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Good Intentions, Unintended Consequences: Paid Time Off Can Lead to Tax Liability
by Michele L. Jakubs*
Paid Time Off programs (“PTO”) allow employees to earn leave that
they later can use for vacations, sicknesses and personal holidays.
Under such programs, employees typically earn leave in accordance with
factors such as years of service, position, and full or part-time
status. PTO programs generally require employees to obtain approval from
their employers prior to using their leave (except when advance notice
is not possible, as in the case of an illness) and do not permit
employees to carry a negative leave balance. Many employers believe PTO
programs are less burdensome to administer because the employer does not
have to track both “vacation” and “sick” time. However, employers must
evaluate their PTO programs to ensure they comply with all applicable
state and federal regulations.
When an employee separates from service, the employee often
receives his or her unused leave balance in a single lump-sum payment.
However, most employers may not know that amounts paid to an employee
for unused leave upon separation constitute wages subject to income tax
withholding
and employment taxes. Employers must treat such payments accordingly.
Allowing employees to sell unused PTO back to the company at the
end of the year is also another practice that can create tax problems
for the employer and employee. If the employee has the option to either
cash-out the PTO or roll it over to the next year, the employer must
immediately tax the employee on the entire amount even if the employee
actually
elects to roll over the unused PTO. Under the federal income tax
“constructive receipt” doctrine, the IRS considers the roll over amount
received and taxable at the time the PTO is available for a taxpayer to
cash out, even if the taxpayer elects to defer his or her receipt of the
amount. To avoid this situation, employers should not give employees a
choice to cash out or roll over their PTO. The IRS stated that mandatory
cash outs do not create a “constructive receipt problem.”
To avoid these and other unintended tax consequences, employers
should discuss the design of their PTO plans with a knowledgeable
attorney.
*Michele L. Jakubs,
an OSBA Certified Specialist in Labor and Employment Law, practices in
all areas of employment law and has experience designing employee PTO
plans. For more information about paid time off plans and the potential
tax consequences, please contact Michele at mlj@zrlaw.com or 216-696-4441.
Family & Medical Leave Act Protects a Pre-Eligibility Request for Post-Eligibility Leave
by Patrick M. Watts
The Eleventh Circuit recently held that the Family & Medical
Leave Act (“FMLA”) protects a pre-eligibility request for
post-eligibility leave.
Pereda v. Brookdale Senior Living Communities, Inc., No. 10-14723 (11th Cir. Jan. 10, 2012).
Brookdale Senior Living Communities (“Brookdale”) operates
numerous senior living facilities. Brookdale hired Kathryn Pereda
(“Pereda”) in October 2008. Pereda informed management in June 2009 that
she was pregnant and would need leave under the FMLA after the birth of
her child in November 2009. At the time Pereda requested leave, she was
not eligible for FMLA protection because she had not worked the
requisite hours (1,250 hours during the previous 12-month period) and
had not yet experienced a triggering event, the birth of her child.
Pereda alleged she was a top performer but that Brookdale began
harassing her after they learned of her pregnancy. She claimed Brookdale
criticized her job performance and placed her on a performance
improvement plan with “unattainable goals.” Moreover, Pereda alleged
that Brookdale had given her permission to attend pregnancy-related
doctors’ appointments but then subsequently disciplined her for
attending those appointments. Brookdale terminated Pereda’s employment
when she took time off in September 2009.
Pereda filed suit in the United States Court for the Southern
District of Florida, alleging FMLA interference and retaliation. The
Southern District held that Brookdale did not interfere with Pereda’s
FMLA rights because she was not entitled to leave at the time she
requested it, and that because she was not eligible for leave she could
not have engaged in “protected activity” under the FMLA. Thus, according
to the Southern District, Brookdale could not have retaliated against
Pereda.
Pereda appealed to the Eleventh Circuit Court of Appeals. The
Eleventh Circuit reversed and found for Pereda on both counts. As part
of its decision, the Court resolved a question it had left open in a
previous case,
Walker v. Elmore County Bd. of Educ., 379 F.3d 1249 (11th Cir. 2004). The
Walker
court held that the FMLA did not protect a pregnant teacher who
requested leave which would begin several days prior to her eligibility.
