Legal experts recommend that every employer start the year with an six-part legal checkup to ensure compliance with current employment laws.

Here’s the list from the law firm of Moore & Van Allen:

1. Do a quick review of your company’s written vacation policy. Take a look  to ensure that the policy provides proper notice of forfeiture, carryover, and accrual of vacation. Do a checkup to see that you’re in compliance with state laws.  For instance, some special rules apply in states like California regarding forfeiture of accrued vacation.
2. Update your company confidentiality agreement. First, make sure your agreement is tight and covers appropriate employees. A lot of law firms report that laid-off employees are taking revenge — or looking for an edge in finding a new job — by handing out confidential info from former employers. If you don’t have an up-to-date agreement, you leave your company open to such attacks. Second, review your agreements and policies to ensure they don’t prohibit employees from discussing their wages or terms and conditions of employment with their fellow employees. The  National Labor Relations Board views such prohibitions as illegal interference with concerted activity, even if your company is not unionized.
3. Get FMLA compliant. If your company has 50 or more employees, make sure that you post the FMLA poster that the US Department of Labor issued in 2009. Update your FMLA forms and policies, if you have not done so already. (To see if you’re in  compliance with FMLA and other federal posting requirements, use the DOL compliance advisor.
4. Get your managers up to speed on harassment policies. Review the policies with the bosses, and get them to schedule beginning-of-the-year meeting with their departments to review the policies.
5. Get FLSA compliant.  Review the company’s classification of employees as exempt from overtime under federal and state wage and hour laws. Lawsuits and investigations based on improper classifications of employees continue to be a hot area of the law and can result in significant awards against employers.
6. Conduct an internal I-9 audit. U.S. Immigration and Customs Enforcement  announced new I-9 audits for employers. Make sure your bases are covered.

It’s a constant challenge for employers: Offering the benefits and incentives that employees desire without running into compliance problems with the feds.

Here are three popular benefits that present a legal minefield for benefits managers — and ways companies can offer them without fear of repercussions.

1. Wellness programs and the ADA

While every employer wants to promote healthier lifestyles for its employees, some wellness initiatives run afoul of the Americans with Disabilities Act — if the initiatives are constructed in a manner that makes it more difficult for certain employees to participate.

Example: A company unveils an on-site exercise program; participants can bring home perks like extra vacation days, cash bonuses, gift cards, etc.

Problem: The company has several disabled employees who are physically unable to participate and, therefore, can’t reap the benefits of the rewards.

Fix: If your wellness program includes certain features in which disabled employees can’t participate, create some alternatives where these employees can earn the rewards — like attending a class on the benefits of doing the cardiovascular exercises permitted by their disability.

Note: Don’t forget the tax implications of your rewards.  For example, all cash equivalent rewards — gift cards, etc. — are taxable, where as the tax status of an iPod Shuffle or movie tickets is uncertain.

2. Domestic partner benefits

While domestic partner benefits are highly coveted by many employees, domestic partners aren’t generally granted the same protections as spouses under ERISA and the IRS regs. For example, unlike spousal health coverage, domestic partner benefits are taxable.

However, there are two exemptions:

1. If the employee’s partner qualifies as a dependent, or
2. If the partner is recognized as a spouse or the benefits are protected under state law, as in MA, CT and VT.

And there are more restrictions surrounding the rules for flexible spending accounts (FSAs). However, ERISA trumps state law, and flex accounts are subject to the Defense of Marriage Act (DOMA), which only recognizes traditional marriages.

The effects: Flex accounts may not reimburse workers for domestic partner medical care, care of a domestic partner’s dependent, etc.

To get around the red tape, many companies require the employee to cover the entire cost of the partner’s health coverage. To balance this out, some employers adjust the worker’s pay to make up for the difference.

For a more extensive look at the tax problems with domestic partner benefits, check here.

3. Employee referral programs and the EEOC

The Equal Employment Opportunity Commission has already addressed the problems that accompany word-of-mouth recruiting. According to the EEOC, employee referrals can limit workplace diversity and increase the risk for discrimination because employees tend to only recommend colleagues of the same race, gender ethnicity.

Potential legal problems: Even in cases of accidental discrimination, companies that do extensive hiring based on employee referrals can be fined or sued by the EEOC. To add to more pressure to employers, EEOC compliance manuals now recommend that most firms scale back — or eliminate altogether — their employee referral programs.

