Author Archives: Holland & Hart

September 26, 2016

Tax Reporting For Deferred Compensation Payments Following Death of Employee: Are You Reporting Correctly?

By Rebecca Hudson and Arthur Hundhausen

When an employee dies, deferred compensation may be due and payable to the employee’s beneficiary or estate. Employers are often tripped up by the corresponding tax reporting and withholding requirements and whether income tax and FICA tax withholdings are due from such payments. This article briefly addresses these tricky questions.

No Income Taxes Should Be Withheld

Under many employer-sponsored deferred compensation arrangements, employees earn compensation in one year that will not be paid until a future date. This may include traditional deferred compensation plans, short-term and long-term incentive arrangements, and stock awards, to name a few. When an employee/plan participant dies, the terms of the plan or arrangement typically dictate when and how the future payments are to be made to the employee’s beneficiary or estate. Employers should follow the terms of the plan and make payments and plan distributions to beneficiaries at the required times.

The proper income tax treatment of compensation that is earned preceding death, but is unpaid at the time of death, and is ultimately paid to a beneficiary or the estate of the deceased employee is outlined in IRS Revenue Rulings 71-456 and 86-109. These rulings provide that for income tax withholding purposes, these amounts do not constitute “wages.” Consequently, employers should not withhold income taxes on the amounts paid to a beneficiary or estate following an employee’s death.

FICA Taxes Still Withheld and Due If Compensation Paid In Year of Death

In an odd, and less-than-intuitive provision, the federal tax code (Code) treats FICA tax withholding differently depending on whether the compensation payments are made to the beneficiary/estate in the calendar year of the employee’s or former employee’s death, or in succeeding calendar years. Section 3121(a)(14) of the Code states that if compensation amounts are paid in the calendar year of the employee’s death or former employee’s death, such amounts will constitute FICA “wages” and therefore, are subject to FICA (Social Security and Medicare) tax withholding. However, Code Section 3121(a)(14) also confirms that these amounts will not constitute “wages” for FICA purposes, and therefore will not be subject to FICA tax withholding, if they are paid in the calendar year or years after the year in which the employee or former employee died.

Form W-2 or 1099?

So what tax reporting forms must be issued to the beneficiary or estate to reflect the compensation payments made following an employee’s death? Under IRS Revenue Ruling 64-150, all amounts earned but unpaid at an employee’s or former employee’s death received by an estate or beneficiary of a deceased employee should be reported as non-employee compensation on a Form 1099-MISC. But, as explained below, the amounts reported on the Form 1099-MISC must take into account FICA tax withholding and therefore, will depend on whether the payments are made in the calendar year of the employee’s or former employee’s death or in the calendar year(s) after the death.

Specifically, for payments made in the same calendar year as the employee or former employee died, the payments are not subject to income tax withholding but are subject to FICA withholding. Therefore, employers should issue a Form W-2 for that year in the name of the employee or former employee (with the social security number of the employee), solely to reflect the FICA wages and the corresponding FICA tax withheld. The compensation/plan distributions should be reported in box 3, Social Security wages, and box 5, Medicare wages and tips, on the Form W-2. The corresponding employee Social Security tax withheld should be reported in box 4, and the corresponding employee Medicare tax withheld should be reported in box 6, on the same Form W-2. Finally, the net amount of the compensation/plan distributions made to the beneficiary/estate in that calendar year (“net” meaning the full amount of the payment less the amount of FICA taxes withheld) should be reported on a Form 1099-MISC, box 3, Other income, issued to the beneficiary/estate.

For payments made in the calendar year(s) following the year in which the employee or former employee died, no income tax or FICA taxes should be withheld and no Form W-2 is required. Instead, the full amount of the distribution payments should be reported on a Form 1099-MISC, box 3, Other income, issued to the beneficiary/estate.

September 22, 2016

Minimum Wage For Federal Contractors Going Up In 2017

By Mark Wiletsky

On January 1, 2017, the new minimum wage for employees working on covered federal contracts will be $10.20 per hour, up five cents from the current hourly minimum of $10.15. An even bigger increase will go into effect for tipped employees working on or in connection with covered contracts as the tipped-employee minimum cash wage goes up from $5.85 to $6.80 per hour.

Inflation-Based Increases

According to President Obama’s 2014 Executive Order establishing a minimum wage for employees working on federal contracts, and the Department of Labor’s (DOL’s) corresponding regulations, the annual minimum wage for non-tipped employees increases based on the percentage increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), as published by the Bureau of Labor Statistics, rounded to the nearest five cents. The annual percentage increase in the CPI-W over the past year was 0.287% which would raise the minimum wage rate to $10.18. Because the hourly rate must be rounded to the nearest multiple of five cents, the new rate beginning January 1, 2017 will be $10.20.

