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Michael F. Yates & Company, Inc.
 HELPING MANAGE YOUR COMPANY'S MOST PRECIOUS RESOURCE |
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| ...from the HR Perspective |
| Human Resource Update | June 2010 |
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EFAST2 requires that all Form 5500s be filed electronically beginning with the 2009 plan year. To facilitate this transition, the Department of Labor has offered four web seminars. Recordings of these seminars are available on the Department of Labors website. Click Here
In addition, the Department of Labor has recently released six EFAST2 guides to help smooth the learning curve. The guides may be found by clicking here. |
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... the art of the Resume!
With so little to laugh about these days ...
I offer a little humor this month to get our newsletter started. Obviously the message here is to beware of the 'resume'. CHECK -VERIFY and DOUBLE CHECK information is the best advise I can give.
Oh ... and by the way ... the interview is many times the best day of the applicants life. So be cautious.
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If you find value in this newsletter please let us know. Feel free to call me with a comment and/or ask a question at any time (908-689-4200) or send me an email (myates@mfyco.com). We offer this timely information as another benefit of your relationship with our company. If you feel a friend or colleague would benefit from receiving our newsletter, please feel free to forward a copy.
Sincerely,
Mike
Michael F. Yates
President
PS: You can view all of our newsletters by clicking the 'newsletter archives' link at our company website (www.mfyco.com).
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I Could Have Had a G8 - H.R. 3962 - More Taxes
The regular G8 meeting in Toronto and the subsequent G20 meeting have reaffirmed the fact that our governments are not ready to bite the bullet on deficit spending. At one end of the pole, Germany was criticized by being too intense, and, at the other, some countries made their cases for special reprieves. None of this produced the results that the financial world was looking for, and the Monday and Tuesday markets confirmed that feeling.
One remarkable event that preceded the G8 meeting was almost totally ignored by the US media. That event was the resignation of the US Budget Director Peter Orszag. The main reason for Mr. Orszag's resignation was his frustration over the absence of a tough plan to address the climbing US debt. This foreshadowed President Obama's speech at the G8 in which he said he will reduce the US fiscal deficit to 3% of the gross domestic product by 2015 - which is the year before end of his second term. That promise was received with skepticism by some of the attendees given Mr. Orszag's resignation. The problem is simple: the US has to do something about the deficit, and do it soon. Reining in spending is the answer, but that produces few friends. It is easier to hope for better times and perhaps take a swat at the "rich" and corporations in the form of increased taxes.
During the G8/G20 and the week leading up to it, additional, towns, cities, and States admitted they have severe budget problems. Also during that week, the President criticized the corporations which are building up cash reserves. It seems that our governing bodies, at all levels, need to take a lesson from the corporations.
What does this have to do with Human Resources, retirement plans, and actuarial valuations?
On Friday the 25th the President signed a new law, H.R. 3962, permitting companies to extend the funding of corporate pension deficits. While this seems to be a sympathetic move, part of the reason for doing so was to provide additional funding for a concurrently adopted Medicare provision (the funding to come from smaller tax deductions from smaller pension contributions). This extension of pension funding only applies if the corporation is not "guilty" of exorbitant executive pay, high dividends or stock buy-backs. The law permits corporations to adopt a "2 + 7" plan - 2 years of interest only payments and then a 7 year amortization schedule, or a straight 15 year amortization schedule. As usual with this type of law, integration with prior law and regulations was not addressed before its adoption. The Regulation writers are already busy trying to make it work.
As you might expect, multi-employer plans received an even bigger break. They may adopt a 30 year amortization schedule. Some believe that the extension of the funding periods was done mainly as a gift to the unions which are now facing problems they had never considered, and that a bone had to be thrown to corporations to disguise that fact. If your organization participates in a multi-employer plan, your input to the corporate trustees is even more important now. Multi-employer plans have a habit of increasing benefit levels. Due to the combined shrinking of membership and assets, some have lowered benefit levels for newly participating companies, and are considering larger contributions for increased benefit levels. Expect to see some of this in your next negotiations.
The Medicare related portion of the bill restores the 21% cut in the reimbursement to doctors that was enacted earlier this year - but only through November - after the elections.
To further address the deficit, additional tax possibilities are being looked at, but will not to be brought to the fore before the November elections. In relation to executive compensation, one of these includes an additional increase in the top marginal rate beyond what will be restored by the lapsing of the present reduction provisions. Spending cuts are not now being addressed by the majority in Congress - I wonder if the majority holds if they will be addressed after the November elections.
