Texas Employer Handbook

Insight on Employment Law for Texas Businesses

Employment Law 101: Travel Time

Posted in Handbook Articles

Who, What, Why . . .

Who does it apply to: All employers who are subject to the Fair Labor Standards Act, which is virtually every employer.

What is the issue: Employers are required to count certain time spent traveling toward an employee’s hours worked each week unless the employee is exempt from overtime. (For more information on who is exempt from overtime, see the Exemptions edition). The problem is that not all time must be counted and the rules can be quite tricky.

Is the drive from home to work covered: Let’s start at the beginning of the day (and the end). Of course, most of you are thinking the commute to the office can’t possibly count.  Like many legal issues – it depends. In it’s simplest form, compensable travel time starts when work begins whether that is picking up food for the office or sitting in traffic on a conference call. If the Department of Labor (DOL) considers the travel “for the employee’s benefit” it does not count. If, on the other hand, the DOL considers the travel to be “for the employer’s benefit,” it does count. The Common Situations section will help you understand this point better.

What if the employee drives a company car: If the employee drives to a business location to pick up a company vehicle before heading out to the first job of the day, their time starts to count as soon as they get in the vehicle.  If the employee drives the company vehicle to and from home, and from home to work or business calls, the time is treated like a regular commute and does not count.  On the other hand, if the employee drives the vehicle to pick-up co-workers or materials on the way to work, the time counts as soon as the employee leaves home.

How is travel during the workday treated: Once an employee arrives “at work” (whether that be a jobsite, first call, or office) any additional travel during the day up to the end of the workday or last call of the day is counted.  This time is clearly for the employer’s benefit with the possible exception of driving to and from a meal break location.

Who gets paid for time in a carpool: Again, it depends.  If a group of employees decide on their own to carpool, the time does not count.  If the employees take their own vehicles to a common location to ride in a bus or other vehicle to a jobsite, the bus driver is on the clock, but the riders may not be.  If the riders are not obligated to use the company vehicle their ride time does not count.  There is some question about whether ride time counts if the employees are unable to drive directly to the ultimate destination themselves – perhaps to a construction site or factory.  Check with your employment counsel in that situation.

What about travel out-of-town: Out-of-town travel is generally broken down into two categories: “special” trips all in a day’s work and longer trips, usually overnight.  If an employer sends an employee out of their usual work area for a special one-day project, the company must pay for the travel to and from that site, less the employee’s usual commute.  If the employee travels to the airport to fly to another town, the flight time to and from the location counts, but the drive to the airport does not.

If an employee is sent out-of-town multiple days for work, travel time that is outside of their usual work time is counted.  Hence, an employee who usually works Monday – Friday, 8 to 5 will be paid for all time (including the drive to the airport since it is not a regular workday) on a Sunday to arrive for a Monday meeting. The employee will also count time in a plane or other mode of transportation returning to his home location.  Travel of this type can also be complicated.  Check with your employment counsel about more complicated situations such as an employee leaving early to visit friends in the destination location.

How is travel overseas treated: Overseas travel is complicated and beyond the scope of this edition. Check with your employment counsel about travel time of this type.

Does on-call or emergency travel change anything: Employees required to travel outside of their normal work hours to a location other than their primary work location must be paid travel time to and from the location.  Employees called in to their primary work location after hours are not paid for travel to the location.  It is an odd dichotomy, but those are the DOL’s rules.

Common Situations:

Donut stop: Maggie stops for donuts on the way into work just to be nice to her co-workers.  Even though she made a stop for the benefit of her co-workers, her employer did not require it, so the time is not counted.  What if Maggie’s boss decides to reimburse her after she shows up with the donuts?  The stop was still of Maggie’s own volition, so it does not count.  Now, what if Maggie’s boss asks her to stop and pick up a case of coffee at the grocery store and Maggie still decides to buy the donuts for her co-workers?  Now it counts because Maggie is making a stop for her employer’s benefit.  How much of Maggie’s 45-minute commute counts, though?  That is up to Maggie.  If she stops at the grocery store five minutes from her house, 40 minutes count.  If she stops at the grocery store 5 minutes from the office, only five minutes count.  The same would be true if Maggie’s boss asked her to make the stop on the way home.

Hitching a ride: Sylvia lives 15 minutes from Maggie, just off Maggie’s regular route to work.  If Maggie stops to pick Sylvia up, does that count as work time?  It depends.  If Maggie’s boss asks her to pick Sylvia up, the time counts. If Maggie is just being a good co-worker, the time does not count.  Either way it doesn’t count for Sylvia.  Now, what if Sylvia completes a report for work that her boss has been waiting on during the ride?  This time, Sylvia must count the time.  Simply because she is not in the office and is using time that would otherwise be her commute, does not mean she loses the time.

Travel here, there and everywhere: Joe works for Cable Two as an installer.  He was given a fully equipped truck to drive each day.  For the company’s convenience, Joe is allowed to drive the truck home each night so he can go straight to his first call each day and from his last call home. You might think Joe’s day starts the moment he leaves the house. Not true. Because Joe is allowed to drive the vehicle home for his convenience, he does not start counting time until he arrives at his first call of the day and his time stops when he starts home from his last call every day.  The fact that Joe reports to different locations at the beginning of each day and drives home from a different location does not make the time count.  This is true even if the drive time is different each morning and evening.  There are situations where employees drive two to four hours for their first job each day and none of that time counts toward the employee’s hours for the week.  That said, it may be hard for the employer to keep employees under those circumstances.

Ride and work: Calvin rides from an assembly point each day on a bus into the plant where his construction company is performing an upgrade.  The ride is about 30 minutes each way. Initially, Calvin and his co-workers could listen to music or talk on their phones during the ride.  Over time, Calvin’s supervisor figured out he could save time when the employees arrive at the jobsite by using the ride to go over the day’s assignments.  Is the ride compensable?  Of course – it is used for the employer’s benefit.  It is not a novel circumstance for a situation like this to naturally arise.  The head office starts with an approach designed to comply with the law and someone with no understanding of the rules decides to be more efficient.  Oops.  Now you’ve got a problem.

What should I do:

Good: Analyze all the common situations for your business and determine the compensability of employees’ time.  Act on your determinations accordingly.  Plan travel away from home locations or overnight in advance to be sure that you handle it appropriately. There may not be time to get advice of counsel after the employee returns and before their paycheck is due.

Better: As you can tell from this edition, there are many situations in which you may find yourself. When in doubt, consult an attorney.

Employment Law 101: Child and Spousal Support

Posted in Handbook Articles

Who, What, Why . . .

Who does it apply to: All Texas employers are required to respond to garnishment requests. There is no minimum employee exception for child and spousal support.

