the ALE’s response to Letter 226-J and describe further actions the ALE may need to take). If, after receipt of Letter 227, the ALE disagrees with the proposed or revised employer shared responsibility penalty, the ALE may request a pre-assessment conference with the IRS Office of Appeals. The ALE should follow the instructions provided in Letter 227 and Publication 5, Your Appeal Rights and How To Prepare a Protest if You Don’t Agree, for requesting a conference with the IRS Office of Appeals. A conference should be requested in writing by the response date shown on Letter 227, which generally will be 30 days from the date of Letter 227.

If the ALE does not respond to either Letter 226-J or Letter 227, the IRS will assess the amount of the proposed employer shared responsibility penalty and issue a notice and demand for payment—Notice CP 220J.

Paying a Penalty

If, after correspondence between the ALE and the IRS (or a conference with the IRS Office of Appeals), the IRS or IRS Office of Appeals determines that an ALE is liable for an employer shared responsibility penalty, the IRS will assess the employer shared responsibility penalty and issue a notice and demand for payment (Notice CP 220J). Notice CP 220J will:

  • Include a summary of the employer shared responsibility penalty and reflect any payments made, credits applied and the balance due, if any; and
  • Instruct the ALE how to make a payment, if any.

ALEs will not be required to include the employer shared responsibility penalty on any tax return that they file or make a payment before notice and demand for payment. For payment options, such as entering into an installment agreement, refer to Publication 594, The IRS Collection Process

Health FSA Limit

HEALTH FSA LIMIT WILL
INCREASE FOR 2018

By GBS Team

The Affordable Care Act (ACA) imposes a dollar limit on employees’ salary reduction contributions to health flexible spending accounts (FSAs) offered under cafeteria plans. This dollar limit is indexed for cost-of-living adjustments and may be increased each year.

On Oct. 19, 2017, the Internal Revenue Service (IRS) released Revenue Procedure 2017-58 (Rev. Proc. 17-58), which increased the FSA dollar limit on employee salary reduction contributions to $2,650 for taxable years beginning in 2018. It also includes annual inflation numbers for 2018 for a number of other tax provisions.

ACTION STEPS

Employers should ensure that their health FSA will not allow employees to make pre-tax contributions in excess of $2,650 for 2018, and they should communicate the 2018 limit to their
employees as part of the open enrollment process. An employer may continue to impose its own health FSA limit, as long as it does not exceed the ACA’s maximum limit for the plan year. This means that an employer may continue to use the 2017 maximum limit for its 2018 plan year.

The ACA initially set the health FSA contribution limit at $2,500. For years after 2013, the dollar limit is indexed for cost-of-living adjustments.

• 2014: For taxable years beginning in 2014, the dollar limit on employee salary reduction contributions to health FSAs remained unchanged at $2,500.

• 2015: For taxable years beginning in 2015, the dollar limit on employee salary reduction contributions to health FSAs increased by $50, for a total of $2,550.

• 2016: For taxable years beginning in 2015, the dollar limit on employee salary reduction contributions to health FSAs remained unchanged at $2,550.

• 2017: For taxable years beginning in 2017, the dollar limit on employee salary reduction contributions to health FSAs increased by $50, for a total of $2,600.

• 2018: For taxable years beginning in 2018, Rev. Proc. 17-58 further increased the dollar limit on
employee salary reduction contributions to health FSAs by an additional $50, to $2,650.

The health FSA limit will potentially be increased further for cost-of-living adjustments in later years.

Employer Limits

An employer may continue to impose its own dollar limit on employees’ salary reduction contributions to health FSAs, as long as the employer’s limit does not exceed the ACA’s maximum limit in effect for the plan year. For example, an employer may decide to continue limiting employee health FSA contributions for the 2018 plan year to $2,500.

Per Employee Limit

The health FSA limit applies on an employee-by-employee basis. Each employee may only elect up to $2,650 in salary reductions in 2018, regardless of whether he or she also has family members who benefit from the funds in that FSA. However, each family member who is eligible to participate in his or her own health FSA will have a separate limit. For example, a husband and wife who have their own health FSAs can both make salary reductions of up to $2,650 per year, subject to any lower employer limits.