A final thought: Admiral Michael Mullen, Chairman of the Joint Chiefs of Staff said that the US national debt was the largest threat to national security, bigger than even that posed by al-Qaeda or weapons of mass destruction.
If you feel strongly about these issues, please write your representatives in Congress. |
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Call: 908-689-4200 to contact a
MFYCO professional consulting associate.
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France to Raise Retirement Age
Assuming President Nicolas Sarkozy's most recent plan comes to fruition with approval by Parliament in September, France will raise the normal retirement age from 60 to 62 by 2018 as part of an overhaul of their pension system. The increase in age is designed to reduce France's pension cost and bring public borrowing down. Under the plan, French workers will have to pay contributions for a longer period of time and new taxes will be levied against high-income earners and on capital gains. These changes are being implemented to help plug a gaping hole in pension funding. The new rules will also require employees to work for a minimum of 41.5 years to qualify for a full pension. However, those who began working before the age of 18 and those with "difficult" jobs can still retire at age 60.
These changes also bring hope of getting the country's public finances under control. Last year, France's budget deficit was 7.5 % of the gross domestic product. The French government has vowed to make it lower than 3% by 2013. This reform is expected to save nearly $29.3 billion (19 billion Euros) by 2018. The new taxes on wealthy households combined with an increase in taxes on stock options, capital gains and dividend income will bring in an extra $4.6 billion (3.7 billion Euros) in 2011 alone.
Socialist lawmakers and unions reacted angrily to the announcement of these changes. Tens of thousands of people marched through Paris to protest the new plan. Several unions have already called a nationwide strike. Last week, transport workers, teachers, postal workers and others staged wildcat strikes. France's biggest union, the CGT, called it a "flagrant injustice" to put the burden of reform on workers. Several unions also say it will be unfair to penalize women who often spend more time out of the work force raising children. They argue those women will not be able to retire until age 67 if they want full benefits. However, France currently has the lowest retirement age in Europe and the new requirements compare favorably with more drastic changes elsewhere in Europe. Germany, for example, will be gradually rising their retirement age from 65 to 67 between 2012 and 2029.
Where does the US stand? The US Social Security retirement age for a full benefit will rise from age 66 (now) to 67 by 2027 (if year of birth is 1960 or later, full benefit retirement age is 67). |
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What would you like to see in a future issue?
Contact our office with your suggestions.
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401(k) Successor Plan Rule
Under the successor plan rule, if a 401(k) plan is terminated, a new 401(k) plan may not be established until 12 months after all the assets have been distributed from the plan. Generally, distributions of elective deferrals may not occur before a participant reaches age 59 ½. This rule was established because Congress did not want employers to circumvent the age 59 ½ distribution limitation by terminating a 401(k) plan, making distributions and then immediately starting another 401(k) plan. If a successor plan is established, there is no plan termination distributable event to permit the distribution of electives. If a plan sponsor fails to comply with the rule, both the original 401(k) plan and its successor may lose their tax-qualified statues, resulting in penalties for both the plan sponsor and the participants.
How does it work?
Example 1: an employer terminates its 401(k) plan on July 15, 2010 and distributes all elective deferrals by September 25, 2010. A new 401(k) plan may not be established until 12 months after the distribution of all elective deferrals, or September 25, 2011.
Example 2: using the example above, assume that the plan sponsor established a profit sharing plan as of September 1, 2011 instead of waiting until September 25, 2011. This will result in a loss of favorable tax treatment by both the terminated 401(k) plan and the new profit sharing plan because the new plan was established during the 12 month restricted time.
Exceptions to the Successor Plan Rule
Other plans may be established after a 401(k) plan has been terminated without the 12 month wait. They are:
- Employee Stock Ownership Plans (ESOPs);
- Defined benefit plans (including cash balance plans);
- 403(b) plans;
- 457(b) plans;
- SIMPLE IRAs; or
- Simplified Employee Pension Plans (SEPs).
The 2% exception to the Successor Plan Rule
If at all times during the above period, fewer than 2% of the employees who were eligible under the 401(k) plan as of the date of plan termination are eligible under the other defined contribution plan, that plan is not an alternative defined contributions plan and the successor plan rule would not be violated. |
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Some States Take Action To Cut Pension Costs
This year several states are acknowledging that they have promised their employees pensions that they can no longer afford and are cutting benefits to appease taxpayers and to try and trim budget deficits. Because lawmakers want to avoid legal battles with unions,most States are allowing public workers to keep building up their pensions at the same rate as they are now and nearly all of the cuts apply only to workers not yet hired.