What are my obligations before receiving an order to garnish: All employers are required to report hire date, name, address, and Social Security Number for new hires to the Texas Employee New Hire Operations Center of the Texas Attorney General’s Office within twenty days of the employee’s first day of work. Employers with employees in more than one state may report in each individual state or one state. If reporting in one state, however, employers must do so using the state’s electronic system and notify the Federal Office of Child Support Enforcement (“OCSE”) in writing.

Employers must also respond to requests from OCSE and the Texas Attorney General’s Child Support Division for information regarding the identity, location, position, compensation, income, and benefits of an employee to help that office determine child support obligations.

Employers may meet each of these obligations using the Child Support Division’s electronic filing system.

What types of support exist: Most employers associate state garnishments with child support only. As you can see from the title of this edition, however, spousal support may also be deducted. Additionally, deductions may be made for medical insurance support and child and spousal support which are past due or in arrears. There is a very specific order of priority among these types of support also. Currently due child support takes the highest priority followed by current spousal support, medical support, and child support in arrears. Spousal support in arrears then occupies the very last position.

How does withholding work: An employee may be required to pay up to 50% of his or her “disposable earnings” for support. Disposable earnings are those earnings above and beyond withholding required by law (state and federal taxes, Medicare, and Social Security, etc.) and exceeding union dues, non-discretionary retirement contributions, and contributions for health and disability insurance.

What if there are multiple withholding orders: This is the messiest part of handling child support. Employees are sometimes subject to withholding orders from different states, which require employers to divide the disposable earnings up between the various orders. There are very specific rules for applying these payments. Disposable income must be applied to the total current support for each order equally first and then equally to arrears support. Seek the advice of employment counsel or the Child Support Division to be sure these payments are correctly made.

What about withholding for severance or bonus payments: Employees receiving a lump sum payment in excess of $500 as a bonus or other payout, may be required to contribute up to 50% of the disposable earnings portion of the payment to support in arrears. Employers are required to contact the Child Support Division to determine what portion of the payment must be sent in for support. Similarly, employees receiving a lump sum for severance at the end of employment must make an appropriate disposable earnings contribution to regular support equal to the number of paychecks the sum would represent. For example, a severance payment of $10,000 for an employee who usually earns $2,000 per month would require deductions for five months of regular support contributions.

How do I make payment: Employers must send the payment on the pay date on which money is withheld. Employers with more than 50 employees must remit payment electronically. Employers submitting paper checks for multiple employees must submit the proper processing form dividing all of the amounts for each employee so that the state may properly apply the payments.

How does support for medical insurance work: Employers may be ordered to place the dependent of an employee on the business’ medical insurance even if the employee is not participating in the plan. Employers will receive a National Medical Support Notice from either the OCSE or the Child Support Division requesting that a dependent be added to a plan. Employers must complete the forms attached and return them to the requesting agency within 40 days of receipt. This will let the agency know whether the request has been met or if there is a reason it cannot be met – such as the employee’s ineligibility for coverage. Employers should then deduct the premiums from the employee’s pay to the extent the plan requires deduction according to the regular withholding rules. Should the plan lapse, the employer must let the requesting agency know within 15 days.

What if the employee leaves: Employers must report the separation of an employee subject to a child support order to the Child Support Division and\or the OCSE within seven days of the date of separation.

Common Situations:

Woman on a mission: Sadie is the owner of a taxi company in Tyler and the single parent of a beautiful daughter. Sadie has zero tolerance for ex-husbands or ex-wives who shirk their responsibility and believes that people who have child support garnishments are just above snails in the food chain. Sadie refuses to hire anyone with a child support order and finds an excuse to release all employees who become subject to a child support order while working for her. Is Sadie on a taxi ride to the big house? Well, not the big house, but Sadie is subject to a lawsuit by each and every employee she has refused to hire or let go for this reason. It is illegal to discriminate against an employee based on child support status.

I didn’t hear you: Kevin operates Medieval Armory manufacturing replica armor for collectors all over the world. Kevin isn’t a paperwork kind of guy. He ignores all requests to deduct money from his employees’ wages and never reports new hires. What consequences does he face, if any? Let’s just say the State of Texas does not like to be ignored. Kevin may be penalized $25 per new hire he has neglected to report, but failing to withhold is the mother lode. Kevin is subject to a $200 fine per pay period and becomes liable to the person who was not paid support for the amount owed, plus all attorney fees to collect it from Kevin. Kevin better have some really, really, rich collectors.

Turn off the spigot – Now: Cal has been waiting for this day for the last six months. His son has turned 18 and Cal is ready for the child support payments to end. Cal strides into the Human Resources office showing a copy of his son’s driver’s license and demands that the payments cease. Cal is planning to buy a new truck and this money will put him over the top to get it. Can Cal head to the dealership this week? Not with his child support money. HR tells Cal that it needs an order from the Child Support Division to let him off the hook. Cal runs home and brings back his divorce decree showing that child support ends at 18 for his son. All better? No. Employers are not lawyers or judges. They are not required to interpret court orders or rely upon common perception about when child support ends (which can be age 25 in some cases). Cal’s employer should wait for an order from the Child Support Division. If Cal has a refund coming, he can get it from them.

What should I do:

Good: Provide notice of new hires, comply with all withholding orders, and provide notice of separation when employees leave. Don’t forget to deduct up to $10 per month as an administrative fee for handling support deductions (but not medical insurance).

Good gets it done this month. Because each of the obligations above is mandatory, there is no room for employers to take a “Better” or “Best” approach.

Employment Law 101: Bonuses

Posted in Handbook Articles

Who, What, Why . . .

Who does it apply to: You guessed it . . . any employer who chooses to pay a bonus to employees.

What counts as a bonus: There are a lot of ways to describe a bonus. For our purposes, a bonus includes any discretionary or non-discretionary payment or “compensation” to an employee outside of their regular hourly, salary, commission, or piece rate pay. A bonus then includes any prize or award to an employee in addition to traditional “bonus” payments.

What is the difference between discretionary and non-discretionary bonuses: I’m glad you asked. It is one of the key dividing lines in payment of bonuses. If a bonus is discretionary, it does not count toward an employee’s overtime calculation and may not be owed to an employee regardless of that employee’s separation from the company. Non-discretionary bonuses on the other hand count toward overtime and an employer may be responsible for them even if an employee leaves. Of course, if the employee is exempt from overtime this distinction matters less (see the prior EH editions on Overtime and Exemptions from Overtime).

What is a discretionary bonus: You know what is, and is not, discretionary. Of course, what you think is discretionary and what the government thinks is discretionary may differ. To be discretionary in the eyes of the law:

• The employer must control whether a payment is granted

at all;

• The amount of the payment must be discretionary;

• Determining the amount and making payment must occur near the end of the period for which the bonus is granted; and

• The bonus must not be subject to a prior contract with the employee or a promise causing the employee to expect payment.

