As a result of a spike in COVID-19 cases due to the Delta variant, the CDC now recommends that everyone, including individuals who are fully vaccinated, wear face coverings when indoors in places of substantial or high community transmission. According to the CDC, infections happen only in a small proportion of people who are fully vaccinated, and the same is true with the Delta variant. However, preliminary evidence indicates that fully vaccinated people who become infected with the Delta variant can spread the virus to others. Thus, the CDC recommends that vaccinated individuals: Continue Reading CDC Announces Revised Guidelines for Fully Vaccinated Individuals

The subject of taxation of employee benefits made rare headlines earlier this month when a New York grand jury indicted the Trump Organization and its chief financial officer, Allen Weisselberg, for tax crimes relating to unreported fringe benefits. The indictment alleges that Weisselberg intentionally failed to report and pay taxes on over $1.75 million of indirect employee compensation. Such indirect compensation is alleged to include lease payments for Weisselberg and his spouse’s apartment and their personal cars, utility bills, garage expenses and private school tuition for members of Weisselberg’s family.

In support of the criminal charges in this case, the indictment describes concerted, years-long efforts by Weisselberg and the organization to conceal these payments, while at the same time internally tracking them as part of Weisselberg’s employee compensation. But in less nefarious-seeming instances, employer-provided benefits for housing, automobile use and tuition are actually pretty common, and sometimes non-taxable.  So how do you know when such an item is taxable employee compensation and must be reflected in employee pay, and when it isn’t?

What are fringe benefits?

According to the IRS, a fringe benefit is a form of pay for the performance of services. This is naturally a broad category.  For example, an employee receives a fringe benefit when an employer allows the employee to use a business vehicle to commute to and from work.

Unless specifically excluded by the tax law, any fringe benefit provided by an employer to an employee is taxable, and must be included in the employee’s pay and reported on their annual Form W-2.  Luckily, there are a number of such exclusions. The most common tax-free fringe benefits include group health insurance, and contributions to qualified retirement plans (e.g., 401(k) plans), Health Savings Accounts (HSAs) and flexible spending arrangements (FSAs).  But what about the other fringe benefits mentioned above that employers may provide?

Rent/Lodging Expenses    

The Internal Revenue Code (“Code”) provides a very narrow set of circumstances in which an employer’s payment or reimbursement of an employee’s regular housing expenses could be excluded from an employee’s pay.  To qualify for the lodging exclusion under Section 119 of the Code, the lodging must be provided: (1) for the employer’s convenience; (2) on the employer’s business premises; and (3) as a condition of the employee’s employment (i.e., the employee is required to accept the lodging).  If these conditions are met, the value of lodging provided to the employee, as well as the employee’s spouse and dependents, may be excluded from the employee’s pay.

In contrast to housing expenses that mostly benefit an employee personally, employer reimbursement of substantiated hotel and other travel expenses incurred by employees on bona fide business trips for employers are commonly excludible from an employee’s pay.

Auto Allowances/Use of Company Vehicles

An employee’s personal use of an employer-provided automobile any more than a minimal amount is generally considered compensation that must be included in an employee’s gross income. There are a variety of ways that the income tax regulations permit employers and employees to account for the taxable portion of an employee’s use of an employer-provided automobile.  One of the more common methods used by employers for calculating employee compensation is the cents-per-mile rate set annually by the IRS.

Parking and Transit

Another common, transportation-related fringe benefit is parking and/or transit passes. For 2021, benefits up to $270 per month can be excluded from employee income for both qualified parking and/or for combined commuter highway vehicle transportation and transit passes.  Any benefit provided in excess of these annual limits must be included in employee pay.

Tuition

Section 127 of the Code allows a special exclusion from employee pay for up to $5,250 per calendar year in expenses paid toward qualified educational assistance programs. For purposes of this exclusion, “educational assistance” means payment by an employer, of expenses incurred by or on behalf of an employee, for education of the employee (including, but not limited to, tuition, fees, and similar payments, books, supplies and equipment).  An employer may also generally provide courses of instruction for an employee (including related books, supplies and equipment— but not lodging, transportation or meals) on a tax-free basis.

In addition, under the 2017 Tax Cuts and Jobs Act, employer payments toward qualified student loans (including principal or interest), as either payments to employees or direct payments to lenders, are excludible from an employee’s pay through December 31, 2025.

In summary, it is important for employers to be aware when they provide employees with fringe benefits, at the time the benefits are provided, to ensure that such benefits receive proper tax and accounting treatment.  If an employer is unsure whether— and to what extent— a particular fringe benefit should be included in an employee’s pay, it is always prudent to seek advice from a competent professional.