For tipped employees, the Executive Order requires that the minimum cash wage increase by $0.95 (or a lesser amount, if necessary) until it reaches 70% of the contractor minimum wage for non-tipped employees. For 2017, the hourly cash wage for tipped employees will go up by $0.95 cents to $6.80 per hour. Employers must remember that at all times, the amount of tips received by the employee must equal at least the difference between the cash wage paid and the Executive Order minimum wage. If the employee does not receive sufficient tips, the contractor must increase the cash wage paid so that the cash wage in combination with the tips received equals the Executive Order minimum wage.

Required Minimum Wage Notice

Covered federal contractors are required to inform all workers performing on or in connection with a covered contract of the applicable minimum wage rate under the Executive Order. The required notice may be met by posting the free poster on Federal Minimum Wage for Contractors provided on the Wage and Hour Division’s website. As with all employment law posters, this notice should be displayed in a conspicuous place at the worksite.

September 20, 2016

Overtime Rule Lawsuit Seeks To Stop December 1st Changes

By Mark Wiletsky

Twenty-one states have sued the federal Department of Labor (DOL) seeking to prevent the new overtime exemption salary boost from going into effect on December 1, 2016. In a lawsuit filed in the Eastern District of Texas, the states argue that the DOL exceeded its authority when it issued its final rule increasing the salary level for exempt employees to $47,476 per year, with automatic updates to the salary threshold every three years.

Legal Challenge To The Overtime Rule

In the states’ complaint against the DOL, the states argue that the new rule is unlawful. One of their primary arguments is that enforcing the Fair Labor Standards Act (FLSA) and the new overtime rule against the states infringes upon state sovereignty in violation of the Tenth Amendment. The complaint cites the increased payroll costs to the states that would result from having to comply with the new exempt salary levels.

The states argue numerous other reasons why the new overtime rule should be stopped, including that the DOL exceeded the authority granted to it by Congress when it focused on the salary level as the litmus test for exempt status rather than on the duties of white collar workers. The states argue that exempt status should apply to any “bona fide executive, administrative, or professional” employee, even if their salary falls below the new threshold.

The states also take issue with the automatic increases in the new rule through which the DOL will index the salary thresholds every three years. The states assert that the DOL should have to go through the normal notice and comment period in order to make future changes to the salary levels. Read more >>

September 13, 2016

Colorado Hospital Targeted For Alleged Age Discrimination Against Nurses

By Steve Gutierrez

senior nurse A Chief Nursing Officer (CNO) is alleged to have stated that a younger nurse could “dance around the older nurses.” Not hard to imagine that such a statement would raise the hackles of many nurses over age 40, but do comments like that mean that the hospital discriminated against one or more nurses on the basis of their age when the nurses were discharged or resigned? That is the question facing Montrose Memorial Hospital after the Equal Employment Opportunity Commission (EEOC) filed an age discrimination lawsuit against the Western Slope hospital last Friday.

EEOC Cites Numerous Age-Related Comments

In its complaint, the EEOC alleges that Montrose Memorial Hospital’s CNO, Joan Napolilli, made various age-biased statements to charging party Katherine Casias and other nurses. Casias began work for the hospital in 1985 as a licensed practical nurse but then earned her degree cum laude as a registered nurse (RN). The alleged comments attributed to Napolilli include:

a younger RN could “dance around the older nurses;”
younger nurses are “easier to train” and “cheaper to employ;”
Casias was not “fresh enough” and was chastised for not smiling or saying hello enough;
referring to Casias as an “old bitch;”
older workers at the hospital were “a bunch of monkeys” and she’d “like to fill the hospital with new nurses and get rid of all the old ones;” and
telling a nurse supervisor to “work that old grey-haired bitch into the ground” and to work her “long and hard until she quit or got fired.”

The complaint also alleges that Nurse Manager Susan Smith told an RN that “you’re getting too old for this job.”

If proven to have actually been said, comments expressing an aversion to workers over 40 and a preference for younger workers can be direct evidence of age discrimination under the Age Discrimination in Employment Act (ADEA). Read more >>

September 6, 2016

Tips For Avoiding Retaliation Claims Under EEOC’s New Guidance

By Bryan Benard

In recent years, the Equal Employment Opportunity Commission (EEOC) has received more retaliation charges than any other type of discrimination claim. Last year, almost 45 percent of EEOC charges included an allegation of retaliation – yes, almost half!