If the employer surrenders control over any of these items, the bonus will become non-discretionary.

How does this break down in layman’s terms: If you tell your employees that you plan to pay a bonus at a particular point in the future, but retain control over the amount, it becomes non-discretionary. If you tell the employees how much a bonus will be (or give them a way to calculate it), but don’t say when it will be granted, the bonus becomes non-discretionary. Examples of non-discretionary bonuses include payments for: attendance, retention to encourage working undesirable shifts, safety criteria met, meeting individual productivity criteria, the company meeting certain criteria, reporting fraud or criminal activity, recruiting bonus and bonuses that may have been discretionary in the past which have become expected through repetition of payment.

How does a non-discretionary bonus affect overtime: Employees who are not exempt from overtime must have all money for non-discretionary bonuses included to determine their overtime rate. To use a simple example, an employee paid a weekly safety bonus of $100.00 who works 50 hours at $15.00 would receive overtime of $92.50 with the safety bonus calculated instead of $75.00 based on just 1½ his or her hourly rate (See the EH edition on Overtime for more information about how this calculation works). Bonuses paid quarterly would then be spread over the employee’s pay for the entire quarter on a weekly basis and an additional overtime payment would be due for overtime weeks with the bonus.

What if the employee leaves before the bonus is due: For discretionary bonuses, the employee clearly will not be entitled to the bonus. For non-discretionary bonuses, the employee will be entitled to a pro-rata portion of the bonus unless the employee was terminated for good cause or the program providing the bonus specifically states that the employee must be present at the time the bonus is awarded to receive it.

What about prizes and awards: Prizes and awards are generally treated like non-discretionary bonuses which count toward overtime for non-exempt employees, unless: (1) the prize or award is not given for an employment purpose; or (2) the prize or award has no value. Prizes given for activity outside of work and working hours that are beyond the employee’s usual duty and different from what the employee regularly does will meet the exemption requirement. Otherwise, the value of the prize must be included in the employee’s overtime.

Common Situations:

Back in the saddle: Mary takes six weeks unpaid time away from Tom’s Tortilla Factory to care for her elderly mother. Mary’s time away is covered by the Family Medical Leave Act (“FMLA”) (see the EH edition on the FMLA for more information). Mary arrives just in time for payment of the quarterly plant safety bonus to employees, but does not receive her bonus check. Upon inquiry, she is told by Tom that she does not qualify because she was out for a substantial portion of the quarter. Has Tom violated the law? Yes. Because the safety bonus is not tied to Mary’s productivity and relates to the overall safety of the plant, Mary is entitled to receive her check. Safety, attendance, and other bonuses related to the activity of all employees fall into this category. That said, Tom may pro-rate the check for the portion of the quarter for which Mary was present.

I’ll take that, please: Sadie’s Circuit Boards pays handsome bonuses to sales representatives who meet certain sales goals. Joel makes a huge sale to uPod Mobile Music, Inc. and receives a large bonus based on that sale. Months later uPod backs out of the agreement and Sadie appears at Joel’s desk with her hand out demanding repayment of the bonus Joel received on the sale. Can Sadie take this approach? It depends. If Sadie has included a claw-back provision in the bonus structure for sales representatives, it is possible she can recoup the money from Joel. Without such an agreement in writing, her demand will not stand up. Claw-back agreements are becoming more common in businesses and raise a large number of issues – especially for executives and officers. IRS Section 409A governing parachute programs and Sarbanes Oxley can come into play if repayment is permitted over time. Check with your employment counsel before implementing a claw-back provision.

Santa Claus is coming to town: Nick has been working on the line at Tawny’s Toy Factory for more years than he can count. For as long as he can remember, Tawny gives the employees a “Christmas Bonus” that is not tied to productivity, but has truly come to be expected. Is the bonus subject to overtime? It may be discriminatory, but it is not subject to overtime. Even though the bonus has been given so long that it is no longer truly discretionary under the law, the Department of Labor has specifically excluded “Christmas Bonuses” and bonuses paid solely for longevity with a company from overtime calculations as long as the bonus is not so large as to be considered part of the employee’s regular compensation. That said, a bonus of this type tied in any way to productivity would be included in overtime so employers should be careful.

What should I do:

Good: Evaluate any bonus program you have and be sure to pay overtime on bonus amounts for non-discretionary bonuses.

Better: Follow the advice above, plus put non-discretionary bonus programs in writing to be sure everyone is clear on what the rules are and be certain to include a provision that employees must be employed at the time the bonus is awarded to receive it.

Best: In addition to the above, have all employees sign acknowledgements regarding all bonus programs. Be careful to avoid discretionary bonuses becoming non-discretionary by varying the award from year to year and the timing of such award.

Employment Law 101: Age Discrimination

Posted in Handbook Articles

Who, What, Why . . .

Who does it apply to: The Age Discrimination in Employment Act (“ADEA”) applies to virtually all employers with 20 or more employees in 20 or more calendar weeks in the current or preceding year. Be careful how you count, though. Businesses under 20 employees may be covered if they are connected to other businesses by interrelated operations, shared bank accounts, common record keeping, overlapping ownership, or centralized control of the human resources function.

Who is protected: Applicants and employees 40 and older. Interestingly, the ADEA does not care about those 39 or younger. Employers are free to prefer employees 40 and older over younger workers. Although age discrimination can still occur between employees over 40, an age difference of less than 10 years is usually not considered significant enough to warrant a remedy. The law also protects U.S. citizens working abroad for U.S. controlled companies in most circumstances. And, finally, if you have a contractor working for you who is mischaracterized (see the Independent Contractor v. Employee EH edition) they may be able to bring a claim.

Who is not protected: (1) True independent contractors, and (2) business executives over the age of 65 who have spent the last two years in a “policy making” position and are entitled to a non-forfeitable annual retirement benefit meeting certain criteria. The executive exception is very technical and is not intended for middle management. See your employment counsel about this exception.

What constitutes a violation: There are two kinds of violations – direct mistreatment and disparate impact. Direct mistreatment is straightforward. If an employer affirmatively mistreats an employee because of his or her age by failing to hire, firing, demoting, promoting younger employees, or any other type of significant slight someone might dream up, it can be actionable as age discrimination. Disparate impact is more subtle. If an employer creates a policy that is neutral or non-discriminatory on its face, that policy might have a consequence of negatively impacting older workers more significantly than others. For example, if an employer institutes a policy that employees who wear reading glasses must be let go, the policy itself does not seem discriminatory because it may affect older and younger people. That said, 90-some percent of people have to start wearing reading glasses by age 40. This facially neutral rule has a disparate impact against workers over 40 and may be actionable.

