EMPLOYEE BENEFITS BLOG
EMPLOYEE BENEFITS BLOG
Legal insights on employee benefits and executive compensation
EMPLOYEE BENEFITS BLOG
Legal insights on employee benefits and executive compensation
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Recent Case Opens Door to Civil Enforcement Claims for Negligent FICA Tax Withholding

by and | Nov 26, 2013 | , ,

A District Court in Eastern Michigan recently rejected a motion to dismiss a participant’s benefit claim, holding that an employer legally could be liable to a participant in a nonqualified deferred compensation plan when the employer did not properly withhold FICA tax in the manner most advantageous to the participant. As a best practice, plan administrators should scrutinize any participant communications or claim responses because they can open the door to estoppel claims under ERISA.

To read the full article, click here.



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New California Law Affects State Taxation of Employer Tax Gross-Ups for Domestic Partners

by , and | Nov 7, 2013 | , ,

The California state legislature recently enacted a law that may affect the taxation of benefits an employer provides to same-sex domestic partners in the state. California AB 362 excludes from gross income for California state income tax purposes the amount of any tax gross-ups paid by an employer to an employee for benefits for that employee’s same-sex spouse or domestic partner. The law was approved by California’s governor on October 1, 2013, and is effective immediately through January 1, 2019.

Earlier this year the Supreme Court of the United States ruled in U.S. v. Windsor that Section 3 of the Defense of Marriage Act (DOMA) is unconstitutional (see “Supreme Court Rules on DOMA and California’s Proposition 8” for more). Section 3 of DOMA had provided that, for purposes of all federal laws, the word “marriage” means “only a legal union between one man and one woman as husband and wife,” and the word “spouse” refers “only to a person of the opposite-sex who is a husband or wife.” Subsequent Internal Revenue Service (IRS) and U.S. Department of Labor guidance clarified that, as a result of Windsor, favorable federal tax treatment of spousal benefit coverage would extend to all same-sex couples legally married in any jurisdiction with laws authorizing same-sex marriage, regardless of whether the couple currently resides in a state where same-sex marriage is recognized (see “IRS and DOL Guidance Clarifies Employee Benefits Impact of Supreme Court’s DOMA Ruling” for more information).

As a result of Windsor and the subsequent IRS guidance, the impact of California AB 362 appears fairly limited. Pre-Windsor, some employers provided a federal tax gross-up on the imputed value of coverage provided to an employee’s same-sex spouse or domestic partner. Post-Windsor, same-sex married couples in California no longer need a tax gross-up for either state or federal tax purposes because they no longer have to be taxed on the value of the coverage provided to their spouse. Because of this treatment, application of California AB 362 would be limited to a situation where an employer provides a federal tax gross-up to an employee who is in a California-registered domestic partnership. Such a gross-up, which would have been taxable under prior state law, is now no longer taxable in California. Employers in California will need to update their payroll and tax procedures accordingly. Employers both inside and outside of California that previously provided tax gross-ups may find it desirable to revisit their gross-up policies in light of the Windsor decision and the IRS guidance.



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IRS Guidance on Employment and Income Tax Refunds on Same-Sex Spouse Benefits

by , and | Oct 22, 2013 | , ,

Employers extending benefit coverage to employees’ same-sex spouses and partners should review their payroll procedures to ensure that such coverages are properly taxed for federal income and FICA tax purposes. Employers also should review the options in Notice 2013-61 and consider filing claims for refunds or adjustments of FICA overpayments.

To read the full article, click here.



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Change to UK Collective Redundancy Consultation Regime Now Confirmed

by | Oct 16, 2013 |

The UK Employment Appeal Tribunal (the EAT) recently published its judgment in litigation that resulted from the 2008 closure of Woolworths. It confirms initial reports of a significant change to the law on UK collective redundancy consultation.

Background

When a UK employer proposes to dismiss as redundant 20 or more employees, within a period of 90 days or less, it is required to collectively consult representatives of those affected, prior to implementing its proposal. Failure to do so can lead to the employer being required to pay up to 90 days’ pay to each affected employee (a Protective Award).

This obligation arises out of the European Collective Redundancies Directive (the Directive). In implementing the Directive, the UK Government stipulated that the obligation would only be triggered if the proposed redundancies involved 20 or more employees who all worked “at one establishment” within the employer’s organization. UK employers have therefore relied on this for many years as a means of avoiding the obligation to collectively consult when redundancies are proposed across different locations or are otherwise proposed at different “establishments”.

What Has Changed?

The EAT has now held that the words “at one establishment” should be deleted from UK legislation. Why? Because the stated purpose of the Directive is to provide greater protection for workers facing a collective redundancy situation and, in the view of the EAT, without this deletion, UK legislation provides less protection than the Directive requires.

What Does This Mean for UK Employers?

Employers wishing to avoid liability for a Protective Award should now collectively consult when they are proposing to dismiss 20 or more employees as redundant, anywhere in their UK business, within a period of 90 days or less.

Employers will no longer be able to “slice and dice” their UK business into different establishments in order lawfully to avoid the obligation to collectively consult about proposed redundancies.

This marks a significant change to UK collective redundancy practice.

