October 2016

When it comes to your small business, employee benefit programs attract and retain top talent. A recent study from Baylor University found that employees who work at a small businesses have the highest levels of loyalty to their employers. Just because you are small business doesn’t mean you can’t offer a great benefits package. You might be surprised at the variety of options you have at your fingertips. One of my favorite, yet often under-utilized employee benefit is a Flexible Spending Account, better known as an FSA. Below, I’ve debunked a few of the myths about FSAs so you can get the 411.

An FSA is a special account that employees can use to pay for health insurance and related expenses such as co-pays, deductibles, some prescription and nonprescription medications, and other out-of-pocket healthcare costs. One of the biggest benefits for your employees is the ability to put their pre-tax money into their FSA. A Flexible Spending Account puts money back into your employee’s pocket by lowering their taxable income.

There are two different types of Flexible Spending Accounts. The first is the Healthcare FSA, which covers healthcare expenses not covered by insurance. The second, Dependent Care FSA, is for eligible dependents and includes cost coverage of daycare, after school care, and elder care.

One of the reasons Flexible Spending Accounts are a great option for small businesses is because little set up is required for the employer. All FSA requirements and obligations are driven by the IRS making it easy to implement, manage, and maintain.

FSA Employer Obligations Explained

Employers can (but are not required to) make contributions to your employee’s Flexible Spending Accounts. Generally, FSA money must be used within a plan year. Employers can provide one of two options:

Offer a grace period of up to 2½ extra months
Allow the employee to carry over $500 per year for use in the following year

If you are scratching your head unsure of which to select, there’s no clear practice by employers. In 2014, Healthcare Trends Institute reported that 51% of employers elected to use the grace period option, and 49% elected the 75 day grace period.

Six Flexible Spending Accounts Myths Your Employees May Believe

Covered expenses and pre-tax programs remain relatively the same year after year. Even so, the two FSA plans and the types of healthcare costs that are reimbursed perpetuates are clouded by Flexible Spending Account myths. Be prepared to answer these common questions if you are adding flexible spending accounts to your list of employee benefits or during your healthcare and benefit discussions with new employees. Here are the top six myths of Flexible Spending Accounts:

MYTH – FSAs Will Cost Employees Money. On the contrary, an employee’s flexible spending account is tax free. Yes, employees will select a voluntary amount to contribute to their FSA. Most employees in contribute between $1,000 and $2,000 to their FSA.
MYTH – Employees Can Use FSA to Pay for Healthcare Premiums. Flexible spending accounts are a great way to manage or plan for unexpected healthcare expenses and costs. FSAs cannot be used to pay for health insurance premiums, long-term care costs, or expenses.
MYTH – Medical Marijuana is Approved for Reimbursement Under FSA. Sorry, no. Some states allow the use of marijuana for medical purposes (or have legalized its use in general), but it is still considered an illegal drug at the federal level. Since FSAs are governed by federal law, it cannot be reimbursed under these plans.
MYTH – FSA Expenses Are a Pain to Submit. Do you take credit? If you don’t mind paying with a card, Flexible Spending Account programs are pretty handy because they often offer a debit card program without having to fill out paperwork. Like a standard MasteCard or Visa, FSA debit cards are accepted by most retailers and medical. The FSA debit card program also allows internet shoppers to purchase FSA-approved items online.
MYTH – Employees Have to Pay ‘In’ Before Accessing the Full Amount. The full balance of an employee’s FSA annual contribution is available to them on day 1 of the program. Employees can access the full amount immediately. Employers who offer FSA programs assume the risk if an employee exits the organization prior to paying in the already reimbursed amount. On the employer side, it’s a great employee retention tool.
MYTH – Employees Who Are Terminated Lose All FSA Funds. When employment is terminated, regardless of the circumstances (voluntary or involuntary), the employee can no longer participate in the FSA program. Money can’t be transferred to another employer. Some employers will end plan access immediately upon termination or within the month. Employees can continue their Flexible Spending Account if they elect to continue COBRA.

Employee coaching and engagement are important parts of business leadership. Engaged employees typically reflect happy employees. As a business owner, there are plenty of things you can do to improve engagement levels and boost the overall environment of the company.

Sure, a pool table and catered lunches are awesome perks, but great leaders should also seek to develop their team members. A recent study reported that managers that were coached by others higher up also passed that coaching along to other employees. In short, coaching not only benefits your employees, but it helps you, too. It helps build relationships, improve interactions with and among employees, and provides insights into employees’ perspectives. Bonus: employees get to know you, understand your expectations, and can grow in their roles.

How to Create an Employee Coaching Process

Your coaching process can either be formal or informal. Choose the process that fits with your company culture. The process should provide your employees with expectations, including frequency, coaching length, consistency, and documentation.

