Archive for Employer Knowledge Base – Page 2

Get serious with an educational assistance program

Most employers probably know that reimbursements and direct payments of job-related education costs are excludable from workers’ wages as a working condition fringe benefit. Maybe you’ve offered such a benefit in the past and it’s worked out well for everyone.

But if you’re ready to really get serious about promoting the professional development of your employees — and doing so in a tax-efficient manner — consider establishing an educational assistance program.

Meeting IRS requirements

An educational assistance program can cover both job-related and non-job-related education. Assuming it meets eligibility requirements, such a program can allow employees to exclude from income up to $5,250 annually in education reimbursements for costs such as:

  • Undergraduate or graduate-level tuition,
  • Fees,
  • Books, and
  • Equipment and supplies.

The IRS, however, won’t allow reimbursement of materials that employees can keep after the courses end (except for textbooks). You can deduct up to $5,250 of educational assistance program reimbursements as an employee benefit expense. And you don’t have to withhold income tax or pay payroll taxes on these reimbursements.

To pass muster with the IRS, such a program must avoid discrimination in favor of highly compensated workers, their spouses and their dependents, and it can’t provide more than 5% of its total annual benefits to shareholders, owners and their dependents. In addition, you must provide reasonable notice about the program to all eligible employees that outlines the type and amount of assistance available to workers.

Hiring and retaining staff

Another “hidden” advantage to reimbursing education costs is attracting new hires and retaining them. The labor markets in many industries are competitive right now, so it’s important not to overlook ways to differentiate yourself from other companies looking to hire from the same pool. Moreover, keeping an engaged, well-trained staff in place enables you to avoid constantly enduring the high costs of hiring.

Also bear in mind that Millennials make up a significant portion of the labor market now. This generation has its own distinctive traits and preferences toward working — one of which is a need for ongoing challenges and education, particularly when it comes to technology.

Keeping them on board

If your organization’s employees want to take their professional skill sets to the next level, don’t let them go to a competitor to get there. By setting up an educational assistance program, you can keep your staff well trained and evolving toward the future while saving taxes. We can help you further explore setting up such a program and its tax advantages.

Changes ahead for 401(k) hardship withdrawal rules

Many employers sponsor 401(k) plans to help employees save for retirement. But sometimes those employees need access to plan funds well before they retire. In such cases, if the plan allows it, participants can make a hardship withdrawal.

If your organization sponsors a 401(k) with this option, you should know that there are important changes on the way next year.

What will be different

Right now, 401(k) hardship withdrawals are limited to only funds an employee has contributed, and the employee must first take out a plan loan from the account. The employee also cannot participate in the plan for six months after a hardship withdrawal.

However, important changes take effect in 2019 under the Bipartisan Budget Act of 2018 (BBA). First, employees’ withdrawal limits will include not only their own contributed amounts, but also accumulated employer matching contributions plus earnings on contributions. If an employee has been participating in your 401(k) for several years, this could add substantially to the amount of funds available for withdrawal in the event of a legitimate hardship.

In addition, the BBA eliminates the current six-month ban on employee participation in the 401(k) plan following a hardship withdrawal. This means employees can stay in the plan and keep contributing, which allows them to begin recouping withdrawn amounts right away. And, for you, the plan sponsor, it means no longer having to re-enroll employees in the 401(k) after the six-month hiatus.

What remains the same

Some things haven’t changed. Hardship withdrawals are still subject to a 10% tax penalty, along with regular income tax. This combination could take a substantial bite out of the amount withdrawn, effectively forcing account holders to take out more dollars than they otherwise would have to, so as to wind up with the same net amount.

The BBA also didn’t change the reasons for which hardship withdrawals can be made. According to the IRS, such a withdrawal “must be made because of an immediate and heavy financial need of the employee and the amount must be necessary to satisfy the financial need.” This can include the need of an employee’s spouse or dependent, as well as that of a nonspouse, nondependent beneficiary.

The agency has said that the meaning of “immediate and heavy” depends on the facts of the situation and assumes the employee doesn’t have any other way to meet the need. Examples offered by the IRS include:

  • Qualified medical expenses,
  • Tuition and related educational fees and expenses, and
  • Burial or funeral expenses.

The agency has also cited costs related to a principal residence as usually qualifying. These include expenses related to the purchase of a principal residence, its repair after significant damage, and costs necessary to prevent eviction or foreclosure.

