Changes in Workers' Compensation Legislation: Its Affect on the Marketplace

Jeff Whitaker is Executive Vice President for Bolton & Company, insurance brokers and employee benefits consultants. With more than 23 years of experience in the insurance industry, he has worked on both the insurance company side as well as the agency/broker side. Jeff specializes in medium to large business accounts, including manufacturers, distributors, high technology companies and contractors. He has also specialized in Workers’ Compensation claims management.

Lorenda Edmundson is a Workers’ Compensation Claims Analyst (WCCA) for Bolton & Company (described above). She entered the Workers’ Compensation industry in 1990 and moved through the ranks to become a Workers’ Compensation Claims Auditor for Fremont Compensation Insurance Company and later Disability Management Specialist for Zenith Insurance. She is an advocate for employer/clients by scheduling claims reviews, auditing and reviewing reserves for possible reductions, has assisted in disputes about claims management and encourages adjusters to take a more proactive approach to handling claims.

On April 19, 2004, Governor Arnold Schwarzenegger signed into law Senate Bill 899, one of the more expansive workers’ compensation reforms in recent years. The objective of SB 899 was to regain control of a workers’ compensation system that was bankrupting California and causing many employers to flee the state in search of a more affordable place to do business. It has been one year since many of the provisions and statutes were implemented.

Prior to the reform, California workers’ compensation costs were averaging over two and one-half times the national average. Businesses cited skyrocketing workers’ compensation rates as a drag on the California economy and an obstacle to their ability to hire new employees.

This article will address some of the significant changes the industry has seen and what we expect to see going forward.

Significant statute & regulation changes immediate medical care
Effective April 19, 2004, an employer must authorize all necessary medical treatment up to $10,000 within one business day after receipt of the employee claim form. The medical treatment authorized must be consistent with the guidelines of the American College of Occupational and Environmental Medicine (ACOEM) and the employer has responsibility for medical treatment until the claim is rejected. This provision for medical care applies to both accepted and disputed claims.

Initially seen as punitive to employers, this provision has resulted in claims being investigated more promptly, thus allowing non-industrial claims to be denied before any substantial medical expense is incurred. On those claims where a legitimate injury exists, the injured worker now is able to get prompt medical care, thus eliminating possible complications and an extended period of recuperation when treatment previously could be delayed up to 90 days.

There have already been attempts by some attorneys to try and circumvent this provision by mailing an Employee Claim Form to employers in plain envelopes hoping that the envelope isn’t opened within one day of receipt. Therefore medical treatment is not authorized within the required one day, thereby potentially negating the employer’s medical control.

Limitations of temporary disability
For injuries beginning on or after April 19, 2004, temporary disability payments are now limited to 104 compensable weeks within a period of two years from the date of the first payment, with exceptions specified for certain injuries and conditions (e.g. severe burns, HIV).

Indefinite periods of temporary disability have been eliminated. Payment of temporary disability will be limited to 104 weeks within a two-year period. Therefore, an employee who receives temporary disability for 20 weeks for an injury sustained on or after April 19, 2004 cannot receive temporary disability again in 2006 if the two-year time frame has been exceeded.

Return to work incentives
Effective July 1, 2004, the Administrative Director of the Division of Workers’ Compensation provides reimbursement to employers with fewer than 50 full-time employees for workplace modifications (temporary and permanent). Other provisions (affecting employers with 50 or more employees) allow for a 15% decrease in an injured worker’s permanent disability payments when the employee returns to work performing a regular, modified or alternate job. On the other hand, a 15% increase in permanent disability payments is awarded to an employee whose employer does not provide a regular, modified or alternate job.

An employer can impact the expense paid by the carrier in regard to permanent disability and Supplemental Job Displacement Benefits by allowing an employee to return to the workplace. Unfortunately, if the employer cannot or will not return an employee back to work it will result in additional permanent disability expense and increase the cost of the claim.

Permanent disability determination
Measurement of permanent disability will be based on a formula that reflects the injured worker’s future loss of earning capacity rather than their ability to compete in the open labor market. Additionally, the nature of the physical injury or disfigurement must incorporate the descriptions, measurements and percentages corresponding to the American Medical Association (AMA) Guidelines, a concept used in the majority of States when determining permanent disability. The new permanent disability guidelines apply to injuries after January 1, 2005 where the existence of permanent disability has not been determined.