Because of the alarming frequency of charges and the need for employees to report discrimination without fear of reprisal, the EEOC recently issued a new enforcement guidance on retaliation that replaces and updates its 1998 compliance manual on the subject. Even though the EEOC’s position is not necessarily the final word on these issues, as courts often disagree with the EEOC’s interpretation of federal discrimination laws, employers should know how EEOC staff, including its investigators and litigators, will approach retaliation charges. Here is a look at the new guidance with tips on how to avoid becoming another retaliation charge statistic.

Overview of Retaliation and Protected Activities

The federal discrimination laws enforced by the EEOC, such as Title VII, the Age Discrimination in Employment Act (ADEA), the Americans with Disabilities Act (ADA) and others, prohibit employers from taking adverse action against an employee or applicant because the individual engaged in “protected activity.” Adverse actions that can be seen as retaliatory by the EEOC include not just discipline or discharge, but also transferring the employee to a less desirable position or shift, giving a negative or lower performance evaluation, increasing scrutiny, or making the person’s work more difficult.

“Protected activity” falls into two categories: participation and opposition. Participation activity is when an individual “participates” in an EEO process, which can include filing a charge, being involved in an investigation, or testifying or serving as a witness in a proceeding or hearing. Opposition activity is when an individual complains, questions, or otherwise opposes any discriminatory practice. Employees have the right to engage in both types of protected activity without being subject to retaliation from their employer.

Harassment As Retaliation

According to the EEOC, harassing conduct can be seen as retaliation, even if it does not rise to the level of being severe or pervasive enough to alter the terms and conditions of employment. The agency states that harassment can constitute actionable retaliation so long as the conduct is sufficiently material to deter protected activity in the given context.

Evidence That May Support a Retaliation Finding

To determine whether there is a causal connection between a materially adverse action and the individual’s protected activity, the EEOC will consider different types of relevant evidence, alone or in combination. Some of the facts that may lead to a retaliation finding include:

Suspicious timing, especially when the adverse action occurs shortly after the individual engaged in protected activity;
Inconsistent or shifting explanations, such as where the employer changes its stated reasons for taking the adverse action;
Treating similarly situated employees more favorably than the individual who engaged in protected activity;
Statements or other evidence that suggest the employer’s justification for taking the adverse action is not believable, was pre-determined, or is hiding a retaliatory reason.

August 24, 2016

NLRB Reverses Position on Grad Student Assistants, Allowing Them To Unionize

By Steven Gutierrez

Overruling its 2004 Brown University decision, the National Labor Relations Board (NLRB or Board) decided that graduate student assistants at private colleges and universities can be considered statutory employees under the National Labor Relations Act (NLRA), permitting them to organize and form a union. Columbia University, 364 NLRB 90 (August 23, 2016). The Board concluded that student assistants who perform paid work at the direction of their university have a common-law employment relationship with the university and therefore, are entitled to the protections of the NLRA.

Why Brown University Was Wrong

The 2004 Board that decided this issue in Brown University ruled that graduate assistants could not be statutory employees under the NLRA because they are primarily students and have a primarily educational relationship with the university, not an economic one. The current Board rejected that view, finding that because student assistants perform work, at the direction of the university, for which they are compensated, they are statutory employees and the fact that there may be another relationship not covered by the NLRA, namely an educational relationship, did not foreclose their coverage as employees.

The current Board also disagreed with the Brown University Board’s “fundamental belief that the imposition of collective bargaining on graduate students would improperly intrude into the educational process and would be inconsistent with the purposes and policies of the [NLRA].” Instead, this Board believes that allowing grad assistants to be covered employees meets the “unequivocal policy” of the NLRA to encourage the practice and procedure of collective bargaining, and will make sure that an entire category of workers are not deprived of the protections of the law.

Multiple Flip-Flops On Graduate Assistants

In overruling Brown University, the Board’s position returns to the position held in the 2000 New York University (NYU) ruling, which itself was overruled in Brown University. Prior to the NYU ruling, however, the Board had long held that various student assistants could not be included in petitioned-for bargaining units.