Written by Timothy S. Klimpl and Jeffrey M. Beck*

*Jeffrey M. Beck is a 2021 University of Connecticut School of Law Summer Associate at Carmody Torrance Sandak & Hennessey LLP

This information is for educational purposes only to provide general information and a general understanding of the law. It does not constitute legal advice and does not establish any attorney-client relationship.

The end of Connecticut’s legislative session always generates an influx of newly passed bills that affect employers. One such bill that was signed into law by Governor Lamont is Public Act 21-30, “An Act Concerning the Disclosure of Salary Range for a Vacant Position.” This law will go into effect October 1, 2021 and requires the disclosure of wage ranges by employers. It also extends the prohibition on sex-based wage discrimination.

Under the new law, employers must disclose the wage range for a position to a job applicant, either (a) at the applicant’s request, or (b) before or at the time the applicant is offered the position. In the case of a current employee, employers must disclose an existing employee’s wage range (a) at the hiring of the employee, (b) a change in the employee’s position with the employer, or (c) at the employee’s first request for a wage range. The law defines “wage range” as “the range of wages an employer anticipates relying on when setting wages for a position,” and may refer to any applicable pay scale, previously determined range of wages for the position, actual range of wages for those employees currently holding comparable positions or the employer’s budgeted amount for the position.

Public Act 21-30 also lowers the standard for determining gender wage discrimination from “equal work” to “comparable work.” That is, Connecticut law previously prohibited employers from paying employees at a rate less than what they pay employees of the opposite sex for “equal” work on a job, the performance of which requires “equal” skill, effort, and responsibility.  Public Act 21-30 removes the “equal” work standard, and replaces it with a “comparable” work standard, thereby making it easier to prove discrimination. Under the new standard, employers cannot discriminate on wage rates paid to employees of opposite sex for “comparable work on a job, when viewed as composite of skill, effort and responsibility and performed under similar working conditions.”

Employers can only justify differences in pay if it is based on (a) a seniority system, (b) a merit system, (c) a system that measures earnings by quantity or quality of production, or (d) a differential system based upon a bona fide factor other than sex, “including, but not limited to, education, training, credential, skill, geographic location or experience.” An employer must prove the bona fide factor is not based upon gender-based difference in pay but is job-related and consistent with business necessity. If an employee can demonstrate an existing alternative employment practice that serves the same business purpose without such a wage difference, the employer’s defense would not hold. The law also prohibits employers from discharging, expelling or discriminating against any person who has opposed any discriminatory compensation practice or because such person filed a complaint, or testified or assisted in filing a Department of Labor complaint or lawsuit.

Employers should make note of these new requirements and standards to ensure compliance by the October 1, 2021 effective date.

This information is for educational purposes only to provide general information and a general understanding of the law. It does not constitute legal advice and does not establish any attorney-client relationship.

Written by Nick Zaino and  Hollianne Lao*

*Hollianne Lao is a 2021 University of Connecticut Summer Intern at Carmody Torrance Sandak & Hennessey LLP.

The IRS recently issued FAQs regarding the temporary, 100% COBRA subsidy created by the American Rescue Plan Act of 2021 (“Rescue Plan Act”).  This subsidy is available to “Assistance Eligible Individuals” for COBRA continuation coverage during the period April 1, 2021 through September 30, 2021.  We previously covered developments relating to the COBRA subsidy in our prior posts on April 13th and March 29th.

Under the Rescue Plan Act, employers must advance and then claim reimbursement for the COBRA subsidy through a premium credit against their Medicare taxes.  This new IRS guidance, Notice 2021-31, offers guidance on a variety of topics, including who is eligible for the subsidy and the meaning of “involuntary termination” of employment.  We’ve pulled a few notable takeaways from these FAQs, which you can find here.

As the economy and public health situation gradually move to a more hopeful phase in Connecticut, employers and HR administrators will benefit from staying on top of current legal developments and trends in employee benefits.  Let’s discuss two timely topics in employee benefits: (1) incentives for getting COVID-19 vaccines; and (2) extended time for employees to use balances in their health FSA and dependent care assistance program accounts.

Incentives for COVID-19 Vaccines: How Much Is Too Much?

As the state and national rollout of COVID-19 vaccines continues, some large employers have already stated their intentions to provide employees a few hours of PTO, or modest cash bonuses, to allow and encourage employees to get vaccinated. While certainly well intended, employers and HR departments should be mindful of certain legal traps surrounding these types of incentives.