Payment of disability for purely subjective factors (level of pain complaints) has been eliminated. Permanent Disability determination based on AMA guidelines in theory will allow a more realistic assessment of an employee’s diminished earnings. Some carriers have reported a significant reduction in the level of permanent disability being awarded to injured workers in comparison to the previous permanent disability rating method. This has resulted in more conservative reserving for permanent disability indemnity and will have a beneficial (lowering) impact on experience modifications.

Apportionment
Provides that apportionment of permanent disability is to be based on causation, specifically, the employer is liable for only the percentage of permanent disability directly caused by the injury arising out of and occurring in the course of employment. Therefore, an employee’s prior injury or condition may be used to reduce the amount of permanent disability due to a current workplace injury. Apportionment has been applied retroactively to all dates of injury where a permanent disability award has not been finalized.

Under the revised Labor Code section concerning apportionment, an employee who claims an industrial injury must, upon request, disclose all previous permanent disabilities and physical impairments. These prior permanent disabilities and physical impairments, when included into medical evidence, has also resulted in a reduction in the amount of permanent disability caused by an industrial injury an employer is liable for. A physician or injured worker can no longer deny that a prior disability or impairment existed at the time of a subsequent injury. At a recent claims meeting, a permanent disability of 50% was reduced to 15% as a result of apportioning the existing limitations to the employee’s prior permanent disability. Carriers thus far have been successful before the Workers’ Compensation Appeals Board when apportionment issues have been litigated. Physical impairments can include such conditions as diabetes, arthritis and even pregnancy.

Medical control
Effective January 1, 2005, self-insured employers and insurance carriers may modify or establish a Medical Provider Network (MPN) comprised primarily of occupational medicine specialists. Under the MPN, the employer will arrange the initial medical evaluation after which the employee may choose another physician. The choice of doctor must be within the MPN thus potentially providing the employer medical control throughout the life of the claim. An employee must first dispute the treatment or diagnosis of three physicians within the MPN before proceeding to an Independent Medical Reviewer (IMR) to resolve the dispute. The injured worker can go outside of the network if the Independent Medical Reviewer agrees with the injured worker’s disputes regarding treatment or diagnosis.

Carriers are noticing a reduction in the number of litigated claims and applicant attorneys reluctantly relinquishing medical control as a result of employers successfully implementing the Medical Provider Network. The use of the MPN has had a positive impact on the amounts reserved for the type and duration of medical treatment.

It is important that all employers implement the provisions of the MPN according to the directions and rules of their carrier. Information on how to implement the MPN can usually be obtained from the insurance company’s toll-free number or from their website. Each carrier has their own list of approved providers and each carrier has their own recommendations as to how the MPN should be implemented. While each carrier has its own rules, the primary process is to provide all employees written information on the MPN, new pre-designation forms (for those employers who provide group medical insurance), and documentation of receipt by employees of the required forms and the posting of the Notice to Employees-Injuries at Work. Failure to properly implement the MPN requirements can jeopardize the medical control provisions of the new legislation.

Impact on the marketplace
Double-digit rate cuts for Workers’ Compensation premiums are on their way to California employers. The average rate reductions proposed by the State’s Insurance Department and recently announced by California’s largest workers’ compensation carriers are the largest in recent years. In January 2005, businesses that renewed their insurance saw a slight premium decrease on average from their 2004 rates. In reviewing insurance company rate filings for July 2005, virtually all carriers are filing rate reductions with some rate reductions as high as 18% for those policies that renew on July 1st or later.

Additionally, the Workers’ Compensation Insurance Rating Bureau (WCIRB) has recommended a 3.8% pure premium reduction for policies in effect from January 1, 2005 to July 1, 2005. As of the writing of this article, it is unclear how the different carriers will interpret this recommendation.

Besides the reductions in carrier rate filings, the industry has seen carriers who have been sitting on the sidelines for several years again quoting workers’ compensation policies. We have also seen the introduction of a number of new carriers entering the California workers’ compensation market. The re-entering of established carriers and the addition of new carriers to the California workers’ compensation market will increase competition and should be a significant benefit to California businesses on a going forward basis.