This new flip-flop on the issue of coverage for graduate student assistants is not surprising given the leanings and make-up of the majority of the current Board, which has favored the extension of coverage and its jurisdiction, when possible. Board member Philip Miscimarra dissented in this case, writing that he agreed with the Brown University reasoning that graduate student assistants have a predominately academic, rather than economic, relationship with their school. He would not have overruled Brown University, or permitted the petitioned-for bargaining unit to proceed. Read more >>

August 23, 2016

Employer Violates NLRA By Barring Employees From Bringing Class or Collective Actions, Says Ninth Circuit

By Brian Mumaugh

Bad news for employers in the ongoing saga of whether an employer violates the National Labor Relations Act (NLRA) by requiring that employees pursue any legal dispute against the company on an individual basis, rather than in a class or collective action with other employees. The Ninth Circuit Court of Appeals recently ruled that the NLRA precludes employees from waiving their right to have disputes heard collectively and an employer that requires employees to waive that right as a condition of employment commits an unfair labor practice. Morris v. Ernst & Young, LLP, No. 13-16599 (9^th Cir. August 22, 2016).

Broad Ruling Extends To Any “Separate Proceedings” Requirement

Accounting firm Ernst & Young required its employees to sign agreements mandating that all legal claims against the firm be pursued exclusively through arbitration and only as individuals in “separate proceedings.” When employee Stephen Morris brought a class and collective action in federal court alleging that the firm misclassified employees denying them overtime pay under the Fair Labor Standards Act, Ernst & Young sought to compel arbitration on an individual basis pursuant to its arbitration agreement. The district court agreed, dismissing the federal court case and ordering arbitration.

Morris appealed, arguing, among other things, that the “separate proceedings” clause violated the NLRA. Morris relied on determinations by the National Labor Relations Board (the Board) in the D.R. Horton and Murphy Oil cases in which the Board ruled that concerted action waivers violate the NLRA. The Ninth Circuit agreed. It ruled that when an employer requires employees to sign an agreement precluding them from bringing a concerted legal claim regarding wages, hours, and terms and conditions of employment, the employer violates the NLRA.

The Court focused on the Board’s interpretation of the NLRA’s statutory right of employees “to engage in . . . concerted activities for the purpose of . . . mutual aid or protection” to include a right to join together to pursue workplace grievances, including through litigation. It characterized this as a labor law case, not an arbitration case. It stated that the problem with the contract was not that it required arbitration, but that it excluded all concerted employee legal claims. The Court explained that the same problem would exist “if the contract required disputes to be resolved through casting lots, coin toss, duel, trial by ordeal, or any other dispute resolution mechanism, if the contract (1) limited resolution to that mechanism and (2) required separate individual proceedings.” Read more >>

June 21, 2016

Supreme Court Avoids Deciding Whether Car Dealership Service Advisors Are Exempt From Overtime Pay

By Brian Mumaugh

The U.S. Supreme Court rejected the Department of Labor’s (DOL’s) 2011 rule that stated that “service advisors” at car dealerships are not exempt under the Fair Labor Standards Act (FLSA), but declined to take the final step by declaring them exempt under the FLSA. Instead, the Court sent the case back to the Ninth Circuit Court of Appeals to analyze whether service advisors are exempt under the applicable FLSA provision without regard to the DOL’s 2011 regulation. Encino Motorcars, LLC v. Navarro, 579 U.S. ___ (2016).

Duties of Service Advisors

At issue are the “service advisors” in a car dealership’s service department. These advisors typically greet the car owners who enter the service area, evaluate the service and repair needs of the vehicle owner, recommend services and repairs that should be done on the vehicle, and write up estimates for the cost of repairs and services before the vehicle is taken to the mechanics for service.

While service advisors do not sell cars, and they do not repair or service cars, they are essential in the sale of services to be performed on cars in the Service Department. Consequently, the issue is whether they fall within the FLSA exemption for salesmen, partsmen, or mechanics. The case before the Court involved numerous service advisors who sued their employer alleging, among other things, that the dealership failed to pay them overtime wages.

DOL Had Flip-Flopped On Exempt Status

In 1970, the DOL took the view that service advisors did not fall within the salesman/mechanic exemption and should receive overtime pay. Numerous courts deciding cases challenging the DOL’s earlier interpretation, however, rejected the DOL’s view and found service advisors exempt. After the contradictory rulings, the DOL changed its position, acquiescing to the view that service advisors were exempt from overtime pay. In a 1978 opinion letter, as confirmed in a 1987 amendment to its Field Operations Handbook, the DOL clarified that service advisors should be treated as exempt.

