NEW LEGISLATION BRINGS MORE CHANGES THAN REPORTED
During August, President Clinton signed numerous bills into law containing many changes in employment laws. While most employers are aware of broad changes in the minimum wage, welfare, and health care laws, there are many details in these laws that have not been widely publicized. The following discusses some of these changes.
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- Subminimum Opportunity Wage – Employers may pay an age of not less than $4.25 per hour during the first 90 days of employment for those employees who are younger than 20 years old.
- Computer Professionals Exemption – The computer professional exemption allows computer professionals to be paid on an hourly basis and maintain the exemption. The required hourly rate was changed from 6-1/2 times the minimum wages to $27.63 an hour.
- Use of Company Vehicles by Commuters Not Working Time – If certain requirements are met, an employee’s use of an employer’s vehicle from travel to and from home and incidental activities performed by an employee are not considered part of the employee’s compensable working time.
- Exclusion for Educational Expenses – The $5,250 per year tax exclusion under IRC Section 127 has been retroactively extended for employer-provided tuition reimbursements from December 31, 1994, through June 1996 for graduate-level tuition and through May 1997 for undergraduate tuition.
- Exclusion for Employer-Provided Adoption Assistance – If an employer establishes an adoption assistance program, an employee who receives benefits under the program may exclude up to $5,000 ($6,000 in the case of a child with special needs) per child in benefits from gross income. The exclusion is available in 1997 and is scheduled to expire January 1, 2002.
- Long-Term Care Assistance – In general, effective January 1, 1997, certain long-term care insurance premiums and expenses are tax deductible. An exclusion may be available for certain employer-provided long-term care coverage.
- Taxability of Damage Awards – Damage amounts received in discrimination and other cases for non-physical injuries must be included in gross income and are subject to taxation. The new provision also specifies that emotional distress shall not be treated as a physical injury or physical sickness, and so damage awards for emotional distress shall also be taxable, along with both compensatory and punitive damage settlements and court awards.
- New Medical-Savings Accounts for Small Employers – Beginning in 1997, medical savings accounts will be available to employees of small employers (less than 50 employees), or to the self-employed, if they are covered under an employer-sponsored high-deductible plan. Taxpayers are allowed to make tax-deductible contributions to use for specified medical purposes if they satisfy certain requirements, and any earnings on contributions would be tax-free in this pilot program.
- New Disclosure Rule for ERISA-Covered Plans – ERISA governed plans must now disclose fee for service schedules for health plans when requested by an employee.
- New Work Opportunity Credit for Qualified New Hires – The targeted jobs credit has been replaced with a new work opportunity credit. The credit would be equal to 35% of qualified wages, to the following seven targeted groups: qualified recipients of funds pursuant to Section IV-A of the Social Security Act; veterans; ex-felons; high-risk youths; vocational rehabilitational referrals; summer youth employees; or food stamp recipients. Eligible individuals must be certified and meet other criteria.
- Independent Contractor Audits – The IRS is now required to provide employers with a written notice of the provisions of IRC Section 530 prior to any inquiry relating to the employment status of persons providing services to the employer. If a taxpayer establishes a prima facie case that it is reasonable not to treat an individual as an employee, the burden shifts to the IRS to prove otherwise.
- SIMPLE Retirement Plans for Small Employers – New law creates the Savings Incentive Match Plan for Employees (SIMPLE) for small businesses and the self-employed, which could be adopted by employers with 100 or fewer employees if they do not sponsor another retirement plan. These plans would simplify reporting requirements and not be subject to the non-discrimination rules or top-heavy rules applicable to pension plans of large employers.
- Changes in Rules for Qualified Pension Plans – Such plans will have fewer restrictions on distributions and highly compensated employees.
- New 401(k) Safe Harbor Rules – New safe harbor rules are allowed to show that 401(k) plans do not discriminate in favor of higher-compensated employees.
- New Spousal IRAs – Deductible IRA contributions of up to $2,000 for each spouse (including a spouse who does not work outside the home) are allowed if the combined compensation of both spouses equals at least the contributed amounts, but are subject to current limitations on deductible contributions by active pension plan participants.
- Federal Health Insurance Reform and Medical Portability – The Health Insurance Portability and Accountability Act of 1996 ensures that employees who leave an employer’s group health plan will have ready access to coverage under a subsequent employer’s health plan, regardless of health status and claims experience. It limits the length of time health plans and insurers may restrict benefits for a pre-existing condition, and modifies and clarifies the COBRA rules to include as qualified beneficiaries children who are newborn or adopted during the continuation period. It also amends ERISA to modify what reductions in coverage an employer is obligated to disclose, and requires employers to issue a certificate to the terminating employee and any covered dependents concerning the employee’s participation in the employer’s group health plan.
- Welfare Reform Becomes Law – Welfare legislation eliminates the Aid to Families With Dependent Children and job opportunities programs and moves to a block grant system that will give states leeway to set their own eligibility requirements. The measure places a 5-year lifetime limit on welfare benefits for adults, but allows states to exempt up to 20% of their caseloads from this requirement. It also requires that welfare recipients engage in some form of work activity after receiving two years of assistance. Various incentives are provided to the states that successfully reduce their caseloads.