Safeguard: If your company has no intention of scrapping its employee referral program, make sure to measure its effect on employee diversity and encourage widespread participation.

The IRS has never looked kindly on tax-withholding errors in benefit plans – even accidental ones.

But the agency offers some guidance to make it a bit easier and cheaper for sponsors of retirement plans – including 401(k), 403(b) and SIMPLE plans – to fix common minor errors before the feds impose penalties.

Here are some common errors, and suggestions on how to fix them before the IRS lowers the boom.

Discrepancies between written policy and actual practice

Innocent errors can happen in the best-run firms and usually stem from disconnects between what’s written in plan documents and the actual system for carrying them out.

The three most common errors:

1.  401(k) eligibility. Look at your system for checking eligibility against an employee’s start date. Who makes sure the pre-tax contributions have actually come out of the employee’s paycheck?
2. Plan loans. There are tax consequences when employees take out loans against their retirement accounts or cash out early. Your plan documents must spell out the exact method you use for processing such distributions and making sure the proper taxes are deducted.
3. Rollovers. Your plan documents must match your system of moving funds to an IRA or another employer’s plan when an employee leaves.

Race against time

Under the IRS’s Employee Plans Compliance Resolution System, you’re in a race against time to correct these types of accidental errors. For “significant errors” (those  which affect taxes, eligibility and/or benefit levels), you have two years to:

• request a determination letter from the IRS
• certify in the request that your firm made an honest mistake and wasn’t trying to get around tax laws
• outline your proposed corrections
• receive a favorable IRS ruling, and
• implement the changes.

If you follow this process, it’ll only cost your firm a fixed $250 fee – no penalties. And it really pays to check your retirement plan documents ASAP and make any needed corrections.  Otherwise, things can start to get very expensive in a hurry.

Your firm wouldn’t be eligible for a penalty-free fix if the IRS finds the accidental plan error in a random audit – even if you discover it in preparation for the audit and then voluntarily report it to the IRS agent.

Roughly one-third of U.S. employers offer currently domestic partner benefits, whether for opposite-sex partners, same-sex partners or both.

Regardless of your company’s policies – or your personal beliefs – it’s important to know how these benefits (or the lack thereof) are affected by federal and state regs.

Here’s a rundown of how COBRA, flexible spending accounts, HIPAA, FMLA and tax regulations affect these benefits:

COBRA

Currently, there’s no federal requirement for employers to offer COBRA to an employee’s domestic partner who loses coverage due to what would otherwise be a qualifying event. However, many employers choose to do so, anyway.

Be careful if you choose not to offer COBRA to domestic partners. You’re not necessarily in the clear legally. State insurance laws often vary from their federal equivalents.

Flexible spending accounts

In most cases, an employee’s flexible spending account (FSA) money may not be used to reimburse health care for a same-sex domestic partner, even if you do provide other domestic partner health benefits.

Reason: The IRS has ruled employer-sponsored health benefits are exempt from taxable income only if domestic partners (same or opposite sex) are legally considered spouses or dependents under state law.

Fifteen U.S. states plus the District of Columbia give tax-favored status to opposite-sex common-law marriages. Sixteen states that lack common law marriage statutes will grant tax-favored status to couples who register as common-law partners in other states.

The tax on healthcare expenses for partners that can’t get tax-favored status in your state is determined by your average local market cost for a domestic partner’s health coverage.

One case where FSAs might be used for same-sex partners: The partner meets criteria under the Working Families Tax Relief Act (WFTRA). Under WFTRA, the partner must live with the employee for more than half the year and receives more than half his or her support from the employee.

HIPAA

Domestic partner benefits are something of an anomaly under federal HIPAA regulations. In the first place, HIPAA protects the portability of employee health coverage. But domestic partner benefits aren’t necessarily portable if an employee changes jobs. It all depends on whether the new employer offers such coverage, and on state insurance laws.

On the flip side, if your organization’s health plan (like most) is covered under HIPAA, the act’s non-discrimination rules apply to domestic partners to the same extent that a spouse or dependent covered under your plans would be.

Example: If you offer domestic partner health benefits and have a wellness program in which an incentive for undergoing a health risk assessment is available to employee’s spouses, you can’t exclude the domestic partner from receiving the incentive.

As for HIPAA’s privacy rules for protected health information, it works the same for domestic partners as for anyone else covered on your health plan.

