January, 2021 | Fraser Blog

Out-of-State Workers Create Unanticipated Challenges for Employers During the Pandemic

The significant increase in remote workers due to COVID-19 has created unanticipated new challenges and questions for many employers, including: What are the state business qualifications, licensure, tax and employment law compliance implications for employing remote out-of-state workers?

The new work-from-home model ushered in over the last nine months has led many workers to disperse from the states where their employers are physically located to new jurisdictions. These cross-border work arrangements raise tax and employment law issues for employers and employees alike.

Employers “Doing Business”

Employers with facilities in only a single state may nevertheless have multiple obligations in other states. Pre-COVID, those obligations were typically known and planned; remote work across state lines opens new exposure.

In general, an entity is deemed to be “doing business” in any state where it has a non-insignificant and non-temporary business presence. Work performed by Company employees may be a sufficient nexus or presence for imposition of foreign-state regulation.

Qualification to do Business; Licensure: Registration in the home state of an enterprise does not necessarily allow that business to have a significant and continuous presence in another state yet avoid regulation. The enterprise may need to file for qualification to be permitted to maintain a presence. Similarly, if an enterprise is, or its workers are, required to be licensed to do business or provide a service in the home state is it not unlikely that licensure in the foreign state may be required or advisable. Other unanticipated state-specific or even locality-specific obligations may also arise.
Taxation: Doing business in a foreign state almost certainly imposes on the enterprise tax reporting and liability obligations of the foreign state – this of course is a state revenue issue. Doing business in a foreign state can subject the employer to that state’s various tax obligations including income, gross receipts, unemployment, and sales and use taxes.
Tax Withholding and Remittance: Typically, the employer’s tax withholding obligation is owed to the jurisdiction where taxed work is actually performed. However, this general rule is subject to numerous exceptions, state-to-state reciprocity agreements, and fact-specific rulings or other considerations.

Note that some states have temporarily waived certain tax obligations for out-of-state employers with employees temporarily working remotely as a result of the pandemic. Nevertheless, even in those states the “home state” employer may still have to withhold and remit foreign-state income taxes on behalf of their out-of-state employees.

Workers’ Compensation: Every state requires every employee to be covered by workers’ disability compensation insurance. Coverage may, or may not, follow the remote worker, and the particular situation of each remote worker’s duties in light of the laws of each involved foreign state need to be considered. Liability may be managed by limitation of duties and/or securing appropriate state-specific insurance coverage.

Tax Issues for Employees

Remote-working employees who during the pandemic are working in a new state, or newly working in multiple states, will need to consider the resulting tax consequences. This may be a benefit or liability. The writer’s son, a resident of high-tax-rate New York City who worked in Michigan for five months as the pandemic unfolded, may be able to claim earnings during that period to be taxed only in Michigan. Many persons are and may for an extended period be working away from their home state, creating a spiderweb of reporting and taxing concerns for them and their employers.

Labor and Employment Law Issues

Labor and employment laws are a combination of federal and state regulation. Federal law, where exclusive, has the advantage of being uniform across state lines. However, it is hard to identify an area of federal exclusivity – overtime, wage/hour, labor relations, employment discrimination, and other subjects all are nearly universally governed by overlapping state and federal rules, and there is essentially no consistency between federal, home state, and foreign state laws, regulations, and principles. Caveat emptor!

Seek Help for These Complex Issues

Having a remote workforce creates unanticipated and sometimes novel issues. Navigating those situations in our experience has requires an effective partnership between the enterprise and counsel.

If you have any questions, please contact Dave Houston or your Fraser Trebilcock attorney.

This alert serves as a general summary, and does not constitute legal guidance. All statements made in this article should be verified by counsel retained specifically for that purpose. Please contact us with any specific questions.

We have created a response team to the rapidly changing COVID-19 situation and the law and guidance that follows, so we will continue to post any new developments. You can view our COVID-19 Response Page and additional resources by following the link here. In the meantime, if you have any questions, please contact your Fraser Trebilcock attorney.

Fraser Trebilcock Shareholder Dave Houston has over 40 years of experience representing employers in planning, counseling, and litigating virtually all employment claims and disputes including labor relations (NLRB and MERC), wage and overtime, and employment discrimination, and negotiation of union contracts. He has authored numerous publications regarding employment issues. You can reach him at 517.377.0855 or dhouston@fraserlawfirm.com.

