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Payroll Management Guide
  • Lawmakers pass bill barring local minimum wage hikes, benefits greater than state law
  • Employer payment under employer-provided self-funded health plan not excluded from gross income
  • Maryland requires electronic filing of W-2s
Unemployment Insurance Reports with Social Security
  • GAO: Comprehensive strategic approach needed to enhance SSA's antifraud activities
  • State unemployment agency must rework its "simple misconduct" standard, says New Jersey court

Payroll Management Guide

Lawmakers pass bill barring local minimum wage hikes, benefits greater than state law

In line with a growing trend, the Missouri Legislature has approved legislation that would bar political subdivisions within the state from requiring employers to give employees minimum wages, living wages, or benefits greater than those currently required under state law. Finalized on May 12, H.B. 1194 is now headed to the desk of Missouri Governor Eric Greitens.

The legislation follows a February 2017 Missouri Supreme Court decision validating a St. Louis wage hike that gave workers in the city $10 an hour as of May 5, 2017, and would have boosted the minimum wage to $11 on January 1, 2018. The current state minimum wage is $7.70 an hour.

If signed by Governor Greitens, H.B. 1194 would nullify all political subdivision ordinances in effect, including the St. Louis minimum wage law, or later enacted concerning the establishment or enforcement of a minimum or living wage, or the provision of employee benefits that exceed state laws, rules, or regulations.

In an en banc decision on February 28, in Cooperative Home Care, Inc. v. City of St. Louis, Missouri, the state supreme court ruled that Missouri's minimum wage law did not occupy the field of minimum wage laws, nor did it prohibit the adoption of local minimum wage ordinances. Rather, the state law was found to set a floor below which an employee could not be paid. Additionally, the state high court determined that adoption of an ordinance did not exceed a city's charter authority. In so ruling, the high court found no validity to an employer's challenge to the minimum wage ordinance enacted by the City of St. Louis.

Reacting to passage of H.B. 1194, Mayor Lyda Krewson said, "Every city and town in our state does not have the same issues, needs or economy. A big city frequently has different problems than a very small one."

This is a setback for working families," Krewson continued. "$7.70 is not enough. I will work with others to get an increase in the minimum wage on the ballot since our state legislature won't address it."

        (Read Intelliconnect) »

Employer payment under employer-provided self-funded health plan not excluded from gross income

Federal Tax Day - Current,L.1,Code Sec. 105: Employer Payment Under Employer-Provided Self-Funded Health Plan Not Excluded From Gross Income (CCA 201719025),(May 15, 2017) An employer could not exclude from an employee's gross income payments under an employer-provided self-funded health plan if the average amounts received by the employees for participating in a health-related activity predictably exceed the after-tax contributions by the employees. Further, the employer could not exclude from an employee's gross income payments under an employer-provided self-funded health plan if the employer-provided self-funded health plan was not insurance (nor did it have the effect of insurance) for federal income tax purposes. Moreover, the ratio of the average amounts received by the employees for participating in health-related activities to the after-tax contributions by the employees demonstrated that the amounts received by the employees were attributable to contributions by the employer and not employee after-tax contributions; therefore, the exclusion under Code Sec. 104(a)(3) did not apply. (Chief Counsel Advice Memorandum 201719025, April 24, 2017.) IRS Chief Counsel Advice.

        (Read Intelliconnect) »

Maryland requires electronic filing of W-2s

Maryland now requires employers to submit W-2, income tax withholding statements in an electronic format. The Comptroller retains the current law authorization to waive the electronic submission requirement if the Comptroller determines that the requirement will result in undue hardship to the employer or payor. (S.B. 304, Laws 2017, effective July 1, 2017.)

        (Read Intelliconnect) »

Unemployment Insurance Reports with Social Security

GAO: Comprehensive strategic approach needed to enhance SSA's antifraud activities

The SSA's Disability Insurance (DI) and Supplemental Security Income (SSI) programs provide cash benefits to millions of Americans with disabilities who are unable to work. Collectively, payments from DI and SSI were about $200 billion in fiscal year 2015. Although the extent of fraud in these programs is unknown, recent high-profile cases have highlighted instances in which individuals fraudulently obtained millions of dollars in benefits. The Government Accountability Office (GAO) was asked to review the SSA's fraud risk management.

