DHS formally withdrew its Social Security no-match regulation — first presented in 2007 — as of October 7.

The no-match regulation was the source of  “safe harbor”  rules for employers who received letters from the Social Security Administration stating that an employee’s Social Security Number didn’t match the agency’s records. The safe harbor rule required employers to follow procedures and three-month deadlines to resolve the discrepancy, or face legal penalties.

Shortly after being issued in 2007, the regulation was challenged in a federal district court in San Francisco and was held up by an injunction. The reg never was implemented, and DHS and the White House finally decided to drop it altogether.

A DHS statement announcing the rescission of the rule said the agency will “focus its enforcement efforts relating to the employment of aliens not authorized to work in the United States on increased compliance through improved verification, including participation in E-Verify, ICE Mutual Agreement Between Government and Employers (IMAGE), and other programs.”

Expect the Obama administration to make an especially strong push for mandatory E-Verify for all employers, not just for the federal contractors it covers now. Also, the Social Security Administration will maintain some of its processes for checking SSNs.

The agency had planned to immediately end its live-operator system, but now says it’s pushing back the original Sep. 21 deadline a few weeks, until the end of October, to give those who prefer speaking to a live person more time to call in.

But employers won’t have to completely say goodbye to the system. Beginning in November, they can still choose between these options to verify up to 10 employee names and SSNs at once:

• Telephone Number Employer Verification (800-772-1213) – This is an automated system which will give you instant results.

• Social Security Number Verification Service – Use this if you prefer going online for instant verification. Batch filers can upload up to 250,000 names/numbers online and usually get results the next business day.

Note that users must register to use both systems on SSA’s Web site. The options are available 24 hours a day, seven days a week.

The announcement comes just as the Department of Homeland security notified employers that it’s dropping the controversial “no match” rule.

During the past few quarters, IRS erroneously sent many employers a notice proposing a federal tax deposit penalty (CP 207) because it said the Schedule B was missing. In fact, the agency says it had a problem with scanning technology and didn’t properly process the returns. The notice asks recipients to submit Schedule B, even though they’d already done so with their paper filed returns.

While resending the Schedule B will be a hassle, IRS needs the resubmission to correct the penalty issue, IRS Branch Chief Amy Stanton, Wage & Investment Division, told attendees of an Oct. 1 payroll teleconference. Employers should sign the notice and staple to it the resubmitted form.

Here are a few guidelines that’ll help IRS better use its scanning technology (and reduce the number of problems for you):

• Make sure your forms are legible, and
• Write within margins and on the lines.

The agency says it’ll have the problem resolved for third-quarter reporting.

The CDC has issued a document –  “ADA-Compliant Employer Preparedness For the H1N1 Flu Virus.” You’ll want to pay special attention to the parts that cover:

• How employers may request health information from applicants and employees regarding H1N1 flu virus. Here’s what the CDC says:

An employer may survey its workforce to gather personal information needed for pandemic preparation if the employer asks broad questions that are not limited to disability-related inquiries. An inquiry would not be disability-related if it identified non-medical reasons for absence during a pandemic (e.g., mandatory school closures or curtailed public transportation) on an equal footing with medical reasons (e.g., chronic illnesses that weaken immunity).

Here’s the format CDC suggests for surveying employees while steering clear of ADA violations:

ADA-Compliant Pre-Pandemic Employee Survey

Directions: Answer “yes” to the whole question without specifying the reason or reasons that apply to you. Simply check “yes” or “no” at the bottom.

In the event of a pandemic, would you be unable to come to work because of any of the following reasons:

If schools or day-care centers were closed, you would need to care for a child;

If other services were unavailable, you would need to care for other dependents;

If public transport were sporadic or unavailable, you would be unable to travel to work, and/or;

If you or a member of your household fall into one of the categories identified by CDC as being at high risk for serious complications from the pandemic influenza virus, you would be advised by public health authorities not to come to work (e.g., pregnant women; persons with compromised immune systems due to cancer, HIV, history of organ transplant or other medical conditions; persons less than 65 years of age with underlying chronic conditions; or persons over 65).

Answer: YES __________ NO __________

To learn more do’s and don’ts about collecting medical info, see the full CDC document.

