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IRS Issues Guidance on Health Insurance Premium Tax Credit and Individual Shared Responsibility

On July 8, 2016, the IRS released proposed regulations relating to the health insurance premium tax credit (premium tax credit) and the individual shared responsibility provision of the Affordable Care Act (ACA). Since 2014, individuals must have qualifying healthcare coverage (called minimum essential coverage) or make an individual shared responsibility payment. Eligible individuals who purchase coverage under a qualified health plan through an Exchange may claim a premium tax credit, the amount of which is determined in part by projections of the taxpayer’s household income and family size for the taxable year.

Taxpayers who receive the benefit of advance credit payments are required to file an income tax return to reconcile the amount of advance credit payments made during the year with the amount of the credit allowable for the taxable year. The proposed regulations provide guidance and clarification on eligibility for the premium tax credit (including guidance on opt-out arrangements), the amount of the tax credit, figuring out the benchmark plan premium, and information reporting. The proposed regulations are generally proposed to apply for tax years beginning after December 31, 2016, though taxpayers may rely on certain provisions of the proposed regulations for tax years ending after December 31, 2013. In addition, several rules are proposed to apply for tax years beginning after December 31, 2018.

Read the Proposed Regulations

Department of Labor Announces Increased Penalties

On November 2, 2015, Congress passed the Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (Inflation Adjustment Act). In attempting to increase the effectiveness of civil monetary penalties levied by federal agencies and maintain their deterrent effect, the law requires each federal agency to annually adjust their penalties for inflation. The law also required each agency to determine the last time penalties were increased and to publish interim final rules (catch-up rules) by July 1, 2016, to adjust their penalties for inflation from that date.

On July 1, 2016, the Department of Labor published two interim final rules adjusting its penalties for inflation. The first rule, Department of Labor Federal Civil Penalties Inflation Adjustment Act Catch-Up Adjustments, covers the vast majority of penalties assessed by the Department’s Employee Benefits Security Administration (EBSA), Mine Safety and Health Administration (MSHA), Occupational Safety and Health Administration (OSHA), Office of Workers’ Compensation Programs (OWCP), and Wage and Hour Division (WHD). The second rule, Department of Homeland Security and Department of Labor Federal Civil Penalties Inflation Adjustment Act Catch-Up Adjustments for the H-2B Temporary Non-agricultural Worker Program, which was issued jointly with the Department of Homeland Security, adjusts the penalties associated with the H-2B temporary guest workers’ programs.

Employers should note that many of the penalties have substantially increased under the new rules. For example, penalties for OSHA violations, which have not been increased since 1990, are increased by 78 percent, with the top penalty for serious violations rising from $7,000 to $12,471 and the top penalty for willful or repeated violations rising from $70,000 to $124,709. Similarly, penalties for minimum wage and overtime violations under the Fair Labor Standards Act (FLSA) have risen 72 percent from $1,100 to $1,894.

See the Complete List of Adjusted Penalties

New “Digest of EEO Law” Issued by EEOC

On June 30, 2016, the U.S. Equal Employment Opportunity Commission (EEOC) announced the latest edition of its federal sector Digest of Equal Employment Law (EEO Digest).

The EEO Digest, a quarterly publication prepared by the Office of Federal Operations (OFO), features a wide variety of recent EEOC decisions and federal court cases of interest. The publication also includes hyperlinks so that stakeholders can easily access the full decisions.

This edition of the EEO Digest contains summaries of noteworthy decisions issued by the EEOC, including cases involving: agency processing, attorney’s fees, compensatory damages, dismissals, findings on the merits, remedies, sanctions, settlement agreements, stating a claim, and timeliness.

Read the latest Digest of EEO Law

Ninth Circuit Holds that Cash Payments Made in Lieu of Health Benefits Must Be Included in Regular Rate for Overtime Purposes Under the FLSA

On June 2, 2016, the Ninth Circuit Court of Appeals, in Flores v. City of San Gabriel, held that the City of San Gabriel willfully violated the Fair Labor Standards Act (FLSA) by failing to include cash payments to police officers for unused medical benefits allowances when calculating their regular rate of pay, which ultimately resulted in a lower overtime rate and an underpayment of overtime.

In Flores, the City provided a flexible benefits plan to its employees under which the City furnished a designated monetary amount to each employee to be used for purchasing medical, vision, and dental benefits. While employees were required to use a portion of these funds to purchase vision and dental insurance, employees with access to alternative medical coverage (for example, through a spouse) could decline to use the remaining benefits and opt for a cash payment instead. The cash payment would then be added to the employee’s regular paycheck. The City did not consider the value of that cash payment when calculating the employees’ regular rate of pay and resulting overtime rate. A group of current and former officers sued, claiming they were underpaid for overtime hours worked because the cash provided to employees in lieu of benefits should have been used in calculating their overtime rate.

The primary issue was whether the City’s cash-in-lieu payments were properly excluded from the employees’ regular rate of pay. The Ninth Circuit held that cash payments made to employees in lieu of health benefits must be included in the hourly “regular rate” used to compensate employees for overtime hours worked. The City argued that the cash-in-lieu payments were not payments made as compensation for hours of employment and were not tied to the amount of work performed for the employer, and therefore were excludable under 29 U.S.C. § 207(e)(2) from the regular rate of pay as are payments for leave, travel expenses, and other reimbursable expenses. The Ninth Circuit disagreed, finding the payments were “compensation for work” even if the payments were not specifically tied to time worked for the employer.

The Ninth Circuit also rejected the City’s argument that its cash in lieu of benefit payments were properly excluded pursuant to § 207(e)(4) because the payments were paid directly to employees. Section 207(e)(4) excludes from the regular rate of pay “contributions irrevocably made by an employer to a trustee or third person pursuant to a bona fide plan for providing old age, retirement, life, accident, or health insurance or similar benefits for employees.”

Note: This decision only affects those employers located in the Ninth Circuit. The Ninth Circuit includes Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, Washington, and Guam.

Read the Decision