Informal coaching programs can be effective, but sometimes lack information, resources, and clear expectations, leaving your employees with little information in terms of next steps. Coaching processes can be adaptable to each manager’s work style, just ensure that all managers are equally invested. In establishing your employee coaching program, define the following five areas in order to maximize the value of coaching sessions and maintain consistency:

Frequency. Depending on the tenure of the employee and their experience level, coaching should happen either weekly, bi-weekly, or monthly. For tenured employees, monthly conversations are appropriate. For recent hires, those who are newly promoted, or employees who are on a performance improvement plan, weekly conversations should be scheduled between the manager and employee at minimum for eight weeks.
Honesty. Effective coaching happens when trust is established, and both parties can talk honestly and openly. Of course there is going to be an uncomfortable conversation or two. If each party looks at it as honest feedback, then progress can easily be achieved. Be mindful of the employee’s feelings. Try to strike a balance and provide them with viable methods of improvement. Don’t forget to let them know what they are doing well, too. This will help your team member leave the meeting on a positive note.
Regular Follow Up. Coaches and employees should leave meetings a short list of to-do’s that require follow up by both parties. As a leader, you need to set the example. Make sure you follow through on your commitments, meet deadlines, and follow up as promised.
Focus. It’s easy in a coaching meeting to go off on different tangents. Set an agenda of topics to be covered at the beginning of the meeting. Allow your employee an opportunity for input. Be prepared to park a lot items that need further information or clarification. Remember, a coaching conversation is about improving an employee’s performance.
Documentation. Keep detailed notes of all employee conversations and coaching. Use a simple spreadsheet or notebook to record the conversation including date, time, and topics discussed. If an employee’s performance does not progress or if there is a workplace investigation, you need these notes to establish context or an employee’s next performance steps.

Employee Coaching is a Continuous Process

Remember that coaching your employees is an ongoing process. There is no beginning or end. We’re all just stuck in the middle together. You want to make sure your employees are on top of their game and their skill sets are continually improving as they progress through their career. You, your employees, and your business will benefit.

Exempt and non-exempt. You probably have heard of these two terms. Do you know the differences between the two? If you’re a little unsure, keep reading. We’ve got you covered.

What’s the difference between exempt and non-exempt employees?

In a nutshell, exempt employees are not eligible to receive overtime pay. And non-exempt are eligible. Meaning any time after 40 hours worked by a non-exempt employee earns them overtime.

In the simplest terms, non-exempt employees are paid hourly and are eligible to receive overtime pay when they work in excess of 40 hours during the workweek.

Exempt employees are exempt from the requirements defined by the FLSA (Fair Labor Standards Act). Exempt level employees are paid a salary. In order for a job to be classified as exempt, the job and responsibility must pass something called a “duties test.” Employees that qualify as exempt typically have job duties that are labeled as executive, professional, or administrative.

Expected Fair Labor Standards Act Changes

In 2016, there were a number of changes made about how we compensate and categorize exempt and non-exempt level workers. These changes are expected to impact over half of the U.S. workforce. Here’s 2 of the big takeaways:

The salary minimum threshold for exempt workers will increase.

Although the exact salary minimum isn’t yet confirmed, the Department of Labor has hinted at increasing the minimum from $23,660 to $50,440. This change will result in a number of challenges for small businesses, non-profits, and companies in industries like retail and hospitality who compensate managers at the salary minimum requirement to qualify for exempt level status. Once the change goes into effect, exempt managers will need to have their pay increased to the new threshold or begin receiving overtime for working over 40 hours.

The definition of primary duty is changing.

The term “primary duty” is defined as the “principal, main, major, or most important duty that the employee performs.” The distinction of primary duty is important because in order for an employee to be considered exempt, their primary duty must be central to management job responsibilities.

4 Misconceptions About Exempt and Non-Exempt Status

Regardless of how the FLSA changes in 2016, there are 4 common misconceptions about how to manage exempt and non-exempt employees:

The use of vacation and time off. An employee that qualifies as exempt may not need to use their PTO if they get sick or work a half day. The PTO and vacation policy should be outlined in the employee handbook. If you need any help creating a PTO policy for your business, HR employee handbook templates are provided by through the Decisely OnDemand HR Support Center along with tips for implementation.
Exempt employees’ pay can be docked. If an exempt employee has used all of their vacation time, sick time, or any other paid time off, the FLSA regulation does allow docking of exempt employee pay for full day absences. One important thing to remember is that lack of office presence does not mean lack of productivity, meaning an employee could easily be taking calls or answering emails from home.
Exempt level employees’ hours worked can be tracked. It’s common practice for employers to ask employees who receive a salary to record their hours of work. This is especially important for employers to do now that the FLSA is changing. Once the salary threshold is increased, employers will need to weigh the expense of increasing an exempt level employee to the much higher salary threshold minimum or paying them overtime for hours over 40 worked.
Non-exempt employees can work off the clock. Because non-exempt workers are paid and compensated on an hourly basis, they cannot work outside of “work” hours. Rather, non-exempt employees should track their hours throughout their specified shifts.