The
Pereda court first found that, because the FMLA
requires advance notice of a need for future leave, the FMLA protects
employees from interference before a triggering event occurs. The Court
reasoned that any other outcome would be illogical and “becom[e] a trap
for newer employees and exten[d] to employers a significant exemption
from liability.” After examining the various elements of the FMLA
regulatory scheme, the court concluded that allowing the district
court’s ruling to stand would frustrate the purpose of the FMLA.
The court then examined Pereda’s FMLA retaliation claim. The court
held that a pre-eligible request for post-eligible leave is “protected
activity” because the FMLA “aims to support both employees in the
process of exercising their FMLA rights and employers for the absence of
employees on FMLA leave.” Thus, Pereda also had stated a potential
claim for FMLA retaliation.
The Court narrowed its finding to state that a pre-eligible
discussion of post-eligible FMLA leave is protected activity and stated
that an employer could still terminate an employee for legitimate
reasons. While this case arose in the Eleventh Circuit, all employers
must be mindful of employee eligibility for FMLA leave and evaluate all
FMLA requests carefully – especially if the employee will become
FMLA-eligible in the future.
Blowing the Whistle - OSHA Issues New Regulations and Revises Its Whistleblower Complaint Procedure
by Lois A. Gruhin
The Occupational Safety and Health Administration (“OSHA”)
recently issued an interim final rule amending its whistleblower
regulations under the Sarbanes-Oxley Act of 2002 (“SOX”). OSHA published
its interim rule in the Federal Register on November 3, 2011, and it
became effective upon publication.
The Dodd-Frank Wall Street Reform and Consumer Protection Act
amended SOX, making significant changes to SOX whistleblower procedures.
The new regulations classify subsidiaries of publicly-traded companies
as covered employers. Additionally, the regulations protect employees
from retaliation, extend the statute of limitations for retaliation
complaints from 90 days to 180 days, provide those who complain with the
right to a jury trial in some instances, and restrict the ability of
individuals to waive or arbitrate whistleblower claims under SOX. The
regulations improve OSHA’s procedures for handling SOX whistleblower
complaints and make the procedures consistent with OSHA’s procedures for
handling other OSHA-administered statutes.
Another significant change pertains to the filing of
whistleblower claims. The new regulations permit oral SOX whistleblower
complaints. Upon receipt of an oral complaint OSHA prepares a written
complaint. OSHA intended this change to be consistent with the Supreme
Court’s recent decision in
Kasten v. Saint-Gobain Perf. Plastics Corp.,
131 S. Ct. 1325 (2011). OSHA will also now accept a complaint filed in
any language. Finally, any person can file a complaint so long as the
person has the consent of the affected employee.
Perhaps the most significant change for employers is that OSHA may
order a company to provide a SOX whistleblower complainant with the
same pay and benefits that he or she received prior to termination of
employment, or what is referred to as “economic reinstatement.” This
“economic reinstatement” differs from “preliminary reinstatement” in
that the whistleblower is not obligated to return to work before the
complaint is resolved, as he or she could have been under prior SOX
regulations. Furthermore, employers do not have the option to choose
between economic reinstatement and actual reinstatement. Instead, the
interim rule allows OSHA to make the decision as to whether to allow for
economic reinstatement, as opposed to decide on a case-by-case basis.
The stated purpose for this rule change is to accommodate situations
where the evidence indicates that reinstatement prior to the conclusion
of administrative adjudication is inadvisable for some reason, such as
where the company demonstrates the complainant to be a security risk.
If you would like further information about the whistleblower
provisions of SOX and how they may affect your company, please contact
us.
California Dreamin’ – Employers Need to Be Aware of Important Changes to California Employment Law
by Jason Rossiter*
Change is a-comin’ to California’s employment laws. Employers who
operate in California should be aware of these important changes.
Gender Expression
Gender expression is now a protected class under California’s
Fair Employment & Housing Act (“FEHA”). Gender expression refers to a
person’s gender-related appearance and behavior, whether or not
stereotypically associated with the person’s assigned sex at birth.
“Sex” is now defined in several anti-discrimination statutes, including
the FEHA, to include gender expression. The redefinition aims to protect
the rights of transgender people. With this change, employers must
allow employees to appear or dress consistently with his or her gender
expression.