If an employee participates in multiple cafeteria plans that are maintained by employers under common control, the employee’s total health FSA salary reduction contributions under all of the cafeteria plans are limited to $2,650. However, if an individual has health FSAs through two or more unrelated employers, he or she can make salary reductions of up to $2,650 under each employer’s health FSA.

Salary Reduction Contributions

The ACA imposes the $2,650 limit on health FSA salary reduction contributions. Non-elective employer contributions to health FSAs (for example, matching contributions or flex credits) generally do not count toward the ACA’s dollar limit. However, if employees are allowed to elect to receive the employer contributions in cash or as a taxable benefit, then the contributions will be treated as salary reductions and will count toward the ACA’s dollar limit.

In addition, the limit does not impact contributions under other employer-provided coverage. For example, employee salary reduction contributions to an FSA for dependent care assistance or adoption care assistance are not affected by the health FSA limit. The limit also does not apply to salary reduction contributions to a cafeteria plan that are used to pay for an employee’s share of health coverage premiums, to contributions to a health savings account (HSA) or to amounts made available by an employer under a health reimbursement arrangement (HRA).

Grace Period/Carry-over Feature

A cafeteria plan may include a grace period of up to two months and 15 days immediately following the end of a plan year. If a plan includes a grace period, an employee may use amounts remaining from the previous plan year, including any amounts remaining in a health FSA, to pay for expenses incurred for certain qualified benefits during the grace period. If a health FSA is subject to a grace period, unused salary reduction contributions that are carried over into the grace period do not count against the $2,650 limit applicable to the following plan year.

Also, if a health FSA does not include a grace period, it may allow participants to carry over up to $500 of unused funds into the next plan year. This is an exception to the “use-it-or-lose-it” rule that generally prohibits any contributions or benefits under a health FSA from being used in a following plan year or period of coverage. A health FSA carryover does not affect the limit on salary reduction contributions. This means the plan may allow the individual to elect up to $2,650 in salary reductions in addition to the $500 that may be carried over.

Plan Amendments

Plan documents that specify the health FSA dollar limit must be amended if the higher limit will be used in 2018.

Newly Adopted Wage Equity Laws

Newly Adopted Wage Equity Laws

By GBS Team

In an effort to close the wage gap that exists between male and female employees, a number of states and major cities have recently adopted wage equity and salary history laws. According to the Bureau of Labor Statistics, in 2016, the average female employee earned 80 cents for every dollar a man received during the same period. Statistics suggest the gap may be even greater for ethnic or racial minority employees.

When applicable, employers must comply with their state and local laws in addition to the Federal Equal Pay Act. When both federal and local laws differ, the law that provides the greater protection or benefit to the employee applies.

Action Steps for Employers

Affected employers should:

  • Eliminate prohibited salary history inquiries.
  • Update job applications and other employment forms to comply with pay equity laws.
  • Train recruiters and hiring managers regarding applicable pay equity laws.

Applicable Federal Laws

In addition to the state and local laws mentioned above, employers should be aware of the following federal laws that regulate employment discrimination and other aspects of the hiring and employment processes.

The Equal Pay Act (EPA) requires that men and women receive equal pay for equal work.

Covered Employers and Employees: Virtually all employers and employees.

Requirements: Employers are required to pay equal pay for equal work, regardless of gender. Men and woman in substantially equal jobs, those requiring equal skill, effort, and responsibility and performed under similar conditions at the same workplace, must be paid equally.

Title VII, the Age Discrimination in Employment Act (ADEA) and the Americans with Disabilities Act (ADA) prohibit compensation discrimination based on race, color, religion, sex, national origin, age or disability. There is no requirement that the jobs be substantially equal.

Covered Employers and Employees: Title VII and ADA, all employers with 15 or more employees. ADEA, all employers with 20 or more employees.

Executive Order 11246 prohibits discrimination in employment decisions based on race, color, religion, sex, sexual orientation, gender identity or national origin.

Covered Employers and Employees: Federal contractors and federally assisted construction contractors and subcontractors, who do over $10,000 in government business in one year.