Large employers will be particularly affected, as the obligation to collectively consult will now be triggered even when headcount reductions are proposed independently, by unrelated business units, located across multiple sites. Employers will encounter an inevitable increase in the administrative burden they have to shoulder, not only because of a rise in the number of collective consultation exercises required, but also because of the degree of organization and communication that will in future be necessary to keep track of, and aggregate, disparate redundancy proposals.

Employers should not despair however. The collective redundancy regime remains otherwise unchanged and, whilst employers will now find themselves required to collectively consult more frequently, this judgment does not require collective consultation to take place en masse at one geographic location. Collective consultation exercises can still take place at different establishments if that is a more commercially sensible option. It is worth noting that this change will apply to redundancies that have already been proposed and to those that are on-going.

Please contact your usual McDermott lawyer or Sharon Tan if you would like [...]

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View From McDermott: Dollars and Cents, the Cost of Benefit Coverage

by and | Oct 10, 2013 | ,

Many employers have begun the process of evaluating their options and obligations with respect to extending benefit coverage under employer-sponsored benefit plans to same-sex spouses in light of the U.S. Supreme Court’s recent ruling on Section 3 of the Defense of Marriage Act.  Section 3 of DOMA provided that for all purposes of federal law the word “marriage” meant “only a legal union between one man and one woman as husband and wife,” and the word “spouse” referred “only to a person of the opposite-sex who is a husband or wife.” In June 2013, the Supreme Court ruled in United States v. Windsor that Section 3 of DOMA was an unconstitutional “deprivation of the liberty of the person protected by the Fifth Amendment.”  The effect of this ruling is that federal law now generally will defer to state law definitions of marriage, including same-sex marriage, which has been legalized in 13 states and the District of Columbia.

As part of evaluating options for extending benefit coverage to same-sex spouses, employers need to consider the financial implications of such benefits. These implications include costs the employer will incur in extending such benefits, as well as the financial impact on employees who opt to utilize such benefits. Many of these costs are dependent upon the spousal benefits the employer currently offers, although the relevant considerations and cost estimates outlined below may be helpful resources.

To read the full article, click here.



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DOL Issues Rule Extending FLSA Protections to Home Health Care Workers

by | Sep 24, 2013 | ,

The U.S. Department of Labor (DOL) recently issued a Final Rule narrowing the companionship exemption to the Fair Labor Standards Act (FLSA) and extending the FLSA’s minimum wage and overtime protections to in-home health care workers.  This rule will make FLSA protections applicable to nearly 2 million additional workers, including certified nurse assistants, home health aides and personal caregivers.

To read the full article please click here.



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The French Legal Framework Relating to Profit-Sharing Premiums

by | Aug 22, 2013 |

by Bertrand Delafaye and Benoit Zagdoun

The French legal system provides a variety of ways to secure the involvement of employees in the growth and profits of their company, including compulsory deferred profit-sharing plans (accords de participation), optional voluntary cash-based profit-sharing plans (intéressement), and other similar mechanisms.

The Amended Social Security Financing Law of 2011 provided for a new legal framework entitled “profit-sharing” premium (prime de partage des profits), which set forth rules to allocate premiums to the benefit of employees in the event their company decides to increase dividend distributions to its equityholder(s) (the “Premium Allocation Rules”). These Premium Allocation Rules are in force but have not yet been codified.  According to recent government declarations, however, the Premium Allocation Rules could be abrogated by the end of 2013.

Overview

Generally, the Premium Allocation Rules apply to privately held companies with at least 50 employees as well as to public corporations under certain specific conditions.  If a company subject to the Premium Allocation Rules decides to distribute dividends in excess of the average amount of dividends distributed during the two previous fiscal years (an “Increased Dividend Distribution”), then the company must grant a premium (typically a cash payment) to its employees (the “Employee Premium”).   Importantly, the determination of whether an Increased Dividend Distribution has occurred does not include any amounts, whether in cash or in kind, distributed to the equity-holders of the company as a result of other non-dividend corporate actions, such as share buy-backs.

If the parent company of a “group” (as defined by the French Code of Commerce) engages in an Increased Dividend Distribution, then each company within the consolidated group that employs at least 50 people must grant the Employee Premium to its employees.

The Employee Premium must be determined by an agreement executed between the company and a representative of the employees within three months of the date on which the company decided to engage in an Increased Dividend Distribution.  Similar to collective bargaining agreements, the Employee Premium agreements may also be negotiated and executed at the industry level, as opposed to the company level.  If such an agreement is not reached, then the company must issue a statement setting out the premium amount that the company unilaterally agrees to pay, which the employee representative cannot block.  In order to avoid repeating the agreement negotiation process each time a company makes an Increased Dividend Distribution, it is possible for a company or a consolidated group to negotiate a long term agreement with the relevant employee representatives that provides the framework for, among other things, calculating and paying the Employee Premium.

An employer (whether the board of directors and its chairman, the manager(s) or the president, depending on the corporate form) that defaults on the obligation to implement the profit-sharing premium process, will risk the following penalties: up to one year of imprisonment and/or a fine of €3,750.

Practical examples

1.  Foreign companies

A foreign company incorporated outside of France and its direct French [...]

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