The more you think about the potential “disasters” that could strike your company — ranging from a broken water pipe to a terrorist attack — the more you realize a recovery plan is a good idea, especially since it doesn’t have to be complicated or expensive.

A new book, “The Wall Street Journal Complete Small Business Guidebook,” lays out the three essentials every company should cover to be prepared for — and to recover from — a disaster:

Review insurance policies. Your company probably already has property insurance to cover the cost of replacing damaged or destroyed equipment or buildings. How about business-interruption insurance, which covers lost income in the event the business is forced to shut down temporarily?

Develop a contingency plan, including one in case disaster strikes a vendor. Come up with a list of backup vendors or suppliers. Consider alternative work sites so that you can keep operating if disaster strikes your company. Keep a list of 24-hour emergency numbers for all your employees, and develop a quick and efficient way of keeping employees informed.

Back up data. Make backup copies of all critical records, such as accounting and employee data, customer lists, production formulas and inventory. Keep that information in a separate location — the farther away, the better –  or subscribe to a online data backup service provider.

Take a look at the Small Business Administration disaster-recovery Web page, which offers more links and assistance in putting together a plan.

It’s likely some version of the newest healthcare reform proposal to come out of Washington will not only become law, but also change the way you do your job — as early as Jan. 1 — particularly in five areas.

The Senate Finance Committee just released its 10-year, $856-billion proposal, which would extend health coverage to 29 million uninsured Americans.

The package, authored by Chair Max Baucus (D-MT) and referred to as a “Chairman’s Mark” because there’s no legislative language drafted yet, is considered a compilation of the most popular (i.e., effective, but conservative and least expensive) ideas presented thus far. It’s likely that some version of this plan will pass after the typical party revisions and compromises.

Here are some key stipulations and  proposed effective dates where appropriate:

1. Additional information reporting duties. Under current law, Payroll isn’t required to report the value of employer-provided health insurance benefits to IRS on the Form W-2. However, some employers voluntarily report in Box 14 the salary reduction amount under a cafeteria plan resulting in tax-free employee benefits.

The Mark proposes requiring companies to report on the W-2 the value of the employer-provided benefit for each person’s health insurance

If someone received coverage under multiple plans (e.g., medical, dental, vision), Payroll would report the aggregate value. Generally, use the same value for all similarly situated employees with the same category of coverage (e.g., single or family health insurance).

Effective: first taxable year after 12/31/09.

2. More payroll deductions. The proposal creates a refundable tax credit for eligible individuals and families who purchase health insurance through proposed new state cooperatives (i.e., “exchanges”). Those opting for this coverage would pay premiums through payroll deductions.

There’d be a fall enrollment period, during which applicants would have to provide info from their previous year’s tax return to qualify for coverage during the next calendar year.

Employers who don’t offer such coverage will have to repay the credit amounts. The assessment may be capped at $400 per worker (all workers, not just those who qualify for tax credits). Note that employees who are offered affordable coverage through their employer can’t get the tax credit – so in those cases, the employer assessment shouldn’t apply.

Illegal immigrants wouldn’t be eligible for the credit. To prevent them from participating, personal data (i.e., name, Social Security Number and date of birth) would have to be verified against SSA’s database. Those in the U.S. legally but whose status is expected to expire in less than a year aren’t allowed to take the credit.

Effective: not specified.

3. Stricter reimbursement rules for qualified medical expenses. The Mark proposes no longer allowing the cost of over-the-counter (OTC) medicines (except those prescribed by a doctor) to be reimbursed through a health flexible spending account or health reimbursement account. In addition, the cost of these medicines couldn’t be reimbursed on a tax-free basis through a health spending account or an Archer medical spending account.

Effective: taxable years beginning after 12/31/09.

4. Creation of a Simple Cafeteria Plan. This change eases the participation restrictions, allowing more small businesses to offer tax-free benefits to employees. The proposal exempts employers who make contributions for employees under a simple cafeteria plan from pension plan nondiscrimination requirements applicable to highly compensated and key employees.

The safe harbor also applies to the nondiscrimination requirements for specific qualified benefits offered under the cafeteria plan, including group term life insurance, coverage under a self-insured group health plan and benefits under a dependent care assistance program.