What if my employee violates without consent: Choose carefully who you place in charge. Employees placed in positions of authority with the power to control the circumstances of other employees are not personally liable. Their liability is placed with the employer even if the employee acts without authority. The same is true of independent contractors (whether properly characterized or not) placed in positions of authority over employees.

Are there circumstances where I can exclude older workers: There are some jobs that older workers simply cannot or should not do. This is recognized under the ADEA. If an employer has a Bona Fide Occupational Qualification (“BFOQ”) that requires workers above certain ages to be excluded, it will not violate the law. To have a BFOQ, the employer must demonstrate a factual basis that provides a basis to believe that all or substantially all older persons are unable to perform the job safely and efficiently. Employers must be careful with BFOQs. They are often challenged and rarely hold up unless there is strong evidence that all older workers can’t do the job.

Common Situations:

But I just got here: David just bought all of the assets of Hal’s Hot Links. To keep the business running smoothly, he bought the name and hired several of the employees Hal let go at the time of sale. A few weeks into his new business, David receives an EEOC charge of age discrimination for things that happened to an employee David hired that used to work for Hal. The employee complains of things that happened back when Hal had the business. Why is David involved? There is a concept of “successor liability” under the ADEA. If there is continuity of operations and workforce, notice to the new owner, and no chance for the employee to recover from Hal (who has run off to Aruba with his young girlfriend), David might have some responsibility. The rules here are complicated. Check with your employment counsel about these issues. The message here is to be careful when making an “assets only” purchase of another business. That might not be enough to protect you.

The law of supply and demand: The Springfield Police Department does a pretty good job of keeping its employee pay Age Discrimination rates separated by rank and department, but the nearby town of Highland Park has started paying new recruits what Springfield pays its sergeants. In need of new officers, but unable to raise the payroll of all of its officers, Springfield raises the pay for new recruits to match Highland Park. This angers several of Springfield’s sergeants who are all over 40. Many file claims against Springfield. Have they got a point? No. It is not a violation of the ADEA to pay workers what they are worth in the workplace. Springfield has to do something to compete. That said, Springfield better keep good records of its reasons and what is happening over in Highland Park to prove its position.

It’s time to retire, pops: Sarah’s Widget Works has finally run its competitor, Bill’s Big Bad Widgets, out of business. Several of Bill’s most talented employees have come by to apply for a job with Sarah. Sarah has a full complement of staff, but several are getting up into their 60s. Sarah calls in each 60+ employee and asks about their retirement plans. Each indicates they are thinking of working another 2 or 3 years. Sarah decides to offer an early retirement package to eligible employees over 55 to see if any of her older workers will choose to retire early. Has Sarah gone off the deep end? Not yet. It is not illegal to ask an employee about his or her retirement plans, but Sarah should be careful not to let the employees take it wrong. It also is not illegal to offer a neutral early retirement program to all eligible employees. If some of Sarah’s employees take it, she will have room to bring in Bill’s talent as long as she does not discriminate against Bill’s older workers.

Classified ads: Mikey runs the local motorcycle shop and needs someone to come in to do part-time stocking work. Hoping to help a kid at the local college, Mikey runs an ad in the school paper looking for a “college student” for help stocking shelves. While it seems harmless enough, has Mikey broken the law?

In an edition devoted to the ADEA, I suppose you’ll think so. You’re right. Mikey has committed two sins. First, he advertised for help only in the college newspaper. Employers have to draw their prospects from neutral environments open to all workers. Only the local college students read the school paper and while there may be some non-traditional older students, the ad is primarily aimed at young people. Second, Mikey asked for a college student. Employers must avoid terms like “college student”, “boy”, “girl”, “young”, “25 to 30”, and “recent college graduate”. These can violate the law. Of course, remembering that the ADEA does allow discrimination in favor of older workers, there is nothing wrong with advertising for a “retiree” or someone “50 to 60”.

What should I do:

Good: Count up your workers every six months to know if the law applies to you. Once you are over 20, institute an anti-discrimination and anti-harassment policy for all protected groups (and including “older” workers over 40).

Better: In addition to developing a policy, control who is permitted to interview candidates to be sure they are aware of the concerns of age and other discrimination. Be conscientious about advertising positions to be sure all age groups are targeted and that words referring to young people are left out. If you let go an older worker you are concerned may make a claim, try to replace them with a worker of similar age to reduce the effectiveness of a possible claim.

Best: In addition to the items above, create job descriptions for each position. Use the job descriptions to prepare advertisements for positions, to ask objective interview questions, and to create a uniform and objective performance review system to avoid accidentally discriminating against someone.

Employment Law 101: I-9 Forms

Posted in Handbook Articles

Who, What, Why . . .

Who Does It Apply To: All business owners hiring employees to work within the United States.

What Is An I-9 Form: Hopefully, you are all familiar with the I-9 Form. All employers are required to complete one for all new employees by the Department of Homeland Security and the U.S. Citizenship and Immigration Services (“USCIS”). Its purpose is to help employers determine whether applicants are authorized to work in the United States. Of course, it is also used by USCIS to make sure employers don’t hire workers who are unauthorized to work in the United States.

How Do I Properly Complete The Form:

How does the form work: An I-9 Form requires both the completion of basic citizenship information and verification of identification proving the right to work. There are three parts or “Sections” to the document. Section 1 is information about the employee. Section 2 is the verification of documents for employers. Section 3 can be used if an employee is rehired within 3 years of separation.

When to fill it out: An I-9 Form must be completed for every new employee hired after November 6, 1986. Prepare the form before the employee begins work on their first day by completing Section 1. Then, be sure the employee meets the requirements of Section 2 within 3 business days of the first day of work. Never complete the form before the prospective employee is offered employment and accepts the job. Doing so earlier creates a possible discrimination claim if the person is not hired.

How do I fill out Section 1: Employers do not fill out Section 1. It is to be completed by the new employee before beginning work on their first day. The employee must complete their full name, address, date of birth, attest to citizenship or immigration status, and sign and date the form. Employers do have responsibility to make sure the employee has completed all of Section 1 with information that conforms to the questions asked in Section 1, i.e., putting an address in the address box.

How do I fill out Section 2: Within three business days of the first day of work, the employee must present original documents found on the Lists of Acceptable Documents at the end of the I-9 Form. The employee must be sure the documents you accept are not expired. You then fill out Section 2 of the I-9 Form and retain it. Do not specify to your new employees which documents they provide or ask for different or additional documents, or comment on their choices.