On top of the current reduction in rate filings by carriers, there has also been a reduction in claims frequency. As a result, the WCIRB, who is responsible for the determination of experience modifications, has made a change in the experience rating formula for 2005. One of the components in the calculation of experience modifications is the “Expected Loss Rate”. With the reduction in the frequency of claims, the WCIRB has reduced the factor. The net result for many businesses with claims in their 2001, 2002 and 2003 policy years (the years used to determine the 2005 Experience Modification) has been an increase in their experience modifications. In several cases, we have seen increases as much as 11% in experience modifications when compared to the use of the 2004 Expected Loss Rate factors!

With the passage of SB 899, including the implementation of MPN’s, the revision of the Permanent Disability guidelines and the new rules regarding apportionment should have a significant positive impact on California workers’ compensation rates. It is expected that applicant attorneys will test many of the provisions of SB 899 in court.
At the same time, some old rules still apply. There are things that California businesses can’t control (rates, legislation, etc.) but there are things that they can. It is the things that we can control that we need to focus on and continually strive to improve. These things would include:

1. Implementation of loss control/safety measures to prevent claims from occurring in the first place.
2. Identification and elimination of work place hazards.
3. Where possible, the development of a Return-to-Work program.
4. Education of employees on the costs of workers’ compensation to everyone in a business. Workers’ compensation claims don’t just affect the injured employee, they also affect the ability of the business to grow and prosper, provide raises and ultimately survive.

Back in the mid to late 1990’s, when California went to the “Open Rating” system and rates were declining significantly year after year, we saw renewal rates go down despite claims history. Unfortunately, many businesses became lax in their safety programs, reduced awareness of workplace hazards and lost interest in the management/follow-through on their open claims. Then, when the rates started to rise in 2000, the poor claims history came back to haunt these businesses with higher experience modifications and reduced competition among insurance companies.

It is important to remember and learn from the past as we enter the next cycle of insurance. While at the current time the rates for workers’ compensation are starting to decline and there is hope that we are heading in the right direction, we must stay vigilant. Take advantage of your carrier and insurance broker’s loss control and claims management services. Implement and follow the rules for your carrier’s MPN program. Maintain your focus on safety practices and understand the new rules and legislation so that you and your carrier can take advantage of the positive changes in the workers’ compensation legislation.

(Editor’s Note: Bolton & Company in Southern California and Woodruff Sawyer & Co. in Northern California are Employers Group’s two endorsed insurance brokers. For information about their services, contact EG at (800) 748-8484 and ask for Professional Services Manager.)

By Dagmar Muthamia, SPHR
Helpline Consultant

Certain tasks and/or functions are frequently outsourced because it is cheaper and more efficient to do so. According to recent surveys more than 50 percent of organizations outsource defined benefit retirement plans, the most common of which is the 401(k) plan. Thirty-five percent of employers outsource payroll partially and thirteen percent outsource it completely. More than 20 percent of employers outsource all or parts of defined benefit retirement plans, health plans, stock options administration, training, COBRA, and Section 125 cafeteria plan administration.

Other frequently outsourced items are transit and parking plans, employee benefits statements, safety, environmental monitoring and reporting, and executive compensation planning. Indeed, the entire HR function is sometimes outsourced. Outsourcing is done to save money and to obtain services that might not be affordable on any other basis, but for each service there are multiple vendors anxious to do business. How do you go about choosing which vendor is best for your organization?

Gather information
Determine your needs. To get what you really need and want, and to be able to compare one vendor to another, you need a clear statement or list of what you need and perhaps a second list of what is not essential but you would like to have. To do this you might start with the basic questions: What? When? Where? Why? How?

Select at least three potential vendors, preferably five, to provide you with a quote. Ask each potential vendor to respond to your list of needs and wants. Then ask if they include anything that you have not considered.

Finding the right fit
Ask each vendor to describe their client base. If your organization has less than 100 employees you probably do not want to go with a vendor that specializes in organizations with more than 1,000 employees. You also want to know how they are structured. Will one person or a team handle your account? How many other clients will be handled by this person or team. Industry specialization may also be important.

Carefully examine the price
What is included? What will cost extra? It is upsetting to learn after your business relationship starts that the reports you need are not included with the basic price and you will have to pay extra for them. How soon the service can start after signing an agreement and how the service may be terminated are also cost concerns.

Technology is an important consideration
You want to know the extent to which your data can be downloaded to other programs and whether or not you can use the data to write your own reports. Is the vendor's technology compatible with yours? How often do they update or improve their hardware and software and do they pass along the improvements to their clients or must the clients pay more.

