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Your compensation & benefits questions answered

by on
in Employee Benefits Program,Human Resources

Is a health insurance opt-out bonus taxable?

Q: We give employees who opt out of our health plan a bonus. Do we withhold federal taxes on that bonus?— J.T., Illinois

A: Yes. Federal tax withholding must be applied to any remuneration paid to employees that is not specifically exempt from the requirement. While a specific exemption exists for employer-provided health care coverage that allows those amounts to be provided to employees on a tax-free basis, this exemption would not apply to a bonus offered in lieu of health care coverage. The bonus you describe would be considered compensation to employees subject to federal taxes and withholding.

In addition to the tax considerations, keep in mind that the addition of the option to receive cash consideration in lieu of nontaxable health coverage is likely to create a Section 125, or “cafeteria plan.” Employers that sponsor a cafeteria plan must comply with specific plan documentation, nondiscrimination and other requirements. In the event you provide such a bonus, it would be wise to consult with an experienced benefits practitioner to ensure your plan complies with all legal requirements.

Same job, different pay: Is that legal?

Q: We have two employees who have the same job title, job description and functions. We pay one a flat salary ($120,000). We pay the other a base salary plus a fixed rate for hours that are billable to the customer ($70,000, plus $20 for every billable hour). Can we do this or should their salary structures be identical?— T.L., Tennessee

A: As a general rule, it’s a good idea to strive for consistency in your treatment of similarly situated employees. Whenever employees in seemingly identical positions are treated differently, it leaves an employer vulnerable to claims that the motivation for the different treatment is unlawful. This could be especially problematic if the individual on the lower end of the pay spectrum is a member of a protected class.

That said, the general principle favoring consistency in employment practices is not a hard-and-fast rule. You may have legitimate business reasons for treating the compensation of these two employees differently. It would be wise to document the reasons behind the different salary structures.

If you don’t place the employees on the same compensation program, at least collect the data to show that the disparate treatment is justified for nondiscriminatory business purposes.

Can workers collect unemployment during a furlough?

Q: We are planning to furlough employees temporarily. If we do rolling furloughs, can employees get unemployment comp to cover some of their time off?— B.L., Missouri

A: It depends on state law. In some states, employees on furlough are eligible for unemployment compensation benefits after they’ve been unemployed for seven days. Because of this threshold, employees on short furloughs often don’t bother to file for benefits.

However, as a proactive step in case of subsequent furloughs, employees can file for benefits during their first furlough in order to start the seven-day clock running. That will allow them to collect benefits immediately if they’re furloughed again within 12 months.

When must we pay for travel time?

Q: Some of our employees travel out of the country on business. We provide a per diem amount for meals, etc. Is there any requirement regarding when we must start the per diem clock ticking? For example, if someone leaves on a trip Friday afternoon and returns Monday morning, do we have to pay for four full days?—A.L, Missouri

A: Generally speaking, there are no wage-and-hour laws that require the payment of a per diem while traveling. But employers often misunderstand the rules on compensating hourly workers for such travel.

The rules: Travel that keeps a nonexempt employee away from home overnight must be compensated at the employee’s regular hourly rate, but only when the travel time occurs during an employee’s normal workday.

Thus, if an hourly employee’s normal workday runs from 8 a.m. to 5 p.m., only the out-of-town travel that occurs during those hours must be paid. This rule applies whether the travel occurs on a regular workday or a normal day off. So, if the same employee travels during regular work hours on a Sunday, but regularly has Sundays off, the time must still be paid.

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