Wage-and-Hour Related Changes
The following wage and hour changes, a result of the Wage Theft
Protection Act of 2011, went into effect January 1, 2012. The new
changes require immediate employer action as employers must keep a
signed, written acknowledgement for each employee. A template of the
notice and acknowledgement is available via the Department of Industrial
Relation’s website:
http://www.dir.ca.gov/dlse/Governor_signs_Wage_Theft_Protection_Act_of_2011.html.
- Employer must provide all employees with:
- The rate(s) of pay and basis for such rate(s); allowances
including meal or lodging, and the regular payday as designated by the
employer.
- The full legal name of the employer, including any “doing
business as” names used by the employer, as well as the address of the
employer’s main office and the telephone number of the employer;
- The name, address, and telephone number of the employer’s workers’ compensation insurance carrier;
- The new regulations also require the employer to furnish new
employees with “any other information the Labor Commissioner deems
material and necessary;” and,
- If the above-mentioned information ever changes, all
affected employees must receive notice of the change within seven days
of the effective date of the change.
- If an employer has non-California employees working in the
state of California, including temporary or daily employees, these
employees are entitled to overtime under California’s laws.
- Additionally, any agreements between employers and employees
who receive commissions must be in writing and signed by the employee in
question.
- This writing must “set forth the method by which the
commissions shall be computed and paid,” and the employee must receive a
copy of his or her signed writing.
Leave-Related Changes
- California employees are also now entitled to up to six weeks of paid leave each year to donate organs and bone marrow.
- This is more expansive than federal and prior California law.
- The new law, California Labor Code sections 1508 through 1512, applies to employers with 15 or more employees.
- Pregnancy leave policies in California must also now allow for
continuation of medical insurance benefits for pregnancy-related
disabilities.
No Credit Checks Allowed
- Employers may no longer use credit checks in the employment application process.
Misclassification Penalties Increase
Employers who misclassify employees as independent contractors face increased sanctions, including:
- criminal sanctions;
- joint-and-several liability for those who advise employers to misclassify; and,
- civil penalties of up to $25,000 for each infraction.
Employers with California employees, even those with temporary or
daily employees, should take note of these significant changes and
ensure they are in full compliance so as to avoid significant penalties.
*Jason Rossiter
practices in all areas of labor and employment law and has extensive
compliance experience. He is licensed to practice law in California,
Pennsylvania and Ohio. For more information about these and other
changes to California law contact Zashin & Rich at 216-696-4441.
Indiana Becomes First State in Over Ten Years to Pass “Right-to-Work” Law
by Patrick J. Hoban*
Governor Mitch Daniels signed Indiana’s “Right-to-Work” (“RTW”)
law on February 2, 2012 – making Indiana the first state in over a
decade to do so. The law prohibits companies and unions from
negotiating a contract requiring non-members to pay fees for union
representation.
Indiana’s contentious RTW law came after much-heated debate. In
February, 2011, Democratic representatives left the state for five weeks
to deny a quorum prohibiting their Republican colleagues from moving
forward on RTW legislation. However, Governor Daniels succeeded in
signing the RTW law, making Indiana the 23rd state with RTW laws on its
books.
The National Right to Work Legal Defense Foundation launched a
task force to defend the law and announced that it will give free legal
advice to workers who wish to exercise their new rights. Current union
members will not be able to stop paying dues immediately as the law only
applies to contracts enteredinto
after March 14, 2012.
For or Against Right-to-Work Laws
Supporters of the law emphasize that it will attract
business and create jobs pointing to research showing employers favor
states with RTW laws. They also lodge ideological arguments against
compulsory payment for an unwanted service. Specifically, they argue
that forcing employees to pay union dues violates their Constitutional
right to freedom of association.
Critics argue that Indiana’s new law will fail to provide the
benefits promised by legislators. In addition, critics believe that RTW
laws harm workers by encouraging freeloading. The National Labor
Relations Act forces unions to intervene on behalf of members when their
employers take illegal action, regardless of whether the member pays
dues. Critics fear this costly and time-consuming burden will
significantly weaken union power.
What Can We Learn from Oklahoma
Oklahoma was the last state to sign a RTW law.
Proponents of the law expected it to bring new companies to Oklahoma and
increase job growth. On the ten-year anniversary of its signing, the
National Right to Work Committee celebrated what it claimed was a 12.2%
growth in employee compensation since 2001 and a 3.2% increase in
private sector employment between 2003 and 2010.