Know the legalities
Make sure that you know the legalities that are relevant to the type of work you are outsourcing. For example, TPAs (Third Party Administrators) for ERISA plans must meet certain standards. The state must approve TPAs for California's employers who are self-insured for Workers Compensation. Closely related is the issue of liability. Who will be liable if things are not done correctly? Do they offer performance guarantees and liability insurance? How do they insure that they remain compliant with laws and regulations on both federal and local level?

Check references
Have each vendor provide you with references from companies similar to yours that you can call. This should be easy for an HR professional who is used to checking applicant references. Make a list of questions to ask each about their experience with the vendor, both the good and the not so good. Don't forget to ask if they have enjoyed the cost savings they anticipated.

Prepare and present your report
Review the information you collect and display it in summary form or on a spreadsheet that allows you to quickly compare the vendors and include your recommendation. Present your report to the management person or team that will authorize the proposal. You may want to invite representatives from the top contenders make their own presentation to the decision-makers.

Evaluate the service
Regularly evaluate the service you have selected. This is one step that is often forgotten. It is not unusual to overestimate the cost savings. You cannot determine if the savings that were predicted materialize unless you evaluate after the relationship has been operating for 6 months to one year and regularly thereafter. You also need to evaluate whether or not the services that were promised are actually being provided.

(Editor’s Note: Employers Group offers members the benefit of value-added partnerships that we’ve established to assist you with your HR outsourcing needs – from recruiting to payroll, to outplacement services and insurance products. Call us at (800) 748-8484 to ask about the product or service you’re looking to outsource.)

Who is a Dependent?

By Wendy Platt, CEBS,
Helpline Consultant

The Working Families Tax Relief Act of 2004 (WFTRA), effective January 2005, redefined the Internal Revenue Code (IRC) definition of a dependent – a qualified child and a qualified relative. Because of unintended confusion regarding the new definitions, the Internal Revenue Service (IRS) has attempted to clarify them, but some confusion remains.

Changes in the definitions from the initial WFTRA definitions (qualifying child and qualifying relative) have been clarified in the Internal Revenue Notice 2004-79, eliminating the gross income limit ($3,200 for 2005) for heath coverage. Currently, those definitions are as follows.

Qualifying child includes individuals who:

1. Are children, grandchildren, siblings or stepsiblings, nieces or nephews;
2. Live with the taxpayer for more than one-half of the taxable year;
3. Are 18 years old or younger (has not reached age 19 by the end of the calendar year), or a full-time student under the age of 24 (has not reached age 24 by the end of the calendar year); and
4. Does not provide over one-half of his or her own support for the taxable year.
5. In addition, if a person is permanently and totally disabled at anytime during the year, there is no age requirement.

Qualifying relatives include individuals who:

1. Are children, grandchildren, siblings, parents or step-parents, aunts, uncles, someone who is a member of the individual’s household and their residence is the qualifying relative’s principal residence;
2. Have received over one-half of his or her support from the individual;
3. Qualifying relative’s gross income does not exceed $3,200 (for 2005); and,
4. Is not a qualifying child of the individual or of any other individual for the calendar year and is not married and filing a joint income tax return.

While the IRS Notice 2004-79 did eliminate the income limit ($3,200 for 2005, which is subject to change annually) for welfare health plans, it did not eliminate the income limit for health savings accounts (HSA’s). Subsequently, the IRS issued new regulations in December 2004, eliminating the income limit for hardship distributions for post-secondary education – Federal Regulation 78143 (12/29/04)) for 401(k) and 401(m), employer match. However, the IRS has not yet addressed hardship distributions for 403(b) and 457 plans.

Congress introduced the Tax Technical Corrections Act of 2004 (TTCA) that would eliminate the gross income limit for dependent care assistance plans and HSA’s, but it has not passed yet. Employers remain in a quandary as to how to address some benefits that still have the income limit. It is believed that if the TTCA eliminates the gross income limit, it may give employees the opportunity to change their election contributions for dependent care assistance plans at that time. The adoption of TTCA could occur at any time, or not at all.

What should employers do?

1. Determine if the WFTRA definitions apply to the company’s various benefits plans and update documents accordingly – summary plan descriptions (SPD’s), enrollment forms, employee handbooks, etc.
2. Welfare benefits plans often reference the IRC Section 152 definition of dependent in plan documents. If your plan references the IRC Section 152 definition specifically, be sure to review your plan documents and update them, if necessary.
3. Review the dependent definition for HSA’s and dependent care accounts to ensure they conform to the new rules.
4. Additional concerns resulting from these new dependent definitions may arise affecting the dependent definition for federal income tax purposes. Employers should review state definitions as well as federal definitions for income tax purposes.