Upcoming Deadlines: (1) Form W-2 Reporting of Employer-Provided Health Coverage; and (2) Medicare Part D Notices to CMS

Reminder: Form W-2 Reporting on Aggregate Cost of Employer Sponsored Coverage

Unless subject to an exemption, employers must report the aggregate cost of employer-sponsored health coverage provided in 2020 on their employees’ Form W-2 (Code DD in Box 12) issued in January 2021. Please see IRS Notice 2012-09 and our previous e-mail alerts for more information.

The following IRS link is helpful and includes a chart setting forth various types of coverage and whether reporting is required; see here.

Please note this is a summary only and Notice 2012-09 should also be consulted. The IRS has issued questions and answers regarding reporting the cost of coverage under an employer-sponsored group health plan, which can be found here.

If you have questions regarding whether you or your particular benefits are subject to reporting, please feel free to contact us.

Deadline Coming Up for Calendar Year Plans to Submit Medicare Part D Notice to CMS

As you know, group health plans offering prescription drug coverage are required to disclose to all Part D-eligible individuals who are enrolled in or were seeking to enroll in the group health plan coverage whether such coverage was “actuarially equivalent,” i.e., creditable. (Coverage is creditable if its actuarial value equals or exceeds the actuarial value of standard prescription drug coverage under Part D). This notice is required to be provided to all Part D eligible persons, including active employees, retirees, spouses, dependents and COBRA qualified beneficiaries.

The regulations also require group health plan sponsors with Part D eligible individuals to submit a similar notice to the Centers for Medicare and Medicaid Services (“CMS”). Specifically, employers must electronically file these notices each year through the form supplied on the CMS website.

The filing deadline is 60 days following the first day of the plan year. If you operate a calendar year plan, the deadline is the end of February. If you operate a non-calendar year plan, please be sure to keep track of your deadline.

At a minimum, the Disclosure to CMS Form must be provided to CMS annually and upon the occurrence of certain other events including:

Within 60 days after the beginning date of the plan year for which disclosure is provided;
Within 30 days after termination of the prescription drug plan; and
Within 30 days after any change in creditable status of the prescription drug plan.

The Disclosure to CMS Form must be completed online at the CMS Creditable Coverage Disclosure to CMS Form web page found here.

The online process is composed of the following three step process: Enter the Disclosure Information;
Verify and Submit Disclosure Information; and
Receive Submission Confirmation.

The Disclosure to CMS Form requires employers to provide detailed information to CMS including but not limited to, the name of the entity offering coverage, whether the entity has any subsidiaries, the number of benefit options offered, the creditable coverage status of the options offered, the period covered by the Disclosure to CMS Form, the number of Part D eligible individuals, the date of the notice of creditable coverage, and any change in creditable coverage status.

For more information about this disclosure requirement (including instructions for submitting the notice), please see the CMS website for updated guidance found here.

As with the Part D Notices to Part D Medicare-eligible individuals, while nothing in the regulations prevents a third-party from submitting the notices (such as a TPA or insurer), ultimate responsibility falls on the plan sponsor.

This email serves solely as a general summary of the Form W-2 reporting requirements and CMS disclosure for Medicare Part D.

If you have any questions, please contact your Fraser Trebilcock attorney.

Congress Provides Welcome Relief for FSAs Amidst Continuing Pandemic

The COVID-19 pandemic continues to wreak havoc, affecting lives not only on a personal level, but on a professional one. Employers at a minimum must be well versed in various new employment and labor issues as well as employee benefit matters which greatly affect their workforce.

Due to closure of schools and day cares throughout 2020, many dependent care flexible spending accounts (FSAs) remain overfunded, leaving numerous employees with the threat of forfeited account balances. Similarly, due to delay and cancellation of certain medical procedures, health FSA amounts were also unused. While the IRS relaxed Code section 125 change in election rules in May of 2020, many employees simply did not have enough claims to use up the funds in their FSA accounts, resulting in forfeiture risks.

However, Congress passed the Consolidated Appropriations Act, 2021 (“Act”) late December 2020, which further relaxes the otherwise strict election changes rules of Code section 125, allows carryovers of account balances, extends grace periods, and increases the dependent age for dependent care FSA qualifying expenses.

Background

Once an election is made under a Section 125 cafeteria plan, that election is irrevocable for the entire plan year, unless (1) one of the mid-year qualifying change in election events occurs as set forth in Treas. Reg. 1.125-4; and (2) the employer’s cafeteria plan incorporates the mid-year change rule.