This provision would apply to employers with an average of 100 or fewer employees during either of the two preceding years.

Effective: taxable years beginning after 12/31/10.

5. Loosening of long-term care insurance restrictions. Under current law, employees participating in a cafeteria plan can’t pay premiums for long-term care insurance not otherwise paid for by their employers on a pre-tax basis through salary reduction. That’s because any product advertised, marketed and offered as long-term care is a nonqualified benefit specifically not permitted under a cafeteria plan.

The Chairman’s Mark, however, would allow reimbursement for employee-paid premiums for a qualified long-term care insurance contract through a flexible spending arrangement (whether or not under a cafeteria plan) and therefore be excluded from gross income.

Effective: taxable years beginning after 12/31/10.

Coordinating benefits: It’s one of the easiest areas of benefits management to mess up, and one of the of costliest to correct after the fact.

If an employee or dependent is eligible to collect benefits from two or more plans (e.g., your disability plan and one from a spouse’s employer), which plan pays first?

Answer: It depends on what’s written in the plan document. Usually, if a plan contains no coordination-of-benefits provision, it pays first.

Who goes first?

Most benefit plan documents contain some sort of coordination-of-benefits procedures. Even so, there are common loopholes to watch out for. Three hot spots to check:

1. Be sure that your benefit plan documents require any outside plans to attach the original Explanation of Benefits from the primary payer when your company’s plan is balanced billed for a medical claim.
2. Is there a statement that says only the amount actually paid by each plan, will be charged against the maximum benefit?
3. Check if there’s an order of benefits determination that spells out which plan pays first for an employee’s child if the worker is divorced from his or her spouse.

Likewise, if your firm offers domestic partner coverage, make sure there’s a coordination-of-benefits statement for dependent and non-dependent partners.

Heavy cost of mistakes

Coordination-of-benefits errors can easily run up your premiums if left unchecked. In one extreme example, a Fortune 500 company’s health plan wound up paying a needless $5 million worth of claims that should’ve been paid in full or in part by other plans.

Add in indirect costs such as added administrative time, late payment interest and additional TPA contact call center expenses, the final cost was closer to $12 million.

Best practices

Even if you’re unaware of a coordination-of-benefits problem with any of your plans, it pays to do a periodic self-audit.  Three steps:

1. Gather all payment schedule materials related to your plans into
   a binder, including renewal letters from vendors.
2. Check the plan document against the payment schedule used by Payroll or your PTA.
3. Update any outdated schedules or benefit descriptions.

Reminder: If you don’t have a formal plan document, your contract with the vendor legally serves as “control document” for the plan.

The notice must inform employees that they have the right to opt-out of the plan if they don’t want to participate. Additionally, they have the right to specify both the percentage of their salary that gets deducted for 401(k) contributions and the amounts allocated to the various investment choices in the plan.

The notice must also inform employees of what will happen if they don’t opt out or provide specific investment instructions: The company will set up a 401(k) account for each new enrollee, deduct a certain amount (3%, for example) of salary to be placed in the account, and place the money in the plan’s default investment choices (for instance, a balanced mutual fund).

Plan sponsors are required to provide this notice in a manner “calculated to be understood by the average plan participant.” In other words, write it in plain English. Avoid legal or investment language that can makes the notice confusing to the average employee.

Legally, this means it’s no longer acceptable to give employees a copy of your 401(k) plan documents or an investment prospectus from your 401(k) carrier. Employees must have a clear understanding of enrollment and opt-out procedures, salary deductions, vesting schedules, 401(k) investment choices and risks.

Checklist of required content in employee notices

Think of the notices as a thumbnail sketch of your 401(k) plan, written in non-technical language for the benefit of employees. The notices should:

• Explain that, unless the recipient chooses to opt out by the enrollment deadline date, he or she is automatically enrolled.
• List the automatic percentage of pay deducted for 401(k) investments. Remind the recipient of his or her right to choose to contribute at a different percentage.
• Explain the circumstances under which a participant’s money will be placed in a default investment. Remind recipients of their right to direct the investment of assets in their own accounts.
• Describe the default investment: its investment objectives (e.g., long-term growth), typical risk and return characteristics, plan fees and other expenses, and
• Direct employees to resources where they can get help or information about the plan’s other investment options.