Note: Individuals should seek advice from their tax accountant, tax attorney, whoever does their annual tax returns, to determine if this definition change will affect their individual tax returns.

To remain compliant, keep abreast of ongoing IRS changes that may impact benefits plans, updating the dependent definitions in benefits documents accordingly.

Job Abandonment - The Point of No Return

By Mimi Natividad Mericle, SPHR,
Helpline Consultant

Sometimes an employee fails to report for work on his/her next scheduled shift or return from a leave of absence. And surprisingly, the worker does not contact the employer or respond to the organization’s attempts to contact him, leaving the employer in a quandary as to what to do with the person’s paycheck and benefits, among other things. This article will address some of the basic actions for employers to take when terminating an employee who abandons his job.

Date of separation
The effective termination date is the date the employer decides to discharge the employee. This may or may not be the date the worker was scheduled to return to work, depending on the company’s job abandonment policy. For example, if the policy defines job abandonment as three days no-call no-show, the termination date is the third day of absence, not the first. Once the separation date is determined, a “Change of Status” notice informing the employee of the effective date of the discharge should be sent to the person’s last known address.

Note that a “Change of Status” notice is not required for a voluntary quit. Therefore those employers who classify job abandonment as a voluntary quit need not provide this notice. Employers who regard job abandonment as a discharge should send the notice via a delivery method that requires a signature for receipt, to show a good faith effort in the company’s attempt to notify the worker.

Delivery of final pay
California Labor Code (CLC) Section 201 requires the final paycheck – including accrued, unused vacation (CLC § 227.3) – to be delivered at the time of discharge. This means the check must be available to the worker on the date of separation. How does the company give a check to someone who will not come to work or return phone calls? CLC Section 202 states an employer can only mail a final paycheck when the employee authorizes it and designates a mailing address. Thus, an employer may NOT mail the check with the discharge notice.

Instead, the dismissal letter should advise the worker that his final check is available for pick-up. The notice may also include information about the provisions of CLC Section 202; that is, if the person wants the check mailed, the employer should instruct him to forward a written request with a designated mailing address. Employers Group recommends obtaining a note with a verifiable signature and advises against accepting an email request, since the author of the email cannot be confirmed.

Unclaimed wages
What happens when an employee fails to contact the organization regarding delivery of his last check? Can the company void the paycheck after some time and add the check amount back into its account balance? While most employers would probably like to, and perhaps have done so, this is not a permissible practice. California Code of Civil Procedures (CCP) Section 1513(g) requires holders of unclaimed wages, i.e. employers, to make the check available to the former worker for one year. It should be held at the worksite where the employee usually received his check on pay day. If the person fails to collect the paycheck within that time, the wages escheat to the state. Detailed information on escheatment procedures, including reporting and remitting, can be viewed at the website of the California State Controller’s Office at http://www.sco.ca.gov/col/ucp/holder/index.shtml.

Benefits coverage
Job abandonment does not disqualify an employee from COBRA (for employers with 20 or more employees) or Cal-COBRA (for employers with 2–19 employees) continuation coverage for group health plans. The only COBRA/Cal-COBRA exclusion is termination for gross misconduct (not to be confused with general misconduct), and each discharge should be assessed on a case by case basis to determine whether this exclusion might apply. Thus, an employer is required to provide the COBRA/Cal-COBRA election notice when a worker abandons his job, as with any other qualifying separation of employment.

Where an employee participated in a company sponsored retirement plan, such as a 401(k) or pension plan, the rules and procedures governing the plan must be followed. Generally, the same applies to other benefits for which the worker was eligible, e.g. life or disability insurance. All plan documents and benefits policies should be reviewed to determine any necessary actions, such as providing notice of portability or conversion rights.

Lastly employers should use Employers Group’s “Termination Checklist” and “Termination Checklist with Labor Codes” documents located at http://www.employersgroup.com/knowledgecenter/articles/index.shtml to ensure all mandatory actions are taken. And of course, call our Helpline to discuss any questions, concerns or issues about which you’re unsure.