However, in May 2020, the IRS released IRS Notice 2020-29 which relaxed the Code section 125 rule requiring qualifying change in status events in order to make a mid-year change in election. With respect to FSAs, employers wanting to implement such changes could amend their plan documents in order to allow employees to revoke an election, make a new election, or decrease or increase an existing election applicable to a health or dependent care FSA on a prospective basis. These changes apply regardless of whether the basis for the election change meets the Treas. Reg. 1.125-4 requirements. Please note the term prospective. Employees could not retroactively change their elections.

This was a voluntary change and was only for the 2020 plan year.

Additionally, Notice 2020-29 provided flexibility and allowed employees to “spend down” their FSAs through December 31, 2020. As calendar year plans already allowed expenses to be incurred through December 31, 2020, this Notice did not provide relief in those circumstances. It instead applied to plans with grace periods that ended in 2020 or whose plan year ended in 2020. Upon amendment, participants in those plans could continue to incur eligible expenses through December 31, 2020 and submit requests for reimbursement consistent with plan terms.

This relief ended on December 31, 2020, and, aside from any already applicable grace periods, no relief was provided for employees who had unused FSA amounts after that date, which are subject to forfeiture.

Consolidated Appropriations Act, 2021

Relief is found in the newly passed Consolidated Appropriations Act, 2021.

This Act, in part, loosens certain rules associated with both health and dependent care FSAs. Specifically, upon amendment to appropriate plan documents, the Act allows for the following:

Carryover to the 2021 Plan Year: This provision allows any unused benefits or contributions in FSAs from plan years ending in 2020 to be carried over to the plan year ending in 2021;
- The Act states the carryover must follow rules similar to the health FSA rules… however, while health FSA carryovers are subject to a $550 cap, the Act specifically states that any unused benefits or contributions may be carried over.
- Significantly, dependent care FSAs were not previously allowed to have a carryover provision.
Carryover to the 2022 Plan Year: This provision allows any unused benefits or contributions in FSAs from plan years ending in 2021 to be carried over to the plan year ending in 2022;
- Again, the Act states the carryover must follow rules similar to the health FSA rules…
- This provision is important especially in situations involving the dependent care FSAs. These FSAs have a maximum reimbursement of $5,000 per calendar year. If an employee is allowed to carry over unused contributions into 2021 from 2020, but had also elected a full $5,000 for plan year 2021, s/he would have an overfunded account. This can be handled in one of two ways: (1) this additional carryover provision from 2021 to 2022, and/or (2) prospective election changes for FSAs for plan years ending in 2021 without regard to the strict status change rules (see last bullet below). With regard to the latter, employees can change their dependent care election for 2021 to prevent future contributions from being made.
Grace Periods: For health or dependent care FSAs that have a grace period for plan years ending in 2020 or 2021, the grace period may be extended from the traditional two months and 15 days to a full 12 months after the end of such plan year in order for unused benefits or contributions to be utilized.
Post-Termination Health FSA Reimbursements: Health FSAs are now allowed to continue to reimburse former participants for claims incurred post-termination similar to dependent care FSAs, namely:
- Employees who ceased participation in the plan during calendar years 2020 or 2021 may continue to receive reimbursements from unused benefits or contributions through the end of the plan year in which participation ceased.
Dependent Care FSA Age Out Rule: In order for eligible employees to receive reimbursement for dependent care assistance, their dependent must be under the age of 13 when the expenses were incurred. However, for employees who were enrolled in the dependent care FSA (as long as the regular enrollment period was on or before January 31, 2020), age 14 is substituted for age 13 for the last plan year, and, if the employee had an unused balance in the FSA for such plan year, age 14 is also substituted for the subsequent plan year with respect to those unused amounts.
Change in Election: Similar to the IRS Notice 2020-29, but for plan years ending in 2021, health and dependent care FSAs may allow employees to make mid-year election changes prospectively without regard to change in status rules.

To allow any of the above provisions, the cafeteria plan or arrangement including the FSAs must be amended to allow for such provisions no later than the last day of the first calendar year beginning after the end of the plan year in which the amendment is effective (so generally by December 31, 2022). The amendment may be retroactive as long as the plan is operated consistently with the terms of the amendment beginning its effective date.

Employer Action

Plan sponsors must determine whether they wish to proceed with any of the above provisions, largely in part depending on whether plan year 2020 would otherwise result in unprecedented forfeitures due to the pandemic. If so, they must communicate such provisions with their workforce and must administer the cafeteria plan or arrangement accordingly as of the amendment’s effective date, even if the amendment is adopted at a later date.

This alert serves as a general summary, and does not constitute legal guidance. Please contact us with any specific questions.