How do I fill out Section 3: Employers may choose to complete Section 3 if rehiring an employee within 3 years of prior separation. Employers are not required to use Section 3 for a rehire and may fill out a new I-9 Form.

How do I know the documents are real . . . or should I care: Employers are required to accept documents that “reasonably appear” to be genuine. This gets into sticky territory for employers. After all, you are not an expert on documents. If you complain that documents are not real when they are or appear to be, you can get in trouble for discrimination. If you accept documents as real when they are not, you again make a mistake and get in trouble with USCIS. My advice – print yourself a copy of the illustrations of acceptable documents from Part 8 of the USCIS Handbook for Employers. Unless the documents appear patently false, accept them. If you make copies for examination by the human resources office at hire, don’t keep the copies. If you keep them, USCIS can examine what you looked at and decide for you.

What if I get contradictory documents: If the employee correctly follows the List of Acceptable Documents, you should not get contradictory documents. Sometimes, however, an employee will bring in what appears to be a valid non-immigrant alien document from List A and a social security card or US Citizen ID card. If the person only presented the non-immigrant documents, you would be fine, but we all know it would be difficult to have a social security card and a non-immigrant status at the same time. In this situation, you have a judgment call to make. You can take the document from List A and move on or you may consider calling USCIS for advice.

What do I do with the completed form: Employers must retain every employee’s I-9 Form while the employee works for them. As noted above, I don’t recommend keeping copies of the documents you receive, but remember to keep them for all employees if you keep them for some. I-9 Forms can be retained either on paper, or electronically.

Form I-9 – Employee Eligibility Verification

Forms are stored, they must be in a secure location or system that protects against the alteration or loss of the Forms.

What about reverification: Employers are not permitted to reverify employees who present permanent right to work documentation, however, employers are specifically required to reverify all employees who present documents of a temporary right to work. Reverification must be done by the expiration date so employers need to calendar this responsibility.

What do I do after the employee leaves: After termination, employers must keep the I-9 Form for the longer of: (a) three years after the date of hire, or (b) one year after the date employment terminated, whichever is later.

What is E-Verify: E-Verify is a federal database to help employers confirm the employment authorization of new hires that is free and available in all 50 states. Employers who participate in E-verify must complete an I-9 Form and then create a “case” in E-verify that includes information from both Sections and the employee’s social security number. E-verify will issue a response regarding the employee’s authorization status. Employers may not use E-verify to pre-screen applicants for employment, check employees hired before the company became an E-verify participant, or reverify employees. If an employer uses E-verify to authorize one employee, it must use it for all employees. E-verify is currently voluntary for all Texas employers, except for federal contractors, but may be made mandatory for all employers soon.

Common Situations:

Consistency is key: Ray has attested to being a U.S. citizen on Section 1 of the I-9 Form, but presented his new employer, Callahan Auto, with a “green card” the next day to complete Section 2. Should Callahan accept this document? No. Employers are not expected to be immigration law experts, but the document is inconsistent with the status attested to and therefore, is not reasonably related to Ray.

But I didn’t do it: SMI acquired McGuire, Inc. along with its employees. SMI did not take any action towards verifying Maguire’s employees’ identity and employment authorization. Is SMI liable for errors made on Maguire’s I-9 Forms? Yes. Companies acquiring another company’s employees have the option to either retain the previous owner’s I-9 Forms or complete new I-9 Forms.

English as a second language: Estoban’s Fine Restaurant hires Isabella because of her world famous cooking skills. She speaks only Spanish. Estoban locates and prints off the Spanish I-9 form which Isabella completes with no complications. Six months later the restaurant is audited. The only violation they can find is Isabella’s I-9. Why? As ridiculous as it may sound, the Spanish I-9 form is only for use in Puerto Rico.

What Should I Do:

Good: Don’t complete the I-9 Form before the employment relationship is consummated. Notify new employees to bring documents for the completion of Section 2 on the first day of employment and get it out of the way. Don’t keep copies of the documents for Section 2. Be careful not to discriminate against employees based on their documentation. Make sure the I-9 Forms are stored in a secure location that can still be accessed on three days’ notice.

Better for Some, Not for All: All of the above, and use the E-verify system to ensure you are maintaining a legal workforce. Certain industries, however, may not want to voluntarily subject themselves to E-verify. You know who you are.

Preserve Your Right to a Payroll Tax Refund

Posted in In the News

A disagreement between two federal appeals courts regarding whether payroll taxes must be paid on severance payments made to laid-off workers has landed the issue in front of the U.S. Supreme Court. Oral arguments began January 14th, 2014.  How the Supreme Court decides the case, called United States v. Quality Stores, Inc., may result in payroll tax refunds being owed to both employers and employees who paid or received severance over the past few years.

Pending the outcome of the Supreme Court’s decision, the IRS has suspended action on payroll tax refund claims involving severance payments filed by employers in the Sixth Circuit (Kentucky, Michigan, Ohio, and Tennessee).  For employers outside the Sixth Circuit, the IRS is continuing to disallow employers’ refund claims.  However, employers both inside and outside of the Sixth Circuit should promptly file amended employment tax returns to preserve their rights.  For employers outside of the Sixth Circuit who file a refund claim, if the end of the two-year period for filing a refund suit after a notice of disallowance is approaching, then the employer should use IRS Form 907, Agreement to Extend the Time to Bring Suit, to extend this deadline.

Individuals laid off in the past three years can file IRS Form 843 to make a refund claim for his/her individual portion of payroll tax overpayments due to receipt of severance payments.  However, the employee should first ask his/her former employer if the company is pursuing a payroll tax refund.  Some companies have alerted former workers that they are doing so, but they are not required to notify former employees unless the IRS agrees to pay a claim (and the IRS is unlikely to pay any claims until after the Supreme Court decides the Quality Stores case).  At that point, the employer generally asks the former workers for consent to include their claims with its own.  This sets up a process so that the company can pay former workers their shares of refunded payroll tax. If the individual’s former employer did not file a refund claim, then the individual can file IRS Form 843 to make his/her own claim.  Note that the individual must make this claim within the statute of limitations, which is generally three years after he/she files the tax return reporting the severance payments.  Also note that if a taxpayer is successful and receives a payroll tax refund, the refund is not taxable, but the interest paid on the refund is taxable.

Whether a payroll tax refund is owed to an employer or an individual will be specific to each employer and each individual.  To determine if you may be entitled to a payroll tax refund and how to best preserve your right to a refund, we encourage all employers to contact Jason Luter at Gray Reed & McGraw, P.C.  jluter@grayreed.com; 469-320-6076.

 

Employment Law 101: Holiday Parties

Posted in Handbook Articles

Who, What, Why . . .