What Constitutes Joint Employment? The DOL Offers an Opinion

By Thomas Harang, SPHR
Helpline Consultant

In response to a request for an opinion, the Department of Labor (DOL) issued an opinion letter (FLSA 2005-15) on April 15, 2005 addressing the issue of what constitutes joint employment in the context of the health care industry.

According to the letter, the health care system, owned by a single, parent holding company without any employees, includes two acute care hospitals, a nursing home, and a combined long-term care hospital and a nursing home. Each of these facilities operated independently. Each hospital or nursing home operated separate HR departments, maintained separate employee handbooks, payroll systems, retirement plans, and registered separate Federal Identification numbers.

On the other hand, the President and Board of Directors of the nursing home and the combined hospital/nursing home are the same. Several of the executives have joint responsibility for more than one facility. Some of the HR policies are the same and non-union employees share the same health plan. All of the facilities use the same job posting system.

The particular facts concern a Licensed Practical Nurse who worked for one of the acute care hospitals during the week (40 hours) and worked at one of the nursing homes on the weekend. Does this arrangement require the payment of overtime for hours worked beyond forty in the workweek? The letter states that “[I]f the facts establish that two or more employers are not completely disassociated with respect to the employment of a particular employee, a joint employment situation exists (29 CFR 791.2(a).”

The DOL concluded that all of the employees of the hospitals and nursing homes are under the common control of the employer. The letter referenced “multiple associations” and that a joint employment relationship exists during the weeks in which the employee worked for more than one of the employer’s entities. “Therefore,” the Department determined that “the entities must aggregate all hours worked in a workweek by an employee who works for more than one entity.”

By Wendy Taylor,
Editor and Legislative Coordinator

The following is a review of what’s going on in the California Legislature as it relates to the business community.

Political environment
While there was a leadership change earlier this year in the Senate—President John Burton was termed out and Don Perata, Democrat from Oakland, is the current President of the Senate—the general political environment in the Legislature remains the same. Run by liberal Democrats, with a small number of “moderate” Democrats struggling to follow a more socially liberal, but business-supportive approach on legislation. Labor continues to be the most influential special interest in the Democrat-controlled Legislature—and includes teachers, nurses, correctional officers, law enforcement, and public employee unions.

Special election
The Governor has called a Special Election for November 8. He is sponsoring three ballot measures: reapportionment, budget reform and teacher tenure. In next month’s newsletter we will cover a summary of employer-related initiatives that qualified for the ballot.

Speculations
The biggest speculation game in town is whether or not the Governor will run for reelection. Those who think he will run cite the Governor's personal penchant for a challenge, and the Republicans' lack of a “deep bench,” meaning there are few other Republican candidates believed able to win the governorship. Those who think he will not run cite his personal penchant for victory and success (which seems to be ebbing), his frustration with the entrenched opposition to change in Sacramento, and his family's expressed desire to have him back home.

2005 Legislation that’s bad for business
In a future article, we will recap some of the bills that would positively impact the California business community. The following is a brief summary of some of the bills that would be bad for California employers.

AB 48 (Lieber) Minimum wage increase. Raises state minimum was from $6.75 to $7.25 in 2006 and to $7.75 in 2007. Also indexes increases to the previous year's rate of inflation every year thereafter. * Has passed the Assembly.

AB 169 (Oropeza) Gender pay equity. This bill would increase the damages an aggrieved employee may obtain if a successful civil action against an employer is brought due to a violation of existing law relating to gender-based payment discrimination. This bill would also require that civil penalties recovered by aggrieved employees be distributed 75% to the Division of Labor Standards Enforcement for purposes of education and enforcement, and 25% to the aggrieved employees. * Has passed the Assembly.

AB 391 (Koretz) Unemployment Compensation Benefits: locked-out workers. This bill would grant eligibility for unemployment insurance benefits to workers who are prevented by their employers from entering the worksite during a trade dispute. * Has passed the Assembly.

AB 875 (Koretz). Employee wages and working hours: violators. This bill would establish a mechanism for employer tax audits and investigation of employer wage and hour violations. Has passed in the Assembly.

AB 1310 (Nunez) Severance offers: disclosures. This bill would establish disclosure and other requirements for employers of 500 or more when they offer severance package offers. Has passed the Assembly.

AB 1430 (Goldberg) Air contaminants. The state board shall adopt a methodology for use by districts to calculate the value of credits issued for emission reductions from stationary, mobile, indirect, and area-wide sources. Currently inactive in the Assembly: 2-year bill.