Here is a breakdown of the changes made so far:
· New Jersey - will not give anyone pension credit unless they work at least 32 hours a week.
· Arizona, New York, Missouri and Mississippi - will make people work more years to qualify for a pension.
· Virginia - requiring workers to pay into the state pension fund for the first time.
· Illinois - raised its retirement age to 67, the highest of any state and capped public pensions at $106,800 a year. The governor of Illinois said that the State pension cuts that were enacted in March will save $300 million in the first year alone.
· Colorado - unlike all other states, has imposed cuts on current and recently retired workers. In doing so, they pruned a 3.5% annual pension increase to 2%. They think this will be the fastest way to revive its pension fund which was projected to run out of money by 2029. Not surprisingly, retirees have sued to block this reduction.
· California - the governor is bargaining with the 12 unions that represent public employees. Last week four of them agreed to let the state cut its own contributions by requiring current workers to pay more for the same pension. The workers will now contribute 10% of their pay to the state pension fund.
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Plan Reporting Calendar
2010 FILING DUE DATES FOR
CALENDAR YEAR PLANS
This calendar is not intended to be an exhaustive listing of every due date under the Code or ERISA, but rather reflects some of the most common due dates. View Calendar |
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Tax Treatment of Health Care Benefits Provided
With Respect to Children Under Age 27
On May 17th, the Internal Revenue Service issued Notice 2010-38 that provides guidance on the tax treatment of health coverage for children up to age 27 under the Affordable Care Act Service. Notice 2010-38 addresses a number of questions regarding the tax treatment of such coverage.
Background
The Affordable Care Act requires group health plans and health insurance issuers that provide dependent coverage of children to continue to make such coverage available for an adult Child until age 26. The Affordable Care Act also amends the Internal Revenue Code (Code) to give certain favorable tax treatment to coverage for adult Children.
Old Law
Health Plans
Code §105(b) generally excludes from an employee's gross income employer-provided reimbursements made directly or indirectly to the employee for the medical care of the employee, employee's spouse or employee's Dependents. Code §106 excludes from an employee's gross income coverage under a Group Health Plan. The regulations under Code §106 provide that the exclusion applies to employer-provided coverage for an employee and the employee's spouse or Dependents.
Cafeteria Plans
Code §125, which governs cafeteria plans, allows employees to elect between cash and certain Qualified Benefits, including accident or health plans and health flexible spending arrangements (health FSAs). A cafeteria plan may permit an employee to revoke an election during a period of coverage and to make a new election only in limited circumstances, such as a change in status event. See Treas. Reg. § 1.125-4(c). A change in status event includes changes in the number of an employee's dependents. The regulations under § 1.125-4(c) currently do not permit election changes for Children under age 27 who are not the employee's dependents.
Health Reimbursement Arrangement
In general, a health reimbursement arrangement (HRA) is an arrangement that is paid for solely by an employer (and not through a cafeteria plan) which reimburses an employee for medical care expenses up to a maximum dollar amount for a coverage period. Coverage under and reimbursements made from an HRA to the employee for the medical care of the employee, employee's spouse or employee's Dependents are excluded from the employees gross income.
FICA and FUTA Withholding
Coverage and reimbursements under a Group Health Plan are excluded from wages for Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) tax purposes. For these purposes, a Child of the employee is a
dependent. No age limit, residency, support, or other test applies for these purposes.
New Law
Health Plans
As amended by the Affordable Care Act, the exclusion from gross income under Code §105(b) is extended to employer-provided reimbursements for expenses incurred by the employee for the medical care of the employee's Child who has not attained age 27 as of the end of the Taxable Year, including a Child of the employee who is not the employee's Dependent. Please note that there is no indication that Congress intended to provide a broader exclusion in Code §105(b) than in Code §106, so IRS and Treasury intend to amend the regulations under Code §106, retroactively to March 30, 2010, to provide that coverage for an employee's Child under age 27 is excluded from gross income.
On and after March 30, 2010, both coverage under a Group Health Plan and amounts paid or reimbursed under such a plan for medical care expenses of an employee, an employee's spouse, an employee's Dependents, or an employee's Child who has not attained age 27 as of the end of the employee's Taxable Year are excluded from the employee's gross income.