Further guidance

If your organization sponsors a 401(k) plan that permits hardship withdrawals, be sure to read up on all the details related to the BBA’s changes. Our firm can provide more information and further guidance.

6 ways to run a better meeting

There are few more self-destructive acts for an employer than to waste its employees’ time. You not only squander productivity but also hurt morale. Among the most common culprits of wasted time are bad meetings. A sloppily managed one can leave employees grumbling and frustrated for hours, even days, afterward. Here are six ways to run a better meeting:

  1. Start on time. Beginning promptly shows you respect people’s time and encourages punctuality as an aspect of your organizational culture. Train and encourage meeting leaders to adhere to firm start times. Managers should address chronic latecomers verbally first (but after the meeting), and in writing later if necessary.
  2. Lead with something positive. Poorly run meetings can quickly devolve into unproductive gripe sessions. Set the tone for a more constructive discussion of your agenda items by leading off with some good news highlighting an organizational or individual accomplishment.
  3. Clear the air. After a positive start, if there’s an “elephant in the room,” confront it. Examples include a sudden staff change, bad sales report or unflattering story in the media. Say whatever needs to be said to acknowledge it and, if appropriate, discuss it. Then move on to a more constructive topic.
  4. Deploy multiple voices. Depending on the agenda and meeting length, it’s usually a good idea to ask more than one team member to address a topic and lead a discussion. This will give the meeting more of a dynamic feel — lessening the likelihood that attendees will tune out a single voice. It also eases the burden on one person to run the whole show.
  5. Follow a “no rehash” rule. Every topic should be thoroughly discussed. But backtracking to previous agenda items can turn meetings into a chaotic, confusing and laborious mess. Establish and enforce a clearly stated policy that, once the meeting has moved forward, previous discussions cannot be restarted.
  6. Conclude optimistically with actionable tasks. Just as you started positively, also try to end the meeting on an upbeat, motivational note. Not every agenda item will require follow-up action, but many will. Identify those that do call for action and assign clear tasks to the appropriate attendees. Otherwise, dismiss everyone with a renewed sense of urgency to work on the items discussed. Contact us for more ideas on how to better accomplish your strategic objectives.

In many ways, the days of employers offering only “traditional” employee benefits are history. Now, novel perks such as on-site gyms, free snacks and pet insurance are all the rage. But it’s often the more traditional benefits that provide the most value to employees in the long run. Case in point: disability coverage.

A common worry

Disability insurance is neither sexy nor widely offered. Yet the 2016 Insurance Barometer Study by LIMRA, an association of financial services firms and insurers, found that 56% of American workers worry about supporting themselves if disabled and unable to work — and the percentages are higher among younger workers, hitting 70% for Millennials and 68% for Gen Xers.

These fears aren’t misplaced. The Council for Disability Awareness reports that just over 25% of today’s 20-year-olds can expect to miss work for at least a year because of a disability before they reach full retirement age for Social Security purposes. And the average duration of a disability claim is almost three years.

Costs and taxes

Short-term disability insurance typically covers three to six months of pay, with long-term generally covering the remaining length of the disability or until retirement. According to the Bureau of Labor Statistics (BLS), the median salary replacement rate for both short- and long-term policies is 60%. Most long-term plans come with a maximum amount payable.

You can help employees protect against disability losses for a relatively low cost — especially compared to the expense of health insurance. The BLS estimates the cost of providing short- and long-term disability insurance to be about 1% of total compensation, or $624 per year for a full-time, private-sector worker.

The BLS says that most workers don’t make contributions to their short- or long-term disability insurance plans. Those employees who do and use after-tax dollars to pay for the coverage will see an upside if they ever need to tap the benefits: They generally won’t be taxed on the payouts, which essentially amounts to higher benefits.

Education needed

To help your employees get the most out of disability insurance, you’ll need to educate them. In a 2017 survey, LIMRA found that fewer than two in three workers understand what disability insurance is, and only 43% know that short-term disability insurance is often used to provide paid leave after routine childbirth. You might find it effective to provide examples of various ways employees can benefit from having disability insurance. Interested? We can provide you with further information.

Employees don’t always fill out their W-4 forms accurately. For example, some may wrongly write “exempt” on the withholding portion of the form to ensure that no federal or state tax is withheld. Others may be inadvertently underwithholding because of recent tax law changes.