AB 1549 (Koretz) Workers' compensation. This bill would permit acupuncturists meeting certain requirements to be appointed as qualified medical evaluators, and would permit psychologists, acupuncturists, optometrists, dentists, podiatrists, and chiropractic practitioners licensed by California state law to be independent medical reviewers. Held in Committee: 2-year bill.

AB 1700 (Pavley) Secrecy agreements: public dangers. This bill would provide that in an action based upon the existence of a public danger evidence of or information concerning a public danger that was discovered during the course of litigation court, may not be kept secret pursuant to agreement of the parties or by court order, except as specified. Currently inactive in the Assembly.

SB 27 (Escutia) Tax credit carryovers. This bill would, for taxable years beginning on or after January 1, 2005, and before January 1, 2007, provide that the aggregate amount of all credits, except as provided, that contain a carryover provision may not reduce the "net tax," or "tax," as applicable, for the taxable year by more than 50%. Currently held in Senate Revenue and Taxation Committee.

SB 109 (Ortiz) Air pollution: minor violations. This bill would extend that minor violation classification requirement until January 1, 2012. The bill would allow a criminal prosecution for any of certain offenses, despite the recovery of civil penalties for the same offenses, and would allow a civil action for any of certain offenses to proceed, despite the filing of a criminal complaint for the same offenses. Passed Senate.

SB 174 (Dunn) Minimum wage Right to civil action. This bill would provide that if the employee was paid less than twice the minimum wage at the time of a violation of that law, the civil action to recover unpaid minimum wages or overtime compensation may be brought by the employee in the interests of himself or herself and other current and former employees who were also paid less than twice the state minimum wage at the time of the violation. Passed Senate.

SB 300 (Kuehl) Family medical leave. The bill would expand the definition of the term "family member" to include parent, grandparent, sibling, child, domestic partner, or spouse, for purposes of authorizing an employee to take leave to care for a family member with a serious health condition. Passed Senate.

SB 593 (Alarcon) Health care costs: recovery. This bill would require a for- profit corporation with more than 20,000 employees to reimburse the state for the state's share of costs incurred in providing health care coverage to the corporation's employees and their dependents under Medi-Cal and the Healthy Families Program. Costs incurred by the state in providing health care coverage under the Medi-Cal program to the aged, blind, or disabled would be excluded. This bill would not become operative unless AB 89 is also enacted and becomes operative. Currently held in the Health Committee: a 2 year bill.

SB 840 (Kuehl) Single-payer health care coverage. The bill would make all California residents eligible for specified health care benefits under the California Health Insurance System, which would, on a single-payer basis, negotiate for or set fees for health care services provided through the system and pay claims for those services. * Passed Senate.

*Bill that was either vetoed or failed last year.

View our list of all current employer related bills, please go to the EG website.

Last Call (almost) - Do Harassment Training Now!

By Jim Kuns, J.D.,
Senior EG Consultant

California’s new required two-hour supervisory sexual harassment training law for employers with 50 or more employees is in effect, and initial training must be completed by the end of this year. Many employers are still confused as to what is required of them. For example, do all 50 employees have to be in California for the law to apply to an employer? Can the required training be done over the internet - online? Who can do the training? Why is it so important to comply with this law?

The new law originated as Assembly Bill #1825, and was signed by the governor in 2004. The law adds a new section to California’s Fair Employment and Housing Act, which can be found at Section 12950.1 of the California Government Code.

In a nutshell the law requires, by January 1, 2006, employers with 50 or more employees to give at least two hours of training on sexual harassment to its supervisors who were employed as of July 1, 2005. However, if the employer has already provided training that qualifies after January 1, 2003, then the 2006 deadline does not apply to those supervisors who received the training. The training can be conducted in a normal classroom setting, or some other effective interactive training.

After January 1, 2006 employers must train supervisors for at least two hours every two years, and within six months of becoming a supervisor. If an employer fails to provide the training, it can be forced to do so by the California Fair Employment and Housing Commission. Failure to provide the training does not in and of itself establish liability in a sexual harassment claim.

Importance of compliance
In California, our Supreme Court has recognized the “avoidable consequences” doctrine. That doctrine can reduce the damages an employer would be liable for in a sexual harassment suit. California does not recognize the federal Supreme Court’s sexual harassment defenses discussed in the Faragher/Ellerth cases. In California the Fair Employment and Housing Act imposes strict liability for a supervisor’s sexual harassment of an employee.