Cafeteria Plans
For cafeteria plans, including health FSAs, the exclusion of coverage and reimbursements from an employee's gross income under Code §§106 and 105(b) for an employee's Child who has not attained Age 27 as of the end of the employee's Taxable Year carries forward automatically to the definition of Qualified Benefits. So that benefit will not fail to be a Qualified Benefit under a cafeteria plan (including a health FSA) merely because it provides coverage or reimbursements that are excludible under Code §§106 and 105(b) for a Child who has not attained Age 27 as of the end of the employee's Taxable Year. IRS and Treasury intend to amend the cafeteria plan regulations, effective retroactively to March 30, 2010, to include change in status events affecting nondependent Children under Age 27, including becoming newly eligible for coverage or eligible for coverage beyond the date on which the Child otherwise would have lost coverage.
Cafeteria plans may need to be amended to include employees' Children who have not attained Age 27 as of the end of the taxable year. Pursuant to §1.125-1(c) of the proposed regulations, cafeteria plan amendments may be effective only prospectively. Notwithstanding this general rule, as of March 30, 2010, employers may permit employees to immediately make pre-tax salary reduction contributions for accident or health benefits under a cafeteria plan (including a health FSA) for Children under age 27, even if the cafeteria plan has not yet been amended to cover these individuals. However, a retroactive amendment to a cafeteria plan to cover Children under age 27 must be made no later than December 31, 2010, and must be effective retroactively to the first date in 2010 when employees are permitted to make pre-tax salary reduction contributions to cover Children under age 27 (but in no event before March 30, 2010).
Health Reimbursement Arrangement
On and after March 30, 2010, both coverage under an HRA and amounts reimbursed under such a plan for medical care expenses of an employee, an employee's spouse, an employee's Dependents, or an employee's Child who has not attained age 27 as of the end of the employee's Taxable Year are excluded from the employee's gross income.
FICA, FUTA, and Income Tax Withholding
Coverage and reimbursements under a plan for employees and their dependents that are provided for an employee's Child under Age 27 are not wages for FICA or FUTA purposes. Such coverage and reimbursements are also exempt from income tax withholding.
Definitions
Age 27 -- A Child is age 27 on the 27th anniversary of the date the Child was born; and employers may rely on the employee's representation as to the Child's date of birth.
Affordable Care Act -- the Patient Protection and Affordable Care Act, Public Law No. 111-149 (PPACA), and the Health Care and Education Reconciliation Act of 2010, Public Law No. 111-152 (HCERA), signed into law by the President on March 23 and 30, 2010, respectively.)
Child or Children --
(1) an individual(s) who is the son, daughter, stepson, or stepdaughter of the employee;
(2) a legally adopted individual(s) of the employee;
(3) an individual(s) who is lawfully placed with the employee for legal adoption by the employee; and
(4) an "eligible foster Child," defined as an individual(s) placed with the employee by an authorized placement agency or by judgment, decree, or other order of any court of competent jurisdiction.
Dependent -- a qualifying Child, or a qualifying relative.
Where:
(A) Qualifying Child - is an individual who is:
(1) is a Child of the taxpayer or a descendant of such a Child, or a brother, sister, stepbrother, or stepsister of the taxpayer or a descendant of any such relative who has the same principal place of abode as the taxpayer for more than one-half of such taxable year;
(2) is younger than the taxpayer claiming such individual as a qualifying Child and has not attained the age of 19 as of the close of the calendar year in which the taxable year of the taxpayer begins, or is a student who has not attained the age of 24 as of the close of such calendar year. In the case of an individual who is permanently and totally disabled (as defined in section 22(e)(3)) at any time during such calendar year, this age requirement shall be treated as met with respect to such individual;
(3) has not provided over one-half of such individual's own support for the calendar year in which the taxable year of the taxpayer begins, and
(4) has not filed a joint return (other than only for a claim of refund) with the individual's spouse under section 6013 for the taxable year beginning in the calendar year in which the taxable year of the taxpayer begins.
(B) Qualifying Relative - an individual
(1) who is any of the following with respect to the taxpayer:
(i) A Child or a descendant of a Child.
(ii) A brother or sister, including a brother or sister by half blood.
(iii) A stepbrother or stepsister.
(iv) The father or mother, or an ancestor of either.
(v) A stepfather or stepmother.
(vi) A son or daughter of a brother or sister of the taxpayer.
(vii) A brother or sister, including a brother or sister by the half blood, of the father or mother of the taxpayer.
(viii) A son-in-law, daughter-in-law, father-in-law, mother-in-law, brother-in-law, or sister-in-law.
(ix) An individual (other than an individual who at any time during the taxable year was the spouse, determined without regard to section 7703, of the taxpayer) who, for the taxable year of the taxpayer, has the same principal place of abode as the taxpayer and is a member of the taxpayer's household.
