The HR Strategist: December 2015
In this issue:
- An Extra Pay Date in 2015 or 2016?
- Ready or Not, ACA Forms Due to Employees by January 31st
- Maryland Announces Cut to Unemployment Insurance Rates
- 2016 Changes to Tax Benefits and Retirement Plan Limits
- Did You Know?
February typically has 28 days, but in leap years – 2016 being one of them – it has 29 days. This extra day can result in an extra payday in the calendar year, depending on when and how employees get paid. For example, instead of 52 weekly or 26 bi-weekly paydays, there will be 53 or 27, respectively.
To make matters more confusing, January 1, 2016 falls on a Friday and some employers that pay their exempt employees bi-weekly may choose to move their paycheck date back to Thursday, December 31st, 2015 – meaning there will be 27 bi-weekly paydays in 2015 instead of 2016. These employers may choose to issue a "bonus" last paycheck in 2015 or wait and address the extra pay period in 2016.
Either way, there are some key matters to consider in planning ahead to avoid what can be a major headache:
Maintain compliance with offer letters, contracts or other documents containing compensation information.
If the document or contract provides for a specific amount to be paid bi-weekly, it seems clear that the employer should pay the stated amount for each paycheck, even if there is an extra pay period. Failure to do so can result in breach of contract or wage theft claims.
If the offer letter says the employee will be paid a certain amount on a bi-weekly basis, for example, then there is not a lot of room to make changes. Conversely, if the offer letter says the employee will be paid a specific annual amount, the employer has more flexibility.
If the document provides for an annual salary, the employer then needs to weigh its options and risks with paying on 26 versus 27 weeks.
Employers should consider the applicable state wage payment law as well as morale issues. Assuming no contract issue is identified and the employer decides to reduce pay to even out over the 27 weeks, employers must ensure that the exempt employee is making more than $455 per week currently, or the proposed $970 per week once the Department of Labor issues its final overtime rule. Otherwise, the employee may not meet the wage threshold to be considered exempt.
Additionally, an unfortunate drawback of adding an extra paycheck and prorating each paycheck downward can be morale – since the amount of each paycheck is reduced.
Adjusting for income tax withholding depending on the pay method chosen by the employer.
Addressing or reconfiguring benefit elections since some popular employee benefits are capped. Communicate with employees that these adjustments could affect withholding or 401(k) and health savings account deferrals, especially for those employees who seek to fund these accounts to their maximum levels, figuring out how much per paycheck to contribute to reach those limits exactly at year-end.
Adjusting benefit accruals as necessary to account for the extra pay period.
2016 will ring in new compliance reporting responsibilities for employers and HR alike under the Affordable Care Act (ACA). Employers will need to file an array of reporting forms with the IRS reflecting adherence with the "shared responsibility" mandate to provide affordable health coverage to their employees.
Starting in January 2016, employers with 50 or more full-time or full-time equivalent (FTE) employees must report health insurance information to the IRS and provide statements about health insurance to their employees annually.
Applicable Large Employers (ALEs) with at least 50 FTEs must complete and file Forms 1095-C and 1094-C and provide each full-time employee with a copy of Form 1095-C. ALEs must prepare a Form 1095-C for each full-time employee, regardless of whether the employee is participating in an employer-sponsored group health plan.
Small employers (companies with fewer than 50 FTEs) are responsible for filing IRS Form 1095-B only if two conditions apply: the company offers health coverage to its employees, and it is "self-insured". This means that the company itself pays its employees' medical bills, rather than an insurance company. A small employer who does not meet both conditions will not have to file IRS Form 1095-B in 2015.
However, the company's employees may still receive a 1095-B from the insurance carrier. Under the ACA, whoever provides minimum essential coverage to an individual is required to send that person a copy of Form 1095-B and to send the same information to the IRS. The form provides details about the coverage, including who in the individual household was covered and when. The 1095-B forms became mandatory beginning in the 2015 tax year.