Who does it apply to: This one is pretty straight forward. It applies to all employers contemplating any type of holiday gathering for its staff.

What are the legal issues: Holiday parties potentially implicate a variety of employment laws: Discrimination, Fair Labor Standards Act (“FLSA”), Workers’ Compensation, and liability associated with providing alcohol.

How is discrimination an issue: Discrimination is probably the biggest concern for an employer planning a holiday party. The primary two issues employers need to watch out for are sex discrimination (in all its forms), and religious discrimination.

Sex discrimination can take the form of harassment or treating a male or female comparably unfair in comparison to her male or female counterparts. At holiday parties, it most often is the result of one employee touching another or propositioning another inappropriately. What might even appear to be consensual during a party could be described as an unwanted advance once the employee makes it home to a spouse in need of explanation. All incidences of inappropriate comments or conduct should be closely watched for and broken up.

Religious discrimination also rears its head during the holiday season. Christians commemorate the birth of Jesus. Muslims celebrate Eid al-Adha, or the Feast of Sacrifice. Some African-Americans celebrate Kwanzaa. Buddhists celebrate Buddha’s Enlightenment with Bodhi Day. The Jewish celebrate Hanukkah and the Festival of Lights. Some Seinfeld devotees celebrate Festivus, and there are many others. With so many different points of view, employers must be careful as they plan for a holiday party.

That said, employers should keep an eye out for portions of the holiday party plan that might affect the other protected classes: race or color, national origin, age, genetic information, pregnancy, military status, and disability. Drinking alcohol is not usually involved in the work environment, but it is often available at holiday parties and a surprising number of people do not keep personal control when alcohol is available. This can lead to improper comments that an employee would have been smart enough to avoid without alcohol.

How is the FLSA an issue: Holiday parties conducted during work hours or which have a mandatory attendance requirement may result in the time being considered compensable for non-exempt employees. If the employees are required to attend, or feel required to attend because of some event at the party, they should be paid for the time including any applicable overtime.

What is the issue with workers’ comp: Employees are covered for injuries sustained while in the “course and scope” of their employment, which means furthering or carrying on the business of their employer. If attendance at a holiday party is required, the employee can make a workers’ compensation claim for injuries sustained – as long as those injuries do not result from horseplay or intoxication. Avoiding a workers’ compensation claim, however, may not be the right ticket because employees may then have a claim for negligence, which will not be covered by your carrier.

How can I be liable for providing alcohol: Under Texas law, an employer is generally not responsible for injuries to an employee or anyone that employee might injure, as a result of providing alcohol to that employee. One exception to this rule is providing alcohol to a person under the age of 18.

Common Situations

Office staff only: Jimmy, decides to have a “Holiday Party” for his office staff at Jimmy’s Janitorial Service. Jimmy decides that the actual crews would be too cumbersome to invite so he does not include them. Has Jimmy screwed up? Yes. It wasn’t religious discrimination and there was no sexual harassment, but Jimmy failed to take into consideration the fact that 98% of his office staff is white or black and 98% of his cleaning crews are Hispanic. While sexual harassment and religious discrimination are most likely to create a problem with a holiday party, employers must be mindful of unanticipated consequences.

But you assumed responsibility: Arnie, owner of Arnie’s Beer Goggles, decides to host a Christmas party for his staff at his home. Because he knows the dangers of sending inebriated employees home after a party, he decides that everyone must stay at his home overnight to avoid leaving drunk. After a fun filled evening, Arnie calls it a night about 2 a.m. and goes to bed leaving his employees apparently asleep in the living room. Around 3 a.m., one of the most heavy drinkers, Saul, decides to head home with his wife. On the way home, Saul hits a tree and is grievously injured. Does he have a case against Arnie or the company? Maybe, but not for providing the alcohol. Setting aside the fact that Arnie should not have called it a “Christmas party,” he made the mistake of taking responsibility for the safety of his employees. By making them stay at his home, but doing nothing to ensure they would do so – such as taking away their keys, Arnie may have engaged in a “negligent undertaking.”

What should I do

Instead of good, better, and best, this month, consider these remedies for the particular concern:

Sexual Harassment: Remind all employees of anti-harassment policies and applicability at a company party. Designate a hall monitor and put all supervisors on watch duty for any issues. React to complaints and politely break up any potentially dangerous decisions right away.
Religious Discrimination: Avoid decorations and themes associated with a particular religion. Make the focus of decorations wintery.

FLSA: To avoid the risk of paying employees to attend the party, have it during regular business hours you would have paid them for even without the party, or make attendance strictly voluntary. And, if you use voluntary attendance, be sure not to include any activities an employee might feel a need to be present for – such as handing out bonuses.

Worker’s Compensation: Minimize activity at the party. Dancing and drinking can make for accidents.
Social Host Liability: Setting aside the fact that skipping alcoholic beverages will lessen the risk, consider the following. Hire a bartender and instruct them who the minors are, if any, and to warn you if anyone appears to be over-served. Consider using the dreaded drink tickets to limit consumption or closing the bar early. Serve starchy food that will soak up alcohol more quickly. Offer to reimburse for taxi service.

Employment Law 101: Employee Terminations

Posted in Handbook Articles

Who, What, Why . . .

Who does it apply to: Any employer faced with letting an employee go. In this edition, I am taking a break from my regular format to pass on advice about handling terminations. 

Before the Termination Meeting:

• Plan when. An employee humiliated during termination is much more likely to feel the desire to seek revenge by suing. Fire on shoulder hours – at the beginning or end of the day when fewer people are around. Don’t fire an employee on their birthday or adjacent to a holiday.

• Plan where. It is usually best to pick a private place on neutral territory that way either side can leave without a problem. If you do it in your office, you are trapped if they won’t leave. If you do it in theirs, it will be more uncomfortable to them.

• Plan for any security concerns. If the employee is particularly volatile, it may be appropriate to warn building security and have them on standby. In a very bad case, call the police or sheriff, they will usually send someone out to oversee the event. Terminate this type of employee before they make it into the building if possible.

• Check payroll. Does the employee have any outstanding loans to the company or borrowed vacation they have not yet repaid? If they do and the loans are not memorialized, be sure to plan to get an agreement for repayment in writing at the meeting. This may include an agreement to deduct from final pay.

• Company property. If the employee has a laptop, uniforms, company car, or cell phone, make arrangements to have the employee bring them to the meeting. Make something up if you have to. Getting that property will be costly and a pain after the employee leaves.

• Limit computer access. Think of all the ways the employee has access to your computer system from the outside. Turn all access off before the meeting.

• Complete documentation. Be sure that you have documented the employee’s file for all the factors and reasons that support separation. Be sure the documentation is consistent with your employee handbook.