(2) with respect to whom the taxpayer provides over one-half of the individual's support for the calendar year in which such taxable year begins, and who is not a qualifying Child of such taxpayer or of any other taxpayer for any taxable year beginning in the calendar year in which such taxable year begins.
(C) An individual shall not be treated as a member of the taxpayer's household if at any time during the taxable year of the taxpayer the relationship between such individual and the taxpayer is in violation of local law.
Group Health Plan -- any employer-provided accident and health plan for employees generally and their dependents (or a class or classes of employees and their dependents)
Qualified Benefit -- any benefit which, with the application of Code §125(a), is not includible in the gross income of the employee by reason of an express provision of chapter 1 of the Code §§ 105(b), 106 (except for Archer MSAs), 117, 127, or 132).
Taxable Year -- the taxable year is the employee's taxable year; employers may assume that an employee's taxable year is the calendar year.
Examples The Notice also includes several examples, please click on the following link to go to the examples:
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The Fix Is In: Common Plan Mistakes
Periodically the Internal Revenue Service (IRS) publishes an article that it calls "The Fix Is In: Common Plan Mistakes" that present common mistakes that happen in retirement plans. These articles describe a common problem, how it happened, how to fix it and how to lessen the probability of the problem happening again. Over the course of the next several months, we will be reproducing some of those articles that we believe would be helpful to you in the day-to-day administration of your plan.
Top-Heavy Errors in Defined Contribution Plans
(Reproduced from the IRS' Retirement News for Employers)
The Issue
Many of you have a 401(k) plan or some other form of defined contribution plan that needs to meet what are called "top-heavy plan rules." These rules are found in section 416 of the Internal Revenue Code. The top-heavy rules are designed to ensure that lower paid employees receive at least a minimum benefit in plans where most of the assets are owned by higher paid employees (referred to as "key employees" and defined below). When a plan is top-heavy, certain minimum vesting and allocation requirements must be satisfied. Plans with fewer than 100 participants are the most likely to become top-heavy and thus affected by the top-heavy rules.
A key employee is an employee, who at any time during the plan year containing the determination date is:
· A more than 5% owner of the employer (family attribution rules apply);
· A more that 1% owner of the employer with annual compensation greater than $150,000 (family attribution rules apply); or
· An officer with annual compensation greater than $135,000 (annually indexed for cost-of-living adjustments - $145,000 for 2007).
A defined contribution plan is top-heavy when, as of the last day of the preceding plan year (the determination date), the aggregate value of the plan accounts of key employees exceeds 60% of the aggregate value of the plan accounts of all employees under the plan. For top-heavy purposes, aggregate - not yearly - contributions and earnings are counted to ensure the top paid group does not benefit disproportionately. Note: It's even possible for a plan to become top-heavy after a year in which no contributions are made.
If the plan is top-heavy, the allocation made to a participant in a defined contribution plan must satisfy certain minimum benefit standards. Generally, under a top-heavy plan, the allocation of a "non-key employee" must not be less that 3% of compensation for the entire plan year. Elective deferrals made by a non-key employee in a 401(k) plan do not count toward the 3% minimum. Generally, if the employee's allocation is at least 3%, no further contribution is required to satisfy the top-heavy rules.
A top-heavy plan must also satisfy one of two minimum vesting schedules: the "three-year cliff" or "six-year graded" vesting schedule. A plan must state the vesting rules that will apply if the plan is top-heavy, even if the plan isn't currently top-heavy. Under three-year cliff vesting, employees must be 100% vested once they have three years of service. Prior to completing the third year of service, the employee's vesting percentage may be any percentage, including zero. Under six-year graded vesting, employees must be 100% vested once they have six years of service with certain minimum requirements for the interim periods.
The Problem
To properly comply with the top-heavy rules, unless the plan has been designed to satisfy the top-heavy rules in all years, employers must test their plans every year to determine their status. If the plan is top-heavy for a given year, the minimum benefits and vesting must be given for that year. The failure to properly follow the top-heavy rules can cause the plan to lose its qualified status.
Some commonly overlooked top-heavy rules that lead to problems include:
· If the participant is a key employee at any time during the previous plan year, the person is considered a key employee for the entire year.
· If the key employee account balances exceed 60%, the plan is top-heavy. There is no leeway.
· The plan may provide that only employees employed on the last day of the plan year are entitled to the top-heavy contribution.
· There is no 1,000 hour requirement in a defined contribution plan for a top-heavy allocation.
· The top-heavy minimum contribution is based on a total compensation definition (not just compensation while a participant).
