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|The actual resolution of legal issues depends upon several variables, particularly the specific facts of the matter. These articles are not intended to provide legal advice specific to any on matter, but rather to provide insight into legal developments and issues. Always consult with legal counsel before taking action on matters covered in these articles.|
As the details of the economic stimulus bill are rolled out, employers will quickly learn that there will be a significant impact on the cost of doing business as a consequence of the bill. One such impact will be felt on COBRA benefits.
COBRA (the Consolidated Omnibus Budget Reconciliation Act) provides for the continuation of group health insurance coverage that might otherwise be terminated when the individual has a qualifying event. A qualifying event for an employee has been defined as voluntary termination of employment for reasons other than gross misconduct; reduction in the number of hours of employment; a qualifying event for an employee’s spouse includes voluntary termination of the covered employee’s employment for any reason other than gross misconduct; reduction in the number of hours of employment, covered employee’s eligibility for Medicare, divorce or legal separation, death of the covered employee, loss of dependent child status. The qualifying employee pays up to 100% of the premium with an additional 2% administrative fee. COBRA covers employers with 20 or more employees.
On February 17, 2009, President Obama signed into law the American Recovery and Reinvestment Act of 2009. Among many provisions in the Act, one of the most significant includes the new COBRA regulations. The Key concepts you need to be aware of include:
· The Act creates a new “qualifying event” that allows involuntarily terminated employees and their covered dependents to be eligible for a 65% COBRA premium subsidy for up to nine (9) months. That means that the employee will pay 35% of the premium with the remaining 65% to be subsidized by the employer.
· Eligible employees must have been enrolled in the health plan and must have had a qualifying event. The employee must have earned less than $125,000 if single or $250,000 if filing jointly.
· Employers will be able to claim a credit in the amount of the subsidy when it files its 941 Employment Tax Return. If the employer has subsidized a higher dollar value than can be claimed in credit, it may be eligible for a tax refund.
· The qualifying event must have occurred between September 1,2008 and December 31, 2009.
· Employers must reach back to September 1, 2008 and notify employees and their dependents of the new provisions. This includes employees who originally declined COBRA. The Department of Labor has been charged with the responsibility of creating a model notice within thirty (30) days of the enactment of the law. Look for this notice in the coming weeks.
· Employees who have become eligible for other health insurance do not qualify for the subsidy.
· The law does not allow for reimbursement of premiums of coverage period beginning before February 17, 2009. However, employees will most likely pay full premiums while notices are sent out and there is a sixty (60) day transition period to allow for repayment or extension of credit for those overpayments
· If the company has discontinued its health plan, there is no obligation on the part of the employer to provide COBRA under the new law.
What must you do as an employer?
First, be aware that there are still some questions in this bill such as what is “involuntary termination”? It has been long understood that an employer does not have to offer COBRA to an employee terminated for gross misconduct. One could argue that termination for gross misconduct is involuntary termination. It would appear that it could now be construed that COBRA must be offered to all departing employees, no matter what.
From a practical standpoint, employers should identify individuals who became eligible for COBRA between September 1, 2008 and December 31, 2009. Send this list to you Plan Administrator or Third Party Administrator if they provide your COBRA services. They will use this information to send the notices regarding the new law. If you perform you own COBRA services, be prepared to notify these individuals when the Department of Labor provides the model notice. Your payroll system must be adjusted to deal with the subsidy and the payroll tax credit, or if not equipped to do this, your payroll administrator must be aware of the change in the 941 form. Employers will be required, either through its Plan Administrator or TPA or its own records, to keep track of who is on the subsidy program, when they were notified and when the subsidy expires. As with any change in employment law, there are posters for you to hang. They can be found on the Department of Labor website at www.dol.gov/COBRA
As the new law becomes reality, there may be great confusion in the availability of the subsidy. We are prepared to assist employers with working through the maze of new legislation!
Governor Sanford signed Act 280, the Illegal Immigration Reform, on June 4, 2008 and the burden of this Act will quickly come into effect on January 1, 2009, for certain employers, namely all public employers and contractors, subcontractors, or sub-subcontractors of five hundred or more employees having a contract with a political subdivision in which the total value of the contract in a twelve month period exceeds $15,000. Others will have additional time to prepare, but eventually the hiring practices of all South Carolina employers will change as a result. The remainder of the schedule is:
· Contractors, subcontractors and sub-subcontractors with at least one hundred employees but less than five hundred must comply with the Act by July 1, 2009.
· Contractors, subcontractors and sub-subcontractors with less than one hundred employees must comply with the Act by January 1, 2010.
· Private employers with at least one hundred employees must comply with the Act by July 1, 2009 and those with less than one hundred employees will be required to comply by July 1, 2010.
Employers must be prepared on their respective compliance dates to address the issue of illegal immigration every time they hire a new employee. The Act requires employers to verify the citizenship or immigration status of all new hires by using the federal E-Verifying system or, in the case of private sector employers only, an alternate option of requiring a valid South Carolina’s drivers license or ID card issued by the South Carolina Department of Motor Vehicles.
Beginning on or before January 1, 2009, public employers shall register with the federal E-Verify system to be utilized every time it hires a new employee. Enrollment in the system requires the electronic signature on a Memorandum of Understanding that will appear during the registration process. Registration takes forty-eight (48) hours to become effective and queries may only be run following the completion of a 45 minute tutorial and the successful completion (a score of 70 or better) of a quiz on the tutorial. Employers will also be able to download and print the required E-Verify Participation Poster and the Anti-Decimation Poster. Those posters must be placed with other employment posters and must be posted in both English and Spanish.
While employers do not need to verify existing employees, all new hires must be checked within five days of their actual start date. It is important to note, however, that the check must be conducted post-offer. That means that the employee must have been offered a position that they have accepted prior to the verification of citizenship or immigration status. Other –wise the employer may find themselves the recipient of decimation charges. E- Verify compliance does not eliminate the need for the completion of an I-9 form for new employees. In fact, the information on the I-9 is what the employer will use to verify the employee through E-Verify. The use of E-Verify must be applied to all new hires, regardless of their citizenship status.
The legal distinction between an employee and an independent contractor may seem like a subject suitable only for a law school exam, but it has real-life significance for both employers and employees.
Considering just federal taxes, for example, if a worker is an employee, the employer must withhold income tax and the employee’s part of Social Security, Medicare, and unemployment taxes on wages. An employee can deduct unreimbursed business expenses if the employee itemizes deductions and the expenses are more than 2% of the adjusted gross income.
If the worker has independent contract status, however, there is no withholding, and the contractor is responsible for paying the income tax and self-employment tax. In that situation, it may also be necessary to make estimated tax payments during the year. An independent contractor can deduct business expenses, but on a different schedule of the tax return than is used by the employee.
So how do you tell the difference between an employee and an independent contractor? There is no single, quick answer. The particular facts of each case must be examined. However, relevant facts can be grouped into three general categories: behavioral control, financial control, and relationship of the parties.