For the 2015 plan year, forms that must be filed with the IRS are due no later than February 29, 2016 (or March 31, 2016 – if filed electronically). But employee copies of Form 1095-B, if required, must be provided to employees annually by January 31. The deadline is February 1 for 2016 since January 31 falls on a Sunday.
For more information on ACA Reporting Requirements for both Small and Large Employers, please visit the IRS website.
In October, Maryland State Officials announced that Maryland businesses will pay less in employment insurance taxes in 2016. Employers pay unemployment insurance taxes on the first $8,500 in wages per employee, but the collection restarts if there is turnover.
Officials said fewer workers are being laid off and filing unemployment insurance claims, enabling the trust fund used to pay jobless claims to grow to levels that now permit a rate reduction.
The tax rate is reset by law each year, based on the balance in the fund, which topped $983 million at the end of September, up nearly $80 million form the same time the year before.
2016 will be the second time in three years that employers pay at the lowest rates, which range from 0.3% to 7.5%. The rates vary depending on whether a business has had workers file claims in recent years, and how many.
About half of the state's businesses pay at the bottom of the scale, meaning they can expect to pay about $25.50 per employee next year, down from $51 this year, according to state officials.
The Maryland Unemployment Insurance Program is financed by the Federal Unemployment Tax Act (FUTA) and is administered by the Maryland Department of Labor, Licensing and Regulation. As required by Maryland law, the Division of Unemployment Insurance does an annual "temperature check" on the Unemployment Insurance (UI) Trust Fund.
The IRS announced several inflation adjustments that affect tax-related items for employers and employees. Items that may be of interest for 2016 include:
- Limit on Health Flexible Spending Account (FSA) Contributions. The annual dollar limit on employee contributions to employer-sponsored health FSAs remains unchanged at $2,550.
- Small Business Health Care Tax Credit. The maximum amount of the small business health care tax credit is phased out based on the employer's number of full-time equivalent employees in excess of 10 and the employer's average annual wages in excess of $25,900.
- Qualified Transportation Fringe Benefits. The monthly limit on the value of the fringe benefit exclusion for transportation in a commuter highway vehicle and any transit pass increases to $255. The monthly limit for qualified parking increases to $255 as well.
- Earned Income Credit. The maximum Earned Income Credit amount is $6,269 for tax payers filing jointly who have 3 or more children.
The IRS also released cost-of-living adjustments affecting dollar limitations for retirement plans and related items for 2016, including:
- The contribution limit for employees who participate in 401(k), 403(b), and most 457 plans remains unchanged at $18,000.
- The catch-up contribution limit for those aged 50 and over also remains unchanged at $6,000.
- The limit on annual contributions to an individual retirement arrangement (IRA) remains unchanged at $5,500.
Additionally, the Social Security Administration announced that monthly Social Security and Supplemental Security Income (SSI) benefits will remain the same in 2016.
The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in inflation as measured by the Consumer Price Index for Urban wage Earners and Clerical Workers (CPI-W). As determined by the Bureau of Labor Statistics, there was no increase in the CPI-W from the third quarter of 2014 to the third quarter of 2015. Therefore, there will be no cost-of-living adjustment (COLA) in 2016.
Other adjustments that would normally take effect based on changes in the national average wage index also will not take effect in January 2016. Since there is no COLA, the maximum amount of earnings subject to the Social Security tax remains at $118,500 for 2016.
If you have any questions about how these benefit and retirement plan announcements may affect you, please do not hesitate to contact your Client Services Specialist at 410-451-4206.
We are pleased to announce the newest member to our Client Services Department, Rachel Rogers. Rachel is one of our dedicated Client Services Specialists. She is currently working on building a relationship with a number of our clients as their primary point of contact, and is responsible for payroll administration.
Please join us in welcoming Rachel! Here is a little information to get to know her better:
- Favorite color: Purple
- Favorite book: A Song of Ice & Fire Series by George R. R. Martin (aka Game of Thrones)
- Favorite movie: Anything Marvel, most comicbook movies
- Favorite sports team: Lycoming College Warriors