However, the Economic Policy Institute (“Institute”) tells a
different story. According to the Institute, the number of new
companies coming to Oklahoma has decreased by one-third as has the
number of manufacturing jobs. The Oklahoma Department of Commerce
admits the latter, but emphasizes that the law has increased
productivity. However, the Institute points out that this means fewer
workers are producing more, an outcome it does not applaud.
On the National Level
President Barack Obama made his stand on RTW laws
clear during a Labor Day Speech last year stating “when I hear of these
folks trying to take collective bargaining rights away, trying to pass
so-called ‘right-to-work’ laws for private sector workers, that really
means the right to work for less and less.” It comes as no surprise
that the Republican presidential candidates have a much different
attitude. After the Indiana House passed its RTW law, presidential
candidate Ron Paul wrote a congratulatory letter to the National Right
to Work Committee stating, “every American owes you a debt of gratitude
for your leadership and dedication.” According to his official website,
Paul has made passing a national RTW act a “centerpiece” of his
campaign. While Paul has been the most enthusiastic RTW supporter, Newt
Gingrich, Rick Santorum and Mitt Romney have all spoken approvingly of a
national RTW law.
What Can Indiana Expect
Organizations disagree as to what the citizens of Indiana
can expect. The Indiana Chamber of Commerce estimates that “personal
income per capita in 2021 [will] be $968 higher, or $3,872 higher for a
family of four, than if a RTW law [had] not [been] enacted.” However,
The Economic Policy Institute found that in Oklahoma, wages and benefits
are approximately $1,500 lower than comparable (union and non-union)
workers in non-RTW states. Additionally, Oklahoma workers are less
likely to get health care or retirement benefits. The Institute also
warns that RTW laws have no effect on job growth.
Union members went to federal court on February 22, 2012 asking that
Indiana's new right-to-work law not be enforced. This is the first
lawsuit and latest conflict over the divisive legislation. The
long-term impact of Indiana’s RTW legislation remains to be seen.
As the map shows, Indiana was the first in the generally
union-friendly “Rust Belt” to pass RTW legislation, and the first
nationally to do so in a decade. The highlighted states represent
“Right-to-Work” states:
*Patrick J. Hoban,
an OSBA Certified Specialist in Labor & Employment law, practices
in all areas of labor & employment law and has extensive experience
representing management in labor disputes. For more information about
right-to-work laws, please contact Pat at pjh@zrlaw.com or 216-696-4441.
Writing on the Wall: New Jersey Employers Subject to New Posting and Notice Requirements
by Stefanie L. Baker
The New Jersey Department of Labor and Workforce Development
(“NJDLWD”) recently issued new regulations concerning employer posting
and notice requirements. These changes come on the heels of New Jersey’s
2010 law requiring employers to maintain and report records under state
wage, benefit, and tax laws.
These newly-implemented regulations require an employer to
“conspicuously post” a notice of its obligations in an accessible place.
Employers can access a sample notice online at the NJDLWD’s website (
http://lwd.state.nj.us/labor/forms_pdfs/EmployerPosterPacket/MW-400.pdf).
Employers can comply either by posting the notice where other
employment-related notices are posted or by posting the notice on the
employer's Internet/intranet site, provided the employer has an
Internet/intranet site for exclusive use by its employees and to which
all employees have access. Along with the posting requirement, employers
must also provide every employee a copy of the notification.
Additionally, New Jersey employers must provide employees hired
after November 7, 2011 with written copies of the notification upon
hire, and all current employees should have received written copies by
December 7, 2011. New Jersey employers can comply with the notice
requirement by sending copies of the notice via e-mail.
The required postings address employers’ obligation to maintain
payroll records, temporary disability insurance records, workers’
compensation records, and Employer’s Quarterly Reports pursuant to the
New Jersey Gross Income Tax Act. New Jersey employers should assess
whether they are in compliance with these new regulations. Failure to
comply with the posting and distribution requirements could lead to a
fine of up to $1,000, as well as criminal penalties.
Z&R Shorts
George S. Crisci will present “Social Media in
the Workplace” on May 17, 2012, at the Ohio State Bar Association and
NLRB Region 8 Annual Labor Law Seminar beginning at 9 AM at Ritz
Carlton Hotel in Cleveland, Ohio. To register, go to www.ohiobar.org.