· Elective deferrals made by a non-key employee to a 401(k) plan cannot be considered for the top- heavy minimum contribution.
The Fix
A top-heavy violation will cause a plan to become disqualified, resulting in adverse tax consequences to the employer and employees under the plan; however, employers may get relief from these adverse consequences through the Employee Plans Compliance Resolution System (EPCRS) by correcting the top-heavy failures. The Self-Correction Program (SCP) or Voluntary Correction Program (VCP) can be used to correct these mistakes. In order to fix the mistake under SCP, generally the mistake must be fixed within two years after the end of the plan year is which the failure occurred. Unless the failure can be classified as insignificant, VCP must be used after this time.
To correct a top-heavy allocation failure, the employer must make a corrective contribution on behalf of the employee who received an insufficient allocation in an amount equal to the insufficiency, adjusted for earnings. There is more than one way to correct a vesting failure under EPCRS.
Under the Contribution Correction Method, the employer makes a corrective contribution on behalf of the employee whose account balance was improperly forfeited by the amount of the improper forfeiture. The corrective contribution is adjusted for earnings. If, as a result of the improper forfeiture, an amount was improperly allocated to the account balance of another employee, no reduction need be made to the account balance of that employee.
Another way to correct these errors is the Reallocation Correction Method. Generally, the account balance of the employee who incurred the improper forfeiture is increased by the amount of the improper forfeiture and the amount is adjusted for earnings. The account balance of each employee who shared in the allocation of the improper forfeiture is reduced by the amount of the improper forfeiture that was allocated to that employee's account.
Making Sure It Doesn't Happen Again
Calculating the top-heavy status of a plan accurately and timely is vital for plan sponsors. The plan document, employee data, etc., should be carefully reviewed to ensure that the test is done correctly.
Important Tip: A plan can be structured so that the top-heavy minimum allocation requirement and vesting schedule is automatically satisfied every year. This eliminates the need to test for top-heavy status.
However, despite all of your good efforts, mistakes can happen. In that case, the IRS can help you correct the problem and retain the benefits of your qualified retirement plan.
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How to Track Government Recovery Spending
"The Board shall establish and maintain...a user-friendly, public-facing website to foster greater accountability and transparency in the use of covered funds. The website...shall be a portal or gateway to key information relating to the Act and provide connections to other government websites with related information."
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Sexual Harassment in the Workplace
One aspect of running a successful business is ensuring that you do not run afoul given the myriad of government regulations. While there are certain rules and regulations that are a part of your business' day to day operations, such as those that relate to hiring and firing employees, payroll taxes and nondiscriminatory labor practices, there are others that don't usually get much attention - until there is a problem. The rules and regulations about sexual harassment frequently fall into the category of the overlooked.
There are a lot of reasons why you need to be aware of the rules against sexual harassment, just to name a few:
· an employer owns the responsibility and liability for harassment in the workplace;
· defending your company against a sexual harassment claim can be time-consuming and costly; and
· harassing behavior in the workplace can have a negative effective on your employees' morale & productivity.
This is a two part article. The first part is intended to help you understand:
· the different types of sexual harassment;
· employer obligations;
· employer liability, and
· employee obligations and liability.
The second part (published in our July Newsletter) is intended to help you understand how to:
· prevent harassment in the workplace;
· correct harassment in the workplace; and
· create best practices to avoid harassment problems.
Overview
The federal law that governs discrimination, harassment and retaliation; defines behaviors and outlines the obligations of both the employer and employee is the Civil Rights Act of 1964 (the "Act"). The Act provides the following definition of Discrimination:
-- to discriminate against any individual with respect to compensation, terms, conditions, or privileges of employment, because of such individual's race, color, religion, sex or national origin; or
-- to limit, segregate, or classify employees or applicants for employment in any way which would deprive or tend to deprive any individual of employment opportunities or otherwise adversely affect status of an employee, because of such individual's race, color, religion, sex or national origin.
Sexual Harassment is a specific type of discrimination which is prohibited under Title VII of the Act. The Equal Employment Opportunity Commission (EEOC) is the federal agency that enforces Title VII of the Act. The EEOC's guidelines provide the following definition of sexual harassment:
Unwelcome sexual advances, request for sexual favors and other verbal or physical conduct of a sexual nature that constitute sexual harassment when:
1. submission to such conduct is made either explicitly or implicitly a term or condition of an individual's employment,
2. submission to or rejection of such conduct by an individual is used as the basis for employment decision affecting such individual, or
3. such conduct has the purpose or effect of unreasonably interfering with an individual's work performance or creating an intimidating hostile or offensive working environment.