Elizabeth H. Latchana specializes in employee health and welfare benefits. Recognized for her outstanding legal work, in both 2019 and 2015, Beth was selected as “Lawyer of the Year” in Lansing for Employee Benefits (ERISA) Law by Best Lawyers, and in 2017 as one of the Top 30 “Women in the Law” by Michigan Lawyers Weekly. Contact her for more information on this reminder or other matters at 517.377.0826 or elatchana@fraserlawfirm.com.

Brian T. Gallagher is an attorney at Fraser Trebilcock specializing in ERISA, Employee Benefits, and Deferred and Executive Compensation. He can be reached at (517) 377-0886 or bgallagher@fraserlawfirm.com.

2021 Minimum Wage Rates — Important State and Federal Changes

Minimum wage laws are a mishmash of state and federal statutes and rules. Minimum wage rates and rules beginning in 2021 are an interesting reflection of this split of jurisdiction, and federal rulemaking under the outgoing administration. This blog highlights some of the more impactful changes.

State Of Michigan

The Michigan Minimum Wage Rate, currently $9.65 per hour, is consistently higher than the federal rate. This is permitted by federal law which allows each state to set a higher minimum wage than federal law requires, but not a lower rate. Michigan’s currently-applicable minimum wage law, the Improved Workforce Opportunity Wage Act of 2018 (“Michigan Minimum Wage Law”), provides for conditional annual increases in the state minimum wage. The scheduled rate for 2021 is $9.87 per hour, however, that rate increase does not go into effect when the state’s annual unemployment rate for the preceding calendar year is above 8.5 percent.

The Michigan Department of Labor (“MDOL”) recently announced that the scheduled 2021 minimum wage increase is unlikely to go into effect because the unemployment rate is likely to be over the 8.5% “threshold when [the Bureau of Labor Statistics] releases the final 2020 unemployment numbers for Michigan.”

Assuming the MDOL prediction is correct, then effective Jan. 1, 2021:

Michigan’s minimum wage will remain at $9.65 an hour.
The 85 percent rate for minors age 16 and 17 remains $8.20 an hour.
Tipped employees rate of pay remains $3.67 an hour.
The training wage of $4.25 an hour for newly hired employees ages 16 to 19 for their first 90 days of employment remains unchanged.
Overtime requirements remain the same under the Improved Workforce Opportunity Wage Act.

Under the Michigan Minimum Wage Law, Michigan’s minimum wage rate will increase to $9.87 in the first calendar year following a calendar year for which the annual unemployment rate is less than 8.5 percent. Under that statute, future increases in the minimum wage are conditionally scheduled for future years.

Federal Rules

Important changes under federal law include significant modification to “tipped employee” rules and increased minimum rates for certain workers.

Tipped Employee Rule Changes – Again

On December 22, 2020, the United States Department of Labor (“USDOL”) announced its “final rule” revising prior “tipped employee” regulations implemented under earlier language of the federal Fair Labor Standards Act (“FLSA”). Employers subject to these rules need to be very familiar with these changes as this is a fertile area of stringent federal enforcement. The new rules go into effect 60 days after this announcement, or on or about February 21, 2021.

The “general rule” is that tipped employees must be allowed to retain all their tips, unless the employer has adopted a qualified “tip pool.” Rules for such tip pools are complicated and changed significantly in March of 2018; the new rules replace those prior standards.

In brief, the February 2021 rules:

Continue to allow mandatory tip pooling arrangements.
Continue to allow the employer to pay a lower “tipped employee” rate and take a “tip credit” toward the minimum wage rate the employer would be required to pay if the tip credit is not applicable.
If the employer takes the tip credit it may not include in a mandatory tip pool, employees who do not routinely receive tips (such as back of the house staff).
An employer that does not take the tip credit but instead pays a set hourly rate at or above the applicable minimum wage for non-tipped employees may include employees who do not routinely receive tips in a mandatory tip pool.
Whether or not a tip credit is taken, managers and supervisors (as determined by the FLSA “duties” test) are prohibited from participating in a tip pool.
Tip pool funds must be paid out at least as often as the employer pays out base hourly wages. And,
An employer may take a tip credit for employee time spent performing tasks that do not generate tips (such as stocking, rolling silverware) if the non-tip generating duties relate to the tipped occupation and are performed contemporaneously with, or immediately before or after, the duties for which the employee does receive tips.

Federal Contract Workers

Workers performing work on or in connection with covered federal contracts must, effective January 1, 2021, be paid a minimum wage of $10.95 per hour, pursuant to Executive Order 13658.