• Consider potential claims. Is the employee in a protected class? Is there anything the employee could argue you have done wrong? What can you do to limit your exposure before you terminate them? Call your legal counsel to talk it over if you have any concerns. It will likely cost less with your lawyer to do so before the termination than after.

• Do you need a release. If there is a potential claim for which you want to get a release, prepare the release document in advance. Remember, you are buying a release from a claim – not paying additional wages or “severance” so the payment should be a lump sum with no taxes taken out. You will want to “1099” the payment. DO NOT tie receipt of a final check to signing off on a severance agreement. You do not want the former employee arguing that the money paid for the release was just additional regular pay that was owed. And, use a round number – if you want to use 2 or 4 weeks pay, round to the nearest $500 up or down as you see fit.

During the Termination Meeting:

• Always have two people in the room. Two recounts of what happened are better than a he-said she-said fight between a former employee and the employer in a later lawsuit.

• Always try to have a person of the same sex, and if possible, race, religion, etc., as the employee in the room. A jury will like that person’s perspective better than a boss of a different gender or race in a lawsuit against a former employee of the opposite gender or race.

• Do not give a reason. This is the hardest one for clients to follow. There is a strong urge to treat termination like a high-school break up with the “it’s not you, it’s me” excuse or some other excuse made to help the terminated employee feel better about their separation and ease the conscience of the terminating employer. For later defending a claim, employment lawyers are then hemmed into a polite excuse, rather than the real reason which is likely that the employee was no good. To preserve a clean slate for the employment lawyer to use, don’t give a reason.

• Keep it short. The fired employee will likely want to know why. Much like the teenager who is told he can’t spend the night at a friend’s house, he wants to know why so he can debate you about why the reason you have is not good enough. After all, the person is about to be unemployed. Don’t take the bait. Every word uttered in the meeting just clutters the landscape in a future case. You want as few words spoken as possible to decrease the words for the employee to use against you later.

• Be professional and polite. The terminated employee is going to make a decision about whether to sue, or report your company for any violation he or she can think of to governmental agencies based on how he or she feels shortly after the separation. You need to avoid making the employee feel badly as much as possible.

• Present any severance and release agreement you’ve determined to offer. Put it in an envelope and hand it to the employee. Invite them to read it after they leave and have a chance to consider it. You don’t want the employee arguing you forced them to sign it. If they are over 40, they have at least 21 days to consider it anyway.

• Clear any debts. Present any agreement you prepared to collect any loans from the last paycheck and make payment arrangements beyond that.

• Don’t offer the employee help finding another job. Doing so either means you think the former employee was not so bad at the job that they should be fired, or that you are going to lie to someone to suggest he or she should be hired even though you fired them.

After the Termination Meeting:

• Do not make the employee do the walk of shame. Studies show that a former employee’s desire to sue is somewhat related to how they felt about the termination. If you humiliate the person, they will have a stronger motivation to get revenge. As noted above, fire at the edge of business hours when there are fewer people around and allow the employee to leave after the meeting to return later for their belongings, which you can box up, if they prefer.

• Do not allow computer access. It never ceases to amaze me how many people let the employee go back to their office after a termination. An angry employee might do damage.

• Prepare a memo. Each person who is in the meeting should sit down and prepare a short memo about exactly what happened in the meeting. A lawsuit involving the meeting will not come for months or a year. It will help a jury believe your recitation of what happened if you can point to a memo about what transpired.

• Final Pay. Deliver the final paycheck within 6 days after termination. It is the law.

Employment Law 101: Background Checks

Posted in Handbook Articles

Who, What, Why . . .

Who does it apply to: Any employer interested in protecting their business from the potential consequences of not doing background checks and some employers who are otherwise required to perform checks.

What kind of checks are there: At first, you might just think of the basic criminal background check and verifying references, but there are many types of checks to consider:

Litigation\Bankruptcy: Does the person have a propensity to sue, and if so, for what, discrimination? Should the person be handling your money if they have filed bankruptcy before?

Education Verification: How many stories are there about people who do not have the degree they claim? Universities regularly get requests of this type. For their own protection, the schools often require written consent.

Military History: What kind of a soldier were they? What were the circumstances of their discharge?

Drivers License: Is this person going to drive one of your vehicles? Might they ever drive for work purposes in their own car? What if they have a bad history and get into a wreck? How will that be used against your business in court?

Drug Tests: Do you want to put a worker out there who takes cocaine on the weekends?

Licensing Boards: If the employee is licensed, like an attorney, have there been any complaints? How were they resolved? Boards that are government affiliated usually will provide information without a written consent, but it is worthwhile to have one ready.

“Googling”: I guess it is a verb now. What does the person’s internet persona look like? Are they the author of a blog that your clients might not appreciate?

Social Media Reviews: What have they posted on Facebook? Twitter? What kinds of pictures do they post on Flickr?

Credit Check: Can your employee handle their finances? If not, what does that say about their ability to manage your money? What distractions might money trouble bring?

Will I need consent: Under the Fair Credit Reporting Act, consent is required for criminal and credit background checks. The military will not provide service records without consent. Universities vary. Some will provide a date of graduation and degree earned without consent, but transcripts are almost never provided without written consent. Always obtain a written consent for drug testing regardless of whether it is required because it is an invasion of privacy.

What can I do to get better responses on references: I advise employers not to give references. There is no upside and the downside may be getting sued by a former employee. So, what can you do to pull some extra information out of a tight-lipped employer? Obtain a release from the applicant for the benefit of his or her former employers. You can also pass along a copy of Texas Civil Practice and Remedies Code Chapter 103, which provides immunity to employers who provide references as long as they don’t say anything maliciously false.

Are there problems with internet searches: Finding what is said about a prospect can be helpful, but it is fraught with peril. While searching, you may find your applicant listed as a deacon for their church. Without intending to do so, you just asked the question about your applicant’s religion. There are companies that do a better job than just “googling” to gather an applicant’s internet persona and they sanitize the results of any protected class information to avoid you learning things you would rather not.

How can I access an applicant’s social media sites: Some people post their entire lives on Facebook or tweet everything that goes on. This creates a huge body of semi-public information about the person you might prefer your clients not see. For this reason, many employers are asking applicants to provide passwords so they can review what the employee has posted. To combat this, Facebook has instituted a rule that members cannot give out their password. While the rule is of no consequence to you, it does not send the right message to ask a prospective employee to violate their agreement with Facebook.

There is a way, however, for an applicant to print out everything they have posted in the last few years so you can examine it. The problem with this approach is the same as “googling,” but avoids the fuss over passwords.