You’re not imagining things if it seems like you read about more pay-related employee lawsuits and court awards than ever before.  

When the feds changed FLSA’s overtime rules, some experts said fears of a lawsuit explosion were unfounded. But there’s been a 77% rise in FLSA lawsuits tied to wage-and-hour disputes since 2004, according to the National Employment Lawyers’ Association.

Also, over the same period, there’s been an 11% increase in wage- and-hour enforcement actions by the DOL.  Here are the biggest problem areas to watch for:

• unpaid or underpaid overtime due to alleged job misclassification
• requiring employees to use their own money for company purposes (e.g., employees must buy their own uniform or equipment), and
• supervisors who fudge time reports.

Another factor: High-profile lawsuits against big companies – including Wal-Mart, Pep Boys and Dollar General – have brought attention to FLSA regs and have spurred copycat suits against smaller employers who’ve employed similar practices.

To date,  retail giant Wal-Mart Stores has paid an estimated $640 million to settle dozens of wage-and-hour lawsuits across the nation that accused the world’s largest retailer of forcing hourly-wage employees to work through breaks and off the clock.

Regardless of the business you’re in or your personal opinion of Wal-Mart’s pay and benefits policies, the company’s legal problems offer you an opportunity to grab the attention of supervisors and senior management to get serious about FLSA compliance.

Here are two key take-aways to hammer home in management training:

1. FLSA compliance starts upstairs

Unless senior management and supervisors in your organization realize that no firm is immune from OT lawsuits, there’s little you can do to safeguard the company from costly errors.

That’s because many OT payment errors stem from firms using outdated record-keeping systems that’ll take time and money to correct. It’s unfair for anyone to expect you – or Payroll – to singlehandedly find and fix every possible calculation glitch.

In the end, taking the time to review and upgrade your record-keeping system more than pays for itself compared to the risk of FLSA violations.

Roughly 85% of the U.S. workforce is OT-eligible. And since 2004, employers have had to pay out $1.5 billion in OT lawsuits. It hasn’t just been the Wal-Marts and Smith-Barneys that’ve been targeted, either. Small firms also get nabbed.

2. Start with record-keeping systems

By far, the biggest mistake employers of all sizes make is to over-rely on time cards or time sheets to record the hours worked by their non-exempt employees.

FLSA also requires employers to record (and pay any related OT for) certain off-the-clock work activities. These errors can occur either on the front or back end of your firm’s compensation system.

The biggest front-end danger area: FLSA requires employers to track and pay for time non-exempt employees spend logging onto computers or donning safety equipment. Another common slip-up: lack of a tracking system for work-related travel time by non-exempts.

On the back end of record keeping, FLSA requires your company to track total compensation (not just base pay) when calculating overtime rates. This includes bonuses, money from PTO buy-backs, wellness incentives with monetary value and other forms of compensation.

The new international ACH transaction (IAT) rules, effective 9/18/09, require new codes and formats that will replace those used today on direct deposits. NACHA rules will require the IAT code and format on all ACH payments involving a non-U.S. bank. Those that don’t have it may not be processed.

Many employers (and banks, for that matter) mistakenly believe that if they don’t currently make cross-border payments, the IAT rules don’t apply to them. That’s not necessarily the case.

For example, take a foreign-owned subsidiary in the U.S. that gets money from a parent company, or a joint venture or partnership that receives money from abroad to fund payroll. They’ll all be subject to the IAT rules. Even small firms may have foreign investors or affiliates, or funds may flow between affiliated companies in different countries – which means the IAT rules apply to them, too.

Decide for yourself
To decide whether your company’s affected, ask these questions – if you answer “yes,” the IAT rules apply:

1. Are any ACH transactions in the file destined for foreign bank accounts?

2. Is funding for the ACH transactions from a foreign bank account? And, if so, is the funding specifically for a payroll or other ACH payment?

Since affected employers’ direct deposits must be in the IAT format:
• check with your bank to ensure it’ll comply by the effective date, and
• make sure you’re able to originate direct deposits with the additional info the regs will require you to provide (e.g., employee and bank addresses).

For more information, check the FAQs on the Federal Reserve Board’s Web site.