In particular, the Americans with Disabilities Act (ADA) places strict limits on employers conducting medical examinations, or making disability-related inquiries to employees in connection with a “wellness program”. Wellness programs with incentives that include medical exams or involve questions that are likely to elicit information about disability generally must be voluntary. However, under current law, there is a lack of clarity about how generous an incentive may be in a wellness program before the program is no longer considered “voluntary”. As a result, last month a number of prominent trade groups including the U.S. Chamber of Commerce requested guidance from the U.S. Equal Employment Opportunity Commission (EEOC) on this very subject in connection with COVID-19 vaccines.

Good News for People Who Like Good News: Extended Time to Use FSA Balances

In 2020, significant balances in employees’ health FSA and dependent care assistance program accounts went unused due to the pandemic. Normally, these tax-favored benefits are subject to the cafeteria plan “use or lose” rules, under which unused balances are generally forfeited by employees at the end of a plan year, with limited exceptions. At the end of last year, Congress passed relief giving employees an additional 12 months to use any unused amounts in their health FSA and dependent care accounts from both the 2020 and 2021 plan years. However, because these extensions are optional to employers, cafeteria plans must be amended to allow them. As additional relief, the legislation gives employers additional time to adopt the required amendment(s). Employers have until the last day of the calendar year that follows the end of the plan year to which an amendment applies, so for calendar year plans, essentially an additional year to adopt the amendment.

The FSA relief also includes: increased flexibility to make mid-year enrollment changes; post-termination reimbursements from health FSAs for the 2020 and 2021 plan years; and special relief relating to when a dependent “ages out” of a dependent care assistance program during the COVID-19 public health emergency.

Gov. Ned Lamont has signed into law House Bill 6515, entitled “An Act Creating a Respectful and Open World for Natural Hair”, commonly known as the “CROWN Act”, which makes it illegal to discriminate based on a person’s hair texture or protective hairstyle in employment, public accommodations, housing, credit practices, union membership, and state agency practices.  The legislation is aimed at protecting people of color from discrimination based upon their hair.

The legislation does so by changing the legal definition of the word “race” to specifically include “ethnic traits historically associated with race, including, but not limited to, hair texture and protective hairstyles.”  Under the bill, protective hairstyles include “wigs, headwraps and hairstyles such as individual braids, cornrows, locs, twists, Bantu knots, afros and afro puffs.”

The CROWN Act is effective immediately.  In passing this legislation, Connecticut joins several other states, including New York and New Jersey, in banning discrimination based on an individual’s hair.

If you have questions about the CROWN Act or how it may impact your workplace’s dress or appearance code, please contact a member of Carmody’s Labor & Employment Team.

Connecticut’s Sexual Harassment Training Deadline Extended to April 19, 2021

The CHRO has announced a third extension of the deadline to provide sexual harassment training for all employees, including supervisors and non-supervisors.  In November 2020, the CHRO had announced that the deadline would be extended for a second time until February 9, 2021.  Now, the training deadline has been similarly extended to April 19, 2021 pursuant to the same extension of the declaration of public emergency and recently issued Executive Order 10A.

President Biden Nominates Jennifer Abruzzo As The NLRB’s Next General Counsel

President Biden nominated Jennifer Abruzzo to serve as General Counsel of the National Labor Relations Board (“NLRB”).  By way of background, the NLRB’s General Counsel is the agency’s chief attorney and decides which cases it will bring and issues guidance memorandums on important labor issues.  Attorney Abruzzo previously spent 23 years at the NLRB and was briefly acting General Counsel before previous NLRB General Counsel Peter Robb, who President Biden terminated on January 22.  Most recently, Attorney Abruzzo served as special counsel to the Communications Workers of America.  We expect that Attorney Abruzzo will help establish President Biden’s pro-employee agenda at the NLRB.

We are continuing to monitor developments at the CHRO and the NLRB and will keep you updated.

Partial Plan Termination Relief

Many employers may be facing what the IRS guidance refers to as a partial plan termination. Generally, this occurs when the number of employees participating in a qualified retirement plan, such as a 401(k) plan, decreases by 20% or more during the Plan Year. This is calculated by dividing all employer initiated severances by the number of active participants, including employees who became participants during the year.

If there is a partial plan termination, any participant who left during the Plan Year, both voluntarily and involuntarily, whose account was not fully vested must be vested.

The stimulus bill provides relief from a partial termination for any Plan Year that includes the period beginning on  March 13, 2020 and ending on March 31, 2021 if the number of active Participants covered by the Plan on March 31, 2021 is 80% of the number of active Participants on March 13, 2020. An employer may be able to avoid a partial plan termination by rehiring employees by March 31, 2021.

Qualified Disaster Relief Available for Retirement Plans

For disasters other than COVID-19 disasters, which are declared to be a disaster by the President between January 1, 2020 and February 25, 2021, enhanced distribution and loan provisions are available. For distributions made prior to June 25, 2021, amounts up to $100,000 may be withdrawn and are not subject to the 10% early distribution tax. The distribution can be taxed over three years and there is a right to repay the distribution over three years.