This report examines SSA's actions to manage fraud risks and the extent to which these actions align with leading practices for (1) establishing an organizational culture and structure conducive to fraud risk management; (2) identifying, assessing, and addressing fraud risks; and (3) monitoring and evaluating its antifraud activities. The GAO reviewed SSA documents, such as training materials and operational guidance; and interviewed SSA officials at the agency's headquarters, its three fraud examination units, and selected state disability determination offices chosen for their proximity to antifraud initiatives. The agency assessed those actions against leading practices identified in its Fraud Risk Framework.

What the GAO found

The SSA has taken steps to establish an organizational culture and structure conducive to fraud risk management in its disability programs, but its new antifraud office is still evolving. In recent years, the SSA has instituted mandatory antifraud training, established a centralized antifraud office to coordinate and oversee the agency's fraud risk management activities, and communicated the importance of antifraud efforts. These actions are generally consistent with the GAO's Fraud Risk Framework, a set of leading practices that can serve as a guide for program managers to use when developing antifraud efforts in a strategic way. However, the SSA's new antifraud office, the Office of Anti-Fraud Programs (OAFP), faced challenges establishing itself as the coordinating body for the agency's antifraud initiatives. For example, the OAFP has had multiple acting leaders, but the SSA recently appointed a permanent leader of OAFP to provide accountability for the agency's antifraud activities.

The SSA also has taken steps to identify and address fraud risks in its disability programs, but it has not yet comprehensively assessed these fraud risks or developed a strategic approach to help ensure its antifraud activities effectively mitigate those risks. Over the last year, the SSA gathered information about fraud risks, but these efforts generally have not been systematic and did not assess the likelihood, impact, or significance of all risks that were identified. In addition, the SSA has several prevention and detection activities in place to address known fraud risks in its disability programs such as fraud examination units, which review disability claims to help detect fraud perpetrated by third parties. However, the agency has not developed and documented an overall antifraud strategy that aligns its antifraud activities to its fraud risks. Leading practices call for federal program managers to conduct a fraud risk assessment and develop a strategy to address identified fraud risks. Without conducting a fraud risk assessment that aligns with leading practices and developing an antifraud strategy, the SSA's disability programs may remain vulnerable to new fraud schemes, and the SSA will not be able to effectively prioritize its antifraud activities.

Although the SSA monitors its antifraud activities through the OAFP and its National Anti-Fraud Committee (NAFC), which serves as an advisory board to the OAFP, the agency does not have effective performance metrics to evaluate the effect of such activities. The OAFP has responsibility for monitoring the SSA's antifraud activities and establishing performance and outcome-oriented goals for them. It collects metrics to inform reports about its antifraud initiatives, and the NAFC receives regular updates about antifraud initiatives. However, the quality of the metrics varies across initiatives and some initiatives do not have metrics. Of the 17 initiatives listed in the SSA's 2015 report on antifraud initiatives, 10 had metrics that did not focus on outcomes, and four did not have any metrics. For example, the agency lacks a metric to help monitor the effectiveness of its fraud examination units. Leading practices in fraud risk management call for managers to monitor and evaluate antifraud initiatives with a focus on measuring outcomes. Without outcome-oriented performance metrics, the SSA may not be able to evaluate its antifraud activities, review progress, and determine whether changes are necessary.

What the GAO recomments

The GAO recommends that the SSA (1) conduct a comprehensive fraud risk assessment for its disability programs, (2) develop a corresponding antifraud strategy, (3) develop outcome-oriented metrics for antifraud activities, and (4) review progress and change activities as necessary. The SSA agreed with the GAO's recommendations.

For more information, contact Seto Bagdoyan at (202) 512-6722 or bagdoyans@gao.gov, or Cindy Brown Barnes at (202) 512-7215 or brownbarnesc@gao.gov (#GAO-17-228, April 2017).

        (Read Intelliconnect) »

State unemployment agency must rework its "simple misconduct" standard, says New Jersey court

The definition of "simple misconduct" used by the New Jersey Department of Labor and Workforce Development when determining a discharged worker's eligibility for unemployment benefits was arbitrary and capricious, the New Jersey appeals court found. The definition "illogically" mixes negligence concepts with intent-based states of mind such as "willful disregard" and "evil design." It also encompassed conduct that would more appropriately be deemed "severe" (the intermediate prong between "simple" and "gross" misconduct in the agency's regulations), the court noted. Because it did not make the "critical distinction" between simple negligence and more intentional and malicious conduct, the court invalidated the faulty provision—which was challenged by a plaintiff's employment firm in the state and the New Jersey chapter of the National Employment Lawyer's Association (NELA)—and sent the agency back to the drawing board.