FMLA

Family leave under federal FMLA only may be taken to care for a spouse, child or parent with a serious health condition.

The regulations define spouse as “a husband or wife as defined or recognized under State law for purposes of marriage in the State where the employee resides, including common law marriage in States where it is recognized.”

In other words, an employee’s right to take family leave depends entirely on whether the relationship holds the legal status of a common law marriage (for opposite sex partners), civil union (for same sex partners) or same-sex marrage (in Massachusetts).

Taxes

Unlike typical benefits for spouses and dependents, domestic partner benefits are subject to both federal and state tax as a form of compensation, according to the Partners Task Force for Gay and Lesbian Couples.

In terms of administration, however, benefits such as paid bereavement leave tend to work the same in terms of their tax treatment.

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.

By now, most companies know how important it is for employees to undergo health risk assessments as part of a wellness program. But what if people are reluctant to do it? 

An ever-growing number of employers are wrestling with the question of  whether it’s legal to condition employees’ eligibility to enroll in the health plan on whether they get a health risk assessment and/or undergo preventive care.

As of now, there’s no clear answer to the question.

HIPAA non-discrimination rules may or may not prohibit it, based on different interpretations of the law. HIPAA prohibits employers from conditioning coverage based “upon receipt of health care.”

Technically, this prohibition was designed to prevent employers from denying a person health coverage because he or she received a certain types of health care, not because the person declined to receive care.

Even so, it’s not a big stretch for the feds or the courts to put the kibosh on requiring health risk assessments or preventive care in order to enroll. Additionally, even if HIPAA doesn’t prohibit it, you risk opening a can of worms with the Americans with Disabilities Act (ADA).

It may be tough to argue that getting the assessment or being denied coverage is a “voluntary” choice. The Equal Employment Opportunity Commission has suggested that it frowns on these programs for ADA reasons.

Bottom line: There hasn’t been a major test case yet to determine the legality of these types of policies. The question you have to ask yourself is whether your organization is willing to risk sailing into stormy waters.

Plenty of employers are doing it, but that doesn’t necessarily make it a smart or safe long-term strategy.

IRS proposes a crackdown on existing laws that classify employer-issued cellphones as a taxable benefit. The taxes may also apply to text messages on mobile devices, e-mails on company-issued laptops and wireless cards.

Legally, employers are expected to keep detailed records of calls made by employees, in order to show how much of the use is personal and how much is business related. Few companies keep such records for phone calls, and almost none have records to classify text messages or mobile e-mails. 

There is also a chance the existing rules could be eliminated rather than enforced. A Senate bill sponsored by  John Kerry (D-Mass.) and John Ensign (R-Nev.) would eliminate the requirement.

IRS has said it is trying to simplify the record-keeping requirement of the law to make it easier for employers to comply. The agency is seeking public comment until Sept. 4.  IRS has suggested three options:

•  Allowing employers to classify 75% of work cellphone use as work-related while paying taxes on the remaining 25 percent%.
•  Requiring employees to provide proof that they have a personal cellphone to use during work hours, and not taxing the work-issued cell phone.
• Letting employers use an IRS-generated statistical sampling to determine the average workers’ personal use of cellphones, and paying taxes on the average. 

Being in the legal spotlight is never good for an employer. Take Wal-Mart, for instance. The mega-retailer’s image as an employer has taken a beating the last few years over a series of lawsuits alleging the company discriminates against women and minorities and chisels its employees out of overtime pay.

Faster than you can say “price check in aisle 5,” the company has gone into action:

• It created a compliance office – staffed by 140 people – to ensure managers follow the law and company policies.

• A new round of TV ads features actual employees touting Wal-Mart’s generosity and fair treatment of employees.

• The CEO announced he and other execs will have their bonuses chopped if the company fails to meet diversity goals.

HR’s role

We don’t know if Wal-Mart is guilty of even one violation of employment law. Maybe there’s just a lot of smoke and no real fire.

We do know that countering the ugly image revealed by the bright spotlight has cost the company plenty. And if the whole mess proves nothing else, it shows that it pays to have solid policies and be diligent about making sure the policies are being followed.

That’s where you come in. Don’t be deterred if a couple of managers roll their eyes when you remind them about following the rules. It’s your job to remind them, and it’s their job to listen and act accordingly.

Or maybe they think it’s better to have to create new departments, start public-relations campaigns and cut bonuses.

What do you think Wal-Mart has to say about that?