Are there special rules for certain checks: Yes. If credit or criminal history is used to make a hiring decision, the employer must provide a copy of the report along with a written note to the applicant explaining the effect. Also, there are requirements to correct erroneous addresses with the reporting credit companies. If you receive a letter from the credit reporting company regarding an incorrect address, you must confirm the address (check with your lawyer – the rules are specific on how) and report back to the credit agency.

What are the limitations on criminal background checks: In Texas, background companies are not permitted to provide criminal histories going back further than seven years unless the annual salary is expected to be over $75,000.00. Many out-of-state companies ignore this rule. Doing so is a violation of Texas law for them, but not the employer. That said, I encourage employers not to use information over seven years to avoid the possibility of a claim they conspired with the background company. Also, be sure to review our prior EH edition on discriminatory use of criminal checks.

Common Situations

It won’t happen to me: Data Entry, Inc. hires Mary to – wait for it – enter data. The company conducted a thorough background check of Mary’s criminal and credit histories and contacted all of her former employers. One Friday afternoon, the server goes down and someone from Data Entry has to run over to the IT company to pick up a part. Data Entry sends Mary and instructs her to hurry because there is a deadline looming on a project. Mary jumps in her car and promptly runs a red light trying to get there quickly. In the process, she runs down 10-year old Johnnie, turning him into a quadriplegic. During the deposition of Data Entry’s president, the lawyer for young Johnnie hands over a copy of Mary’s horrific driving record and asks the president to explain why they let Mary run the errand. Simply put, the cost of a driving record check would have been much less than the $25 million a jury will award Johnnie.

No addicts on my payroll: Devin at Weed Removers, Inc. isn’t going to have any druggies on his payroll. He tests all of his applicants for all possible illegal drugs. Rod applies for a job and signs a consent to be tested. The test comes back positive for prescription pain medicine. Devin rejects Rod and says he ought to get some help. Instead of going for help, Rod runs down to the nearest EEOC office to file a claim under the Americans with Disabilities Act. Has Devin done wrong? Unfortunately, yes. As it happens, Rod has a back injury and Devin’s failure to meet the requirements for a post-offer of employment health screening has just violated the ADA.

It’s the Delivery Man: Rick’s Remodeling regularly sends crews into residential homes to handle projects. One of Rick’s employees becomes upset with a customer and starts a fist fight. The customer is injured and sues for damages. Is Rick liable? Maybe not. Texas law provides a certain level of immunity for business owners who run background checks on employees who perform in-home services or residential delivery and set-up services. There are many different types of businesses where background checks are required or beneficial: banking, nursing, nursing homes, and childcare facilities just to name a few. Be sure you are compliant with the law for your type of business.

What should I do

Good: Make at least the kind of background checks that protect you from liability to others: driving record, basic educational confirmation, criminal history, and possibly a drug test. Get written consent for the tests or you may become liable to the applicant.

Better: All of the above, plus the additional checks listed with the exception of “googling.” Always get a consent for all types of tests.

Best: Good and Better, plus, invest in a background check that covers all the bases and sanitizes results for information about protected classes.

DOMA Stricken Down: What does this Mean for Texas Employers?

Posted in Quick Questions

On June 26, 2013, the United States Supreme Court issued a decision in the case of Windsor v. United States holding the Federal Defense of Marriage Act (“DOMA”) unconstitutional.  This decision will have implications for employee benefit plans and, specifically, benefit plans governed by the Employee Retirement Income Security Act of 1974 (“ERISA”).  The extent to which Texas employers and employees will be impacted is yet to be seen, but this article addresses what is currently known and outlines certain areas which we should all monitor for further developments.

While the ruling in Windsor v. United States will have a significant impact upon the administration of ERISA benefit plans in states that recognize same-sex marriages (there are currently twelve such states), it is unclear at this time what impact the ruling will have on states that do not recognize same-sex marriages.  Texas does not recognize same-sex marriages – the Texas Defense of Marriage Act, signed by Governor Perry in 2003, mirrors DOMA and stipulates that Texas does not recognize a marriage or civil union between persons of the same sex, regardless of the jurisdiction in which it is created.  Further, the Texas Constitution defines marriage as a union between a man and a woman.

In the twelve states that do currently recognize same-sex marriages, the Windsor decision requires employers to extend federal benefits and protections to same-sex spouses that were previously offered only to opposite-sex spouses.  Note, however, that we are only talking about “marriage” here – i.e., the decision does not apply to same-sex couples who have entered into civil unions or domestic partnerships.

Employers in states that recognize same-sex marriage will need to update their administrative procedures to address certain benefits issues that only previously arose in the context of opposite-sex marriages.  Here are a few of the issues that will likely arise:

  1. Tax treatment of health coverage:  the cost of a same-sex spouse’s benefits has heretofore been treated as imputed income for federal income tax purposes.  Now, in states that recognize same-sex marriages, employees will no longer be required to pay federal income taxes on the cost of same-sex spouse health coverage.
  2. Health insurance:  in states where same-sex marriages are recognized, group medical plans that offer spousal coverage will need to extend coverage availability to same-sex spouses.
  3. COBRA continuation practices:  the separation of an employee and his/her spouse is a qualifying event that entitles the former spouse to COBRA continuation rights.  Now, in states that recognize same-sex marriages, a same-sex spouse’s separation from an employee will entitle the former spouse to elect COBRA coverage.
  4. Section 125 Cafeteria Plans:  entering into or terminating a marriage is a qualifying event that entitles an employee to make a mid-year election change under the employer’s section 125 cafeteria plan (e.g., to add or drop the spouse/former spouse from benefits).  Now, in states that recognize same-sex marriages, entering into or terminating a same-sex marriage will create the same mid-year election rights for employees.
  5. Surviving spouse annuities and death benefits under retirement plans:  in states that recognize same-sex marriages, same-sex spouses will now be eligible to receive surviving spouse annuities or death benefits under retirement plans.
  6. Spousal consents to 401(k) plan beneficiary designations: many 401(k) plans require spousal consent to the designation of a beneficiary other than a spouse (e.g., if an employee wants to name a charity or his/her best friend as the beneficiary of his/her 401(k) benefits, the employee must first obtain the written consent of his/her spouse).  Now, in states that recognize same-sex marriages, this same spousal consent must be obtained from the same-sex spouse.

There are many unanswered questions that arise after the Windsor decision.  For Texas employers, a key question is what will happen if an employee enters into a same-sex marriage in a state that recognizes same-sex marriages and then moves to Texas to work.  Will that employee be afforded federal benefits and protections?  At this time, the answer is simply unknown.  But, Texas employers should bare the above listed issues in mind since they may become relevant in Texas, particularly with respect to workers who move to Texas from states that do recognize same-sex marriages.

Thanks to Looper Reed Associate Jason Luter for preparing this entry.