California’s Supreme Court noted in 2003 (McGinnis) that an employer may limit damages if: (1) the employer has taken reasonable steps to prevent and correct workplace harassment;(2) the employee unreasonably failed to use the preventive and corrective measures that the employer provided; and (3) reasonable use of the employer's procedures would have prevented at least some of the harm the employee suffered. Hence, if an employer conducts proper training, and maintains an appropriate sexual harassment policy, it is less likely to get a sexual harassment complaint, and may reduce losses if there was good faith compliance.

Successful sexual harassment suits can result in very large damage awards and legal fees, and are not to be taken lightly.

Your company is probably covered by the new law
The law states that an employer “...means any person regularly employing 50 or more persons or regularly receiving the services of 50 or more persons providing services pursuant to a contract, or any person acting as an agent of an employer, directly or indirectly, the state, or any political or civil subdivision of the state, and cities. If your company meets that definition then you are covered.

What if you have 50 employees, but they are scattered about in different cities, states, countries or planets? A court will generally interpret the clear meaning of a law’s language to mean exactly what it says. In this law, the language is very clear. You are covered if you have 50 employees or independent contractors if any of them work in California.

California has other employment laws that also consider the number of employees not in California. For example; the law regarding company relocations, terminations, and mass layoffs considers any employer to be covered by the law if it employed 75 or more employees within the year. In determining California Fair Employment and Housing Act (FEHA) coverage, the California Fair Employment and Housing Commission (FEHC) has historically taken the position "[f]or purposes of counting the number of 'persons employed,' both full-time and part-time employees who are 'regularly' employed within or outside of the State of California should be counted." The new sexual harassment training law is part of California’s FEHA.

When in doubt, do the training. For example, it is wise to train a supervisor if he/she works for a covered employer and is located outside California, and supervises employees in California.

Who is qualified to do the required training?
The training required to comply with the law “...shall be presented by trainers or educators with knowledge and expertise in the prevention of harassment, discrimination, and retaliation.” No, you don’t have to be an attorney or law professor to teach the classes. But you do need to have someone teach the class that understands sexual harassment legal issues, and can properly communicate “...information and practical guidance regarding the federal and state statutory provisions concerning the prohibition against and the prevention and correction of sexual harassment and the remedies available to victims of sexual harassment in employment. The training and education shall also include practical examples aimed at instructing supervisors in the prevention of harassment, discrimination, and retaliation...” Anyone who has this ability can teach the class. Suggestion: have a professional do the classroom training. The training will be done right, and your employees will more likely pay closer attention to the training.
Can employees be taught over the Internet?
Yes, as long as the training meets the training content and expertise requirements, and is interactive. For example, a student must respond correctly to questions, and be able to submit questions. Many employers have found web-based training more suited to their company structure.

Who is considered a supervisor?
AB 1825 does not define what is meant by the term supervisor. An employee can be a supervisor even if he/she doesn’t have the title “supervisor.” Generally the FEHA considers a supervisor to be anyone with authority “...to hire, transfer, suspend, layoff, recall, promote, discharge, assign, reward or discipline other employees, or the responsibility to direct them, or to adjust their grievances, or effectively to recommend that action...if the exercise of that authority is not of a merely routine or clerical nature, but requires the use of independent judgment.”

I recommend that you not only train your supervisors; but you train all your employees in sexual harassment prevention on an annual basis. Sexual harassment suits are not only costly, but they can significantly damage a company’s reputation.

HR a Profit Center? Make it Happen at Your Company!

J. Thomas Jacobs, J.D., MBA, is CEO and General Counsel of eflexgroup, Inc., an Internet based third party administrator of flexible spending plans and COBRA. He is a national lecturer on consumerism in health care and pre-tax employee benefits. Tom was formerly President of QTI Human Resources, Inc., a Madison, Wisconsin-based PEO and outsourcer of HR services, and before that he had a private law practice specializing in employment law and insurance defense litigation.

Your employee has just completed a dental visit, and on her way out she pays her portion of the bill with her flex convenience debit card, paying with pre-tax dollars directly from her flexible spending account. She saves her receipt in case she is asked to submit it to her flex administrator, and is happy that she just paid her expense