There are expanded loan limits available as well as a 1 year delay for repayments for qualified individuals.

This is an optional provision and if adopted, plan amendments must be made by the end of the 2022 Plan Year.

Deductibility of Retirement Plan Contributions for PPP Loan Recipients

Expenses paid with forgiven PPP loans are now deductible due to a provision in the stimulus bill. The IRS had taken the position that no deduction is allowed for an expense that is otherwise deductible if the payment of the expense results in forgiveness of a PPP loan. Under this IRS position, payroll costs incurred during the covered period, which include retirement plan contributions, were not deductible. The Stimulus bill reverses this position for tax years ending after March 27, 2020.

Earlier this month, a Massachusetts federal court dismissed discrimination and retaliation claims against Whole Foods Market and its parent company Amazon alleging that Whole Foods workers faced discipline and retaliation, including docked pay, cut hours, and even termination, for wearing face masks and other paraphernalia bearing the slogan “Black Lives Matter” at work.  Whole Foods responded that the “Black Lives Matter” masks violated the Whole Foods employee dress code, but workers claimed that those violating the dress code to show support for the National Rifle Association or social causes like LGBTQ+ rights did not face similar discipline.

While recognizing that it would have been “more honorable” for Whole Foods and Amazon to “enforce their policies consistently and without regard for the messaging, particularly where the messaging selected for discipline conveys a basic truth,” the court nonetheless held that the workers’ claims should be dismissed because Title VII of the Civil Rights Act of 1964 “does not protect one’s right to associate with a given social cause, even a race-related one, in the workplace.”

Instead, the Court explained that the workplace civil rights law prohibits discrimination based upon an employee’s protected characteristic. The Whole Foods workers’ claims fell short because “no plaintiff alleges that he or she was discriminated against on account of his or her race or that he or she was discriminated against for advocating on behalf of a co-worker who had been subject to discrimination.”

The Massachusetts court ultimately described the workers’ claims as a First Amendment free speech case framed as civil rights case because Massachusetts does not extend First Amendment protections to the private workplace. This may not be the case in Connecticut.  Connecticut General Statute 31-51q prohibits any employer, public or private, from discharging or disciplining an employee on account of the exercise by the employee of rights guaranteed by the First Amendment and by similar provisions of the state constitution.  Accordingly, while employees may not have a federal right to associate with a particular social cause at work, employers in Connecticut must carefully consider whether any anticipated discipline based on the expression of political or social activism in the workplace may run afoul of Connecticut’s enhanced workplace speech protections.

If you have any questions about employee speech or social activism in the workplace, please contact a member of Carmody’s Labor & Employment Team.

HR administrators, employers, employees, and even independent consultants are all well-advised to remember the approaching March 15th deadline for the distribution of annual bonuses and many other forms of compensation that were earned in 2020.

Ever-lurking tax traps wreaked on businesses and individuals by Section 409A of the Tax Code makes each year’s due date to meet 409A’s “short-term deferral” exemption a critical one.  For calendar year employers and employees, this deadline is March 15. (Carmody note: employers with a different tax year may have additional time, but not less.)

To be clear, there is not a blanket requirement that all compensation earned in a prior year must be paid by March 15th (or a later end date of an employer’s short-term deferral window, in the case of a non-calendar year employer).  But in order to exempt deferred compensation from Section 409A using the short-term deferral exemption, the prior year’s earned compensation must be paid by this date.  Other exceptions may separately exempt certain deferred compensation from Section 409A, such as severance pay resulting from an involuntary termination, or qualifying equity compensation.

In addition, losing exemption from Section 409A does not mean that the law will automatically come after taxpayers in the manner famously referenced by Shakespeare.  However, 409A imposes strict limits on the time and form of payment of deferred compensation, including general prohibitions on the acceleration and subsequent deferrals of compensation.  In other words, if a deferred compensation arrangement does not qualify for an exemption from 409A, it has little room to maneuver.

Violations of Section 409A are harsh, particularly on employees.  If a covered arrangement fails to comply, an employee or other service provider is treated as having received income the first tax year that the deferred compensation was no longer subject to a “substantial risk of forfeiture” (generally, when the compensation vests), regardless of whether payment has been made.  In addition, a 20% excise tax is imposed on the employee, plus stepped-up interest for late tax payments, which may go back for several years.  Employer withholding and reporting requirements are also triggered.  In other words, not the ideal outcome for a deferred compensation program.

If you are an employer or individual with compensation that was earned in 2020 and due to be paid or received in 2021, remember to beware the Ides of March 15th, and plan ahead with legal counsel when necessary.