Executive Summary. Home care agencies in New York are experimenting with different packages of additional wages and benefits to meet the State’s Wage Parity Act requirements. This Act requires a minimum wage rate of $10.00 per hour and additional wages or benefits – a $4.09 per hour package in NYC and a $3.22 package in Nassau, Suffolk and Westchester counties (the “WPA Package”). Some agencies spend nearly all of the amount above the $10.00 base wage on additional wages, absorbing the additional employment taxes, which are not creditable against the WPA Package. Other agencies combine additional wages with minimum value and minimum essential health plan coverage in order to avoid penalties under the Affordable Care Act. Still others expand into more items, going beyond additional wages and health plans to create benefit programs that provide everything from transportation benefits to cell phone plan reimbursements. Their goal is to deliver all these benefits tax-free to workers, so receiving the benefits is better than additional wages alone, which subject a worker to income and FICA tax. When this is done properly, it is a “win-win” for the agency and the worker. The agency takes a business tax deduction for the total benefits’ actual cost, the worker receives the benefits without cost and tax-free, and the entire amount is creditable against WPA total compensation. But this can be difficult to achieve. It means complying not only with the WPA, but also with the Internal Revenue Code, ERISA, the Affordable Care Act, and wage and hour laws, including the NYS Domestic Workers’ Bill of Rights. When a benefit is not screened through each of these statutes, agencies are exposed to government audits, penalties, and lawsuits, as well as the soon-to-be announced protocols for validating WPA certifications.
What’s Wrong with Some Cafeteria Plans? – Cafeteria Plans are rarely the best solution to designing and delivering WPA benefits – especially if they include a trust to which you contribute, and the trust is not properly designed and qualified with the Internal Revenue Service. Any current benefits program you have that includes a trust to which you contribute and an administrative service agreement should be closely scrutinized by your attorney and screened through the requirements of the Internal Revenue Code, ERISA, the Affordable Care Act, and the FLSA and state labor law as well as the WPA.
Under a bona fide cafeteria plan, workers must be allowed a choice between taxable benefits, such as cash or added PTO, and certain permitted tax-free benefits, (such as health benefits (including FSA), group term life insurance, disability insurance, dependent care assistance plans (including FSA), and worker salary-reduction contributions to a 401(k) plan). If no such choice is offered, the cafeteria plan is defective in its design. Moreover, many creditable benefits under the WPA (transit benefits, parking, legal services, educational benefits, and gym memberships (unless part of a health plan)) may not be offered under a cafeteria plan. Also, if a bona fide cafeteria plan were offered, it would have to be contained in a formal, written plan document that meets the requirements of the Internal Revenue Code, including express restrictions and limitations on the timing of workers’ elections, i.e., benefits may only be elected for a year at a time, changes may only be made on the occurrence of certain events, etc. If the plan is not set up properly, or if it includes benefits that are not allowed, such as transit benefits, the worker would be taxed on the value of the taxable benefits that may be available regardless of whether they are elected.
How Do You Legally Implement Creditable Benefits Under the WPA? For some creditable benefits, ERISA or the Internal Revenue Code requires a written plan document that complies with applicable legal requirements. For example:
- Educational benefits – Either require a written plan for a bona fide “educational assistance program” under Internal Revenue Code Section 127, or the education (or payment) must qualify as a “working condition fringe benefit” under Internal Revenue Code Section 132, as described in Part 2 of this Series.
- Dependent Care Benefits – Requires a written plan document creating a bona fide Dependent Care Assistance Plan under Internal Revenue Code Section 129 and is subject to administrative requirements (e.g., annual statements provided to the workers every January, making sure that the workers have the name, address and taxpayer ID number of the person or entity caring for the dependent, etc.).
Other benefits may not require a written plan, but are required to be administered in a certain way. For example:
- Transportation Benefits -- Under the Internal Revenue Code, an agency may provide up to $255 per month (limit for 2016) in mass transit fare media (tickets, MetroCards, bus passes, etc.). In the New York City metropolitan area, the benefit must be provided in kind – cash cannot be provided, either as a reimbursement or as an advance. Agencies may purchase and distribute TransitCheks, or MetroCards, or any other fare media. They can also provide the benefit using a pre-paid debit card, provided that the transportation benefit link on the card can only be used to purchase transit fares from authorized vendors. Important note: If an agency has a cafeteria plan, the transportation benefit is not a “qualified benefit” that can be offered under that plan, so a separate arrangement would have to be put in place.
- Cell Phones and Cell Phone Plan Benefits – Provided certain limitations are complied with, an agency can provide workers with company-owned (and company-paid) cell phones (and service) for “non-compensatory business reasons.” Alternatively, an agency may reimburse (or pay directly) the business-related plan charges for the worker’s own phone. For a reimbursement to be tax-free to the worker, however, the reimbursement must be made under an “accountable plan,” i.e., the worker must document the business use of the phone and provide receipts for the expense. The agency reimbursement also cannot exceed the expenses actually incurred, and, if advanced by the agency, the worker must repay to the agency any amount advanced that exceeds the documented reimbursable expenses.
The Bottom Line
To decide on how to implement benefits legally, an agency must determine how to design the benefit plan or arrangement to meet Internal Revenue Code, ERISA, FLSA and state labor law, and WPA requirements, and should review whether any benefit programs that are currently in place or being offered meet all of these requirements.