After more than 30 years operating under that interpretation, the DOL flip-flopped again in 2011. After going through a notice-and-comment period, the DOL adopted a final rule that reverted to its original position that service advisors were not exempt and were entitled to overtime. It stated that it interpreted the statutory term “salesman” to mean only an employee who sells automobiles, trucks, or farm implements, not one who sells services for automobiles and trucks, as service advisors do.

Dealerships were understandably unhappy with the final rule and continued to challenge the DOL’s position in court. As cases went up on appeal, the Fourth and Fifth Circuit Courts of Appeals ruled that the DOL’s interpretation was incorrect. The Ninth Circuit disagreed, ruling instead to uphold the agency’s interpretation. Those contradictory decisions led the Supreme Court to take on the issue in the Encino Motorcars case. Read more >>

June 15, 2016

OFCCP’s New Sex Discrimination Rule Expands Employee Protections Based on Pregnancy, Caregiver Status, and Gender Identity

By Jude Biggs

This week, the OFCCP updated its sex discrimination guidelines on topics such as accommodations for pregnant workers, gender identity bias, pay discrimination, and family caregiving discrimination. Intended to align the OFCCP’s regulations with the current interpretation of Title VII’s prohibitions against sex discrimination, the new rule will require federal contractors to examine their employment practices, even those that are facially neutral, to make sure that they do not negatively affect their employees. The new rule takes effect on August 15, 2016.

Overview of New Sex Discrimination Rule

The existing OFCCP sex discrimination guidelines date back to the 1970s. The new rule is designed to meet the realities of today’s workplaces and workforces. Today, many more women work outside the home, and many have the financial responsibility for themselves and their families. Many women have children while employed and plan to continue work after giving birth to their children. Women sometimes are also the chief caregivers in their families. The updated regulations are meant to offer women and men fair access to jobs and fair treatment while employed.

The new rule defines sex discrimination to include discrimination on the basis of sex, pregnancy (which includes childbirth or related medical conditions), gender identity, transgender status and sex stereotyping. The rule specifies that contractors must provide accommodations for pregnancy and related conditions on the same terms as are provided to other employees who are similarly able or unable to perform their job duties. For example, contractors must provide extra bathroom breaks and light-duty assignments to an employee who needs such an accommodation due to pregnancy where the contractor provides similar accommodations to other workers with disabilities or occupational injuries.

The new rule also incorporates President Obama’s July 2014 Executive Order that prohibits federal contractors from discriminating on the basis of sexual orientation and gender identity. In addition, contractors that provide health care benefits must make that coverage available for transition-related services and must not otherwise discriminate in health benefits on the basis of gender identity or transgender status.

The rule prohibits pay discrimination based on sex. It recognizes the determination of “similarly situated” employees is case-specific and depends on a number of factors, such as tasks performed, skills, effort, levels of responsibility, working conditions, job difficulty, minimum qualifications, and other objective factors. Notably, the OFCCP rule says that employees can be “similarly situated” where they are comparable on some of the factors, but not all of them.

Unlawful compensation discrimination can result not only from unequal pay for equal work, but also from other employer decisions. Contractors may not grant or deny opportunities for overtime work, training, apprenticeships, better pay, or higher-paying positions or opportunities that may lead to higher-paying positions because of a worker’s sex. Employees may recover lost wages for discriminatory pay any time a contractor pays compensation that violates the rule, even if the decision to discriminate was made long before that payment. Read more >>

June 6, 2016

Colorado’s New Pregnancy Accommodation Law

Effective August 10, 2016, Colorado employers will commit an unfair employment practice if they fail to provide a reasonable accommodation for an employee, or an applicant for employment, for health conditions related to pregnancy or physical recovery from childbirth, absent an undue hardship. Last week, Colorado Governor John Hickenlooper signed into law House Bill 16-1438 which requires Colorado employers to engage in an interactive process to assess potential reasonable accommodations for applicants and employees for conditions related to pregnancy and childbirth. The new law, section 24-34-402.3 of the Colorado Anti-Discrimination Act, also prohibits employers from denying employment opportunities based on the need to make a pregnancy-related reasonable accommodation and from retaliating against employees and applicants that request or use a pregnancy-related accommodation.

Posting and Notification Requirements

The new law imposes posting and notification requirements on Colorado employers. By December 8, 2016 (120 days from the effective date), employers must provide current employees with written notice of their rights under this provision. Thereafter, employers also must provide written notice of the right to be free from discriminatory or unfair employment practices under this law to every new hire at the start of their employment. Employers in Colorado also must post a written notice of rights in a conspicuous place at their business in an area accessible to employees.

For more information on this new law, read our full post about its requirements here.

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