Types of Sexual Harassment
There are basically two categories of Sexual Harassment:
· Quid pro quo (this for that) -
--submission to certain conduct is made a condition of an individual's employment.
--submission to or rejection of such conduct by an individual is used as the basis for employment decisions affecting that individual. Quid pro quo usually occurs between a supervisor and a subordinate and is a tangible employment action, such as firing, demotion, failure to promote, reassignment to a less desirable position or title; removal of benefits or perks.
An example of quid pro quo would be if employee does x (conduct) than condition of employment (y) will be granted. Submission to or rejection of x is used as the basis for employment decisions affecting that individual. The secretary is asked to the drive in movies by her supervisor (x), she accepts, she is promoted in December (y). The Secretary declines the offer and does not get a raise in December (y).
· Hostile work environment, without a tangible employment action, occurs when certain conduct (conduct can be of a physical, verbal or visual nature) creates an abusive environment.
Main Elements of Sexual Harassment
· Verbal or physical conduct of a sexual nature or offensive remarks about person's sex. The law does not require that all conduct at work be totally inoffensive to everyone.Conduct is considered harassment only if a reasonable person from the victim's perspective would consider the behavior to be so severe (such as physical assault) or pervasive that it affects the conditions of employment or creates an abusive environment.
· Unwelcome sexual advances -- any behavior that is (1) not welcomed by the offended person; (2) unsolicited (offended person did not invite it); and (3) undesirable (offended person did not want it, objected to it). Whether or not an unwelcome behavior amounts to sexual harassment is judged based on a reasonable personal standard. Note: Consensual, romantic relationships can also create problems such as issues of favoritism and distraction to others. The EEOC has issued a policy statement identifying favoritism as a possible form of unlawful sexual harassment, in that it can create a hostile work environment for others or for the party involved if there is a breakup. The risk of liability for sexual harassment is greatly increased when it is a supervisor/subordinate relationship that ends because the consensual nature of the relationship can become suspect and could be deemed not to have been consensual at all.
· Requests for sexual favors.
What is the "reasonable person standard"?
The reasonable person (historically reasonable man summarized by Percy Winfield, British jurist and legal historian) is a legal fiction of the common law representing an objective standard against which any individual's conduct can be measured. It is used to determine if a breach of the standard of care has occurred, provided a duty of care can be proven.
The reasonable person standard holds: each person owes a duty to behave as a reasonable person would under the same or similar circumstances. While the specific circumstances of each case will require varying kinds of conduct and degrees of care, the reasonable person standard undergoes no variation itself.
This standard performs a crucial role in determining negligence in both criminal law-that is, criminal negligence-and tort law. The standard also has a presence in contract law, though its use there is substantially different.
The standard does not exist independently of other circumstances within a case which could affect an individual's judgment.
When determining if a behavior is sexual harassment INTENT is NOT relevant. "I didn't mean to." Does not apply and employers need to deal with the actual impact of the action not someone's intent.
Who can harass? Employees on the work premises or away from the workplace, employees off the work premises but involved in work-related activities, and in California, contract workers hired through a third party can harass.
Who can be harassed? Any and all employees, people who are the same sex as the harasser, outside visitors, customers, contract employees, service people, and so on - anyone who comes into contact with employees can be harassed.
Employer Obligations
Employers are legally obligated to provide a working environment free of harassment and discrimination. In doing so they must:
· have and implement a written policy on sexual harassment and it's prevention;
· establish an effective complaint or grievance process
· communicate the company's policy on sexual harassment to all employees;
· take immediate and appropriate action when an employee complains; and
· ensure complainant will not be retaliated against for opposing or filing a discrimination charge, testifying, or participating in any way in an investigation, proceeding, or litigation under Title VII.
Employer's Liability
· An employer is always responsible for harassment by a supervisor that culminated in a tangible employment action. A supervisor is an individual who has the authority to recommend tangible employment decisions affecting the employee or if the individual has the authority to direct the employee's daily work activities.
· If the harassment did not lead to a tangible employment action, the employer is liable unless it proves that:
1. it exercised reasonable care to prevent and promptly correct any harassment; and
2. the employee unreasonably failed to complain to management or to avoid harm otherwise.
Employee Obligations
Employees have an obligation to the company and these obligations must be communicated.