Although the employees themselves are liable for improperly completing their W-4s, you can do them a favor by reminding them of possible mistakes. After all, the IRS may eventually come calling on your organization if someone appears to be underwithholding.

Key questions

Here are some questions to ask when determining whether an employee can legitimately claim to be exempt from withholding:

Did the employee have a tax liability in the previous year? If the employee received a refund of all federal income tax paid (or had a right to a refund), he or she may be able to claim exempt status, depending on the answer to the next question.

Does the employee expect to have a tax liability this year? To legitimately claim to be exempt, the employee must be able to state that he or she had no tax liability last year and doesn’t expect to have a tax liability this year.

Also, an “exempt” W-4 is valid for only one year and expires in February of the following year. If your payroll includes employees who claim to be exempt, require them to fill out new W-4 forms annually.

TCJA impact

Because of the many changes wrought by the Tax Cuts and Jobs Act (TCJA), and as you’re likely aware, earlier this year the IRS issued new withholding tables — and withholding amounts have generally dropped. The new tables are intended to work with current W-4 forms. However, just because you’re correctly following the withholding tables for an employee doesn’t mean the employee isn’t having too little (or too much) tax withheld.

Remind all employees that they should use the new IRS calculator (available at irs.gov) to determine whether the appropriate amount is being withheld. If it isn’t, they should submit a new W-4 to you to adjust their withholding. Employees who may be at risk for underwithholding include those who itemize deductions, who hold multiple jobs, or who have dependents age 17 or older.

More changes ahead

IRS Form W-4 is currently in a bit of a state of flux. A new version of the form is expected for 2019 that more clearly reflects the TCJA’s provisions. Some of the applicable rules for filing the form could change along with it. Our firm can keep you apprised of the latest news affecting W-4s and help you gather and verify the right information.

Minding the new rules of summer internships

The summer months are almost here and, with them, the prospect of many employers offering unpaid internships to high school and college students. If your organization is considering such a move, tread carefully. Under the Fair Labor Standards Act (FLSA), if an intern is determined to actually be an employee, the employer must pay him or her at least minimum wage, plus overtime to the extent applicable. Fortunately, new rules introduced earlier this year make it a little easier to establish unpaid intern status.

How it used to be

Previously, an arrangement had to pass a six-factor U.S. Department of Labor (DOL) test to qualify as an unpaid internship:

  1. The work must have been performed as an extension of a trade studied by the intern or be akin to his or her school training.
  2. The work must have been for the intern’s benefit.
  3. The intern couldn’t have replaced regular employees but rather must have worked under their close observation.
  4. The employer must have derived no immediate advantage from the internship; the internship must have been primarily an educational experience for the intern.
  5. The employer must not have promised the intern employment after the internship.
  6. The employer and the intern must have mutually understood that the internship was unpaid.

Employers had to meet all six of these factors. But courts found the rules problematic — especially the “no immediate advantage” factor.

Today’s seven-factor test

In January 2018, the DOL introduced a new seven-factor test based largely on various U.S. federal appeals court decisions in FLSA cases. The new test seeks to establish the “economic reality” of the employer-intern relationship and identify which party is the “primary beneficiary.” As expressed by the DOL, the factors assess the extent to which:

  1. The intern and employer clearly understand that there’s no expectation of compensation; any promise of compensation, express or implied, suggests that the intern is an employee (and vice versa),
  2. The internship provides training similar to that which would be given in an educational environment, including the clinical and other hands-on training provided by educational institutions,
  3. The internship is tied to the intern’s formal education program by integrated coursework or the receipt of academic credit,
  4. The internship accommodates the intern’s academic commitments by corresponding to the academic calendar,
  5. The internship’s duration is limited to the period in which the internship provides the intern with beneficial learning,
  6. The intern’s work complements, rather than displaces, the work of paid employees while providing significant educational benefits to the intern, and
  7. The intern and the employer understand that the internship is conducted without entitlement to a paid job at the internship’s conclusion.

In short, the intern must be the primary beneficiary of the relationship. Significantly, unlike the previous six-factor test, this one is flexible; no single factor is determinative.

Totally worth it

For employers, internships may seem like more trouble than they’re worth. But these arrangements can greatly benefit the students involved, provide energetic help with short-term projects, and improve your reputation in the employment market. Please contact us for more information.