The Competition for Workers

Due to the COVID slowdown in the economy upward wage pressure is not anticipated during 2021 according to commentators. However, as recently as this month, the following employers have adopted minimum wage rates significantly above those required by law. Some examples of prominent mid-Michigan and state-wide employers include:

Bank of America: $20
JP Morgan Chase: $16.50–$18 (based on location)
Charter/Spectrum: $16.50
Huntington National Bank: $16
Hobby Lobby $17 (for full-time employees)
Costco: $15
Target: $15
Best Buy: $15

Certain counties, municipalities and economic zones also have adopted minimum wage rates higher than the applicable state rate, although none in Michigan.

If you have any questions, please contact Dave Houston or your Fraser Trebilcock attorney.

Nursing Homes: Who Can Consent to Your Loved One’s COVID-19 Vaccine?

COVID-19 vaccines are here! The hardest hit individuals have been our front-line health care workers and loved ones in nursing homes and other congregate homes for the elderly and infirm. It is fitting that these two groups are the first among us to receive the vaccine.

Consent Forms Will Be Required

Lansing, Detroit, and Grand Rapids nursing home administrators have confirmed that they will require a consent form before any resident receives the vaccine. It is likely that most residents and most nursing home administrators will want all the residents vaccinated to obtain the best protection the vaccine affords to the community. Without the necessary consent forms in place, the delivery of COVID-19 vaccines to residents of nursing homes and congregate care communities will be delayed.

Who Can Sign the Consent Forms?

While logistics are still being worked out, we know that consent forms for COVID-19 vaccines can be signed by residents who:

are mentally competent
have a patient advocate who will consent (provided the patient advocate’s authority has been triggered by two doctors certifying that the patient is unable to participate in medical heath treatment decisions)
have a guardian who will consent

What If No One is in Place to Consent?

If your loved one is in a congregate care community and does not fall into one of the above categories, you should file a petition with the probate court for a temporary guardian with authority to consider and consent to the COVID-19 vaccine. At the same time, you may wish to consider requesting that the Court grant limited or full authority as guardian and conservator to assist your loved one with additional health care and financial decisions.

Probate courts are aware of this important issue and are ready to facilitate prompt review of such temporary guardianship petitions. One such Court, the Kent County Probate Court, issued a press release today urging action by families and nursing homes alike to take immediate action to enable prompt delivery of COVID-19 vaccines. News Release, Kent County Probate Court, Grand Rapids, MI – January 4, 2021.

In the News Release, Kent County Chief Probate Judge David M. Murkowski is quoted as saying:

“While many residents of nursing homes and family members have already taken the necessary legal steps to allow for important medical decisions to be made on their behalf, the court wants to make sure that there are no delays in vaccinating vulnerable populations. Family members have an obligation to waste no time in making sure that the proper steps have been taken to make sure their incapacitated loved ones can be vaccinated.”

Nursing Homes Can Also Be Proactive to Get Consent

Care facilities also face the issue of obtaining consent for vaccinating their residents who lack mental capacity, and have no patient advocate or guardian, or any family member willing to petition to become guardian. This type of situation places the facility in the position of petitioning for appointment of a public guardian authorized by the Court to act on the question of consent to vaccination and other health care decisions as may be needed.

Nursing home administrators should survey their residents to determine which residents cannot sign COVID-19 vaccination consent forms and help facilitate action by the patient advocate, guardian, or family member willing to petition probate court. Absent one of these options, nursing home administrators should file a petition seeking either a court-ordered vaccination or the appointment of a limited guardian with the power to consider and consent to the vaccination.

Questions? We can help.

Fraser Trebilcock’s Trusts & Estates lawyers are up to date with the current developments in this rapidly evolving area of public health and elder law. If you have questions, or need help, give us a call.

Chair of Fraser Trebilcock’s Trusts and Estates Department, attorney Marlaine C. Teahan is a Fellow of the American College of Trust and Estate Counsel, and is the past Chair of the Probate and Estate Planning Section of the State Bar of Michigan. For help getting necessary legal authority for your loved one’s COVID-19 vaccine consent form, contact Marlaine at 517.290.0057 (cell) or mteahan@fraserlawfirm.com.

If you would like to talk with an attorney about putting legal plans in place, contact attorney Melisa M. W. Mysliwiec. Melisa focuses her work in the areas of Elder Law and Medicaid planning, estate planning, and trust and estate administration. She can be reached at mmysliwiec@fraserlawfirm.com or 616-301-0800.