Gap in the statute existed

In 2015, the Department adopted a provision in N.J.A.C. 12:17-2.1 (the enabling regulations for New Jersey's Unemployment Compensation Act) defining, for the first time, "simple misconduct" in cases when a terminated employee's right to unemployment benefits is challenged. It did so at the appellate court's urging following the court's 2013 decision in Silver v. Board of Review. In that case, the appeals court traced the efforts by state courts to fill the gap left in the statute, which did not define the phrase, and distilled the key holdings on the question from prior case law. It also noted previous attempts by the agency to define the term, as well as an intervening legislative amendment in 2010 adding "severe misconduct" to the mix as an intermediate "gap filler" between "simple" and the more extreme category of "gross" misconduct. Still, the court was concerned there should be a codified rule distinguishing between "simple" and the intermediate "severe," and the agency was left with the task of drafting one. But the result, according to the court, was "a linguistic morass, one that cannot be readily or sensibly understood and applied."

Regulatory definition confusing

The Department promulgated the following definition: "Simple misconduct" means an act which is neither "severe misconduct" nor "gross misconduct" and which is an act of wanton or willful disregard of the employer's interest, a deliberate violation of the employer's rules, a disregard of standards of behavior that the employer has the right to expect of his or her employee, or negligence in such degree or recurrence as to manifest culpability, wrongful intent, or evil design, or show an intentional and substantial disregard of the employer's interest or of the employee's duties and obligations to the employer.

"Unpacking this prose," the appeals court said, "even the most careful reader could be readily confused on how the term 'negligence' can be sensibly equated with 'intentional' conduct. Or with 'a wanton or willful disregard' of an employer's interest. Or 'evil design.' Or 'an intentional and substantial disregard' of an employer's interest or of the employee's duties."

Provision is an oxymoron

The use of these terms, which convey an intentional aim to commit wrongful conduct, cannot be squared "linguistically or doctrinally" with conduct that is "merely careless," and routinely defined as "negligent," the court found. Indeed, the plaintiffs challenging the provision had called it an "oxymoron" and asserted it could not be sensibly (or fairly) applied. Moreover, the definition is contrary to case law and the statutory scheme itself, which recognizes that "negligence and intentional or deliberate wrongdoing are qualitatively different states of mind and degrees of behavior," and which mandates that mere negligence does not suffice to constitute misconduct. And the qualifying phrase after the word "negligence" did little to quell the court's concerns.

The appeals court supposed that the drafters were trying to encompass severe negligence into the definition of "simple misconduct"—the kind of negligence that would in other contexts render someone culpable for "gross" negligence. However, while the courts have not expressly tackled the question head-on, one might argue that even gross negligence falls short of the culpability required to be denied unemployment benefits, at least under prior case law. But one thing was certain: Silver, which controls (and was reaffirmed here), made it clear that the statute was to be construed in a manner that would not deprive employees of unemployment benefits based on conduct that can be described as simple negligence.

On the other hand, the definition is also problematic because it treats heightened misconduct—behavior accompanied by "evil design" or "wrongful intent"—as "simple" rather than "severe" misconduct. The regulations try to address the confusion by demanding that "simple misconduct" must be "both deliberate and malicious" to be deemed "severe." But this was a circular solution that does not fix the problem.

Department told to revise the definition

Opting not to "perform judicial surgery" on the regulation itself, the appeals court directed the Department, within 180 days, to develop a more cogent substitute definition, with input from the employee advocates who challenged the provision here, to cure the defect. The court stayed its decision for that 180-day period in the meantime, to avoid any disruption in administering the unemployment compensation program while the Department takes the proper corrective action (or pursues an appeal of this holding) (In re N.J.A.C. 12:17-2.1, N.J. Super. Ct., App. Div., ¶8676).

        (Read Intelliconnect) »

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Payroll and Unemployment Insurance NetNews is a current summary of federal and state employment laws and regulations, compliance issues, and other topics related to proper handling of day to day workplace matters. This timely information comes from the Payroll Management Guide and Unemployment Insurance Reporter with Social Security.

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