The key here is that your employees know how they are classified and what that means for their work schedules. So long as you stay up to date, so can your employees.

Let’s face it, off-boarding any employee is never fun. It’s the sour lemon, the piece of stale cake, you know, not the bee’s knees, as they say. Regardless, you should have a process in place when it comes to a demotion or termination of an employee. Mainly to ensure a smooth transition, and also to ensure you remain compliant. This is where COBRA comes in.

Off-boarding is a strategic process for transitioning employees out of an organization. This includes everything from equipment returns to exit interviews. Off-boarding also includes employer activities such as processing termination paperwork, calculation of the final paycheck, and ensuring that COBRA paperwork is mailed to the exiting employee.

Defining COBRA

COBRA is short for the Consolidated Omnibus Reconciliation Act. Say that five times fast. All kidding aside, COBRA was established in 1986 to provide exiting employees an opportunity to maintain their group health insurance coverage. Employers who offer group healthcare coverage must notify all employee participants and dependents of their COBRA rights, eligibility, duration of coverage, payment expectations and premium notices.

COBRA notices are given to employees who are leaving the organization and dependents who are being removed from group coverage.
Employee participants have the option to continue their coverage for up to 18 months.
Employee participants have to pay 100% of the cost of coverage including what the employer had contributed in the past, plus a 2% administrative fee.

Improving Your COBRA Communication and Off-Boarding Process

The key to effectively managing COBRA and any off-boarding program is open communication and attention to detail. Here’s how:

Audit your termination and off-boarding process. Determine potential opportunities that exist for additional communication points for exiting employees. Walk yourself through the existing termination and off-boarding process. Develop a process flow chart that includes how HR is notified of an employee notice, any established communication points that exist between HR and the employee, and information and resources that are provided prior to the employee’s last day.
Talk to your current HR technology and service providers. Ask them for guidance. Decisely offers templates and guidance on how to manage COBRA and off-boarding.
Train managers and HR staff. Provide an FAQ (Frequently Asked Questions) document to include terms and definitions. This will provide your team additional information and resources to assist with the process.
Establish a 90 day off-boarding process that begins when the employee gives their notice. It should establish a work and communication flow that continues beyond when the termination is processed by HR and administrative staff. Off-boarding programs can include exit interviews, updating the exiting employee’s contact information and mailing address and sitting down with to address commonly asked questions you receive from employees after they have left the company.

The off-boarding process isn’t fun, but it is necessary. Programs like COBRA make this process and the overall transition much more efficient for both you and your employees.

An awesome way to improve your employees’ commutes to and from work is through a commuter benefits program. Thanks to the IRS tax code, implementing one of these is rather inexpensive and also serves as a recruitment and retention tool for your prospective and current employees. So here’s the scoop:

How Commuter Benefits Work

A commuter benefits program has one big advantage: it saves you and your team money. You can offer commuter benefits in three ways, as a tax-free subsidy paid by you (the employer), a pre-tax payroll deduction paid by employees, or a combination of the two.

Commuter benefits are not a part of employee wages, meaning if you opt to provide a subsidy to your employees, you can save nearly 8 percent in payroll taxes. But let’s break that down a little more for you:

With 10 employees, you’d save an average of $1,863.
With 25 employees, you’d save an average of $4,590.
With 50 employees, you’d save an average of $9,180.

Now imagine what you can do with those extra savings.

As for your employees, if they set aside money for their commute, it’s less money than they would have to pay income taxes on. Not only that, but employees who participate in a commuter benefits program typically save 40 percent on any expense that comes with commuting (e.g. gas, car maintenance, fare hikes, etc.).

The Options

1. Employee Compensation Reduction

As we referenced above, one way to implement a commuter benefits program is to offer it as a pre-tax employee-paid payroll deduction. This is categorized as a fringe benefit. For example, employees could have $75 each month automatically placed onto a fare card. If you go this route, just be sure to have the employee’s decision in verifiable written or digital form. The key information to include: the amount of payroll deduction, the time period for the payroll deduction, and the date in which this decision took place.

2. Tax-Free Employer Paid Subsidy

This one is pretty simple – you decide on the amount of money you would like to give employees on a monthly basis for their commuting expenses.

The qualifying expenses for a commuter benefits program includes transit passes, a commuter highway vehicle (this vehicle must seat at least 7 individuals, including the driver), employer-provided parking, and bicyclist benefits (I.e. reimbursable costs include the purchase of the bicycle, storage costs, etc.).

How to Implement a Commuter Benefits Program

Implementing a commuter benefits program is simple. First, choose which option (as described above) fits best with your company. You can either design your program in-house or work with your benefits broker at Decisely. Working with your broker saves you time and simplifies the overall implementation. Decisely can set you up, and in no time you’ll have an additional retention tool to offer current and prospective employees.