1. Employees must report harassment either orally or in writing. It is their duty.
2. Confront the situation, if possible. If a behavior is unacceptable to the employee, they need to make it clear to the harasser that the behavior is offensive and they need to stop the behavior. I.e. An employee hangs a calendar depicting swim suit models, if another employee finds it offensive that employee should express their feelings to the coworker. The employee whose calendar it is should at this point, take it down, if he refuses the complaint needs to be brought to the supervisor or HR. The supervisor or HR has it removed. If no action is taken by the supervisor or HR, the company could be held liable for not investigating and concluding the claim.
3. Employees must cooperate in the investigation.
4. Employees must report any retaliation against them.
Employee Liability
While the Federal Law only allows employers to be liable for harassment, some state laws do impose personal liability on individuals for perpetrating harassment (see Cynthia Hill v Ford Motor Co. No. SC88981 (Feb. 24, 2009). |
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about MFYCO ...
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Michael F. Yates & Company, Inc. can help you with a variety of services ranging from retirement plans to providing results-oriented survey instruments, training and development programs for your employees. Our products and services are intended to help you maximize the effectiveness of your Human Resources function.
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These products and services incorporate our years of experience so that you receive rapid results and exceptional value. From onsite consulting, to strategic business integration, to Web enablement, we understand how Human Resources can be applied to solve your problems and achieve your goals. As a result, we can help you get the most out of your investment and turn your most precious resource into a competitive advantage.
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We offer Consulting, Retirement Planning, Pension and 401(K) both qualified and non qualified Plans, Welfare Plans, Communications, Computer Systems, Executive Plans, Compensation, Mergers, Acquisitions, Divestitures and Other Services.
We offer a true and honest, Client Partnership.
Take the Michael F. Yates & Company, Inc. challenge! Call us today ... 908-689-4200
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Michael F. Yates & Company, Inc.
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101 Belvidere Avenue
P.O.Box 7
Washington, NJ 07882-0007
908-689-4200
fax: 908-689-6300
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Note to myself ...
Week 1 - Memo No. 1
Effective this week, the company is adopting Fridays as Casual Day.
Employees are free to dress in the casual attire of their choice.
Week 3 - Memo No. 2
Spandex and leather micro-miniskirts are not appropriate attire for Casual Day.
Neither are string ties, rodeo belt buckles or moccasins.
Week 6 - Memo No. 3
Casual Day refers to dress only, not attitude.
When planning Friday's wardrobe, remember image is a key to our success.
Week 8 - Memo No. 4
A seminar on how to dress for Casual Day will be held at 4 p.m. Friday in the cafeteria.
A fashion show will follow. Attendance is mandatory.
Week 9 - Memo No. 5
As an outgrowth of Friday's seminar, a 14-member Casual Day Task Force has been appointed to prepare guidelines for proper casual-day dress.
Week 14 - Memo No. 6 The Casual Day Task Force has now completed a 30-page manual entitled "Relaxing Dress Without Relaxing Company Standards." A copy has been distributed to every employee. Please review the chapter "You Are What You Wear" and consult the "home casual" versus "business casual" checklist before leaving for work each Friday. If you have doubts about the appropriateness of an item of clothing, contact your CDTF representative before 7 a.m. on Friday.
Week 18 - Memo No. 7
Our Employee Assistant Plan (EAP) has now been expanded to provide support for psychological counseling for employees who may be having difficulty adjusting to Casual Day.
Week 20 - Memo No. 8 Due to budget cuts in the HR Department we are no longer able to effectively support or manage Casual Day. Casual Day will be discontinued, effective immediately.
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Our staff and firm are proud members
of the following professional organizations:
Society of Actuaries
American Society of Pension Professionals & Actuaries
Society for Human Resource Management
WorldatWork
American Management Association
National Federation of Independent Business
Better Business Bureau
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The site ("from the HR perspective" hence herein referred to as MFYCO.com) is made available by Michael F. Yates & Company Incorporated. All content, information and software provided on and through 'from the HR perspective' and MFYCO.com ("Content") may be used solely under the following terms and conditions ("Terms of Use").
YOUR USE OF THIS WEBSITE CONSTITUTES YOUR AGREEMENT TO BE BOUND BY THESE TERMS AND CONDITIONS. IF YOU DO NOT AGREE TO THESE TERMS, YOU SHOULD IMMEDIATELY DISCONTINUE YOUR USE OF THIS SITE.
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"Human Resources provides the leadership, supportive services, guiding principles, policies, structures and standards needed for a quality organization to survive in today's business environment."
MFYCO PRIVACY POLICY
Michael F. Yates & Company, Inc.
believes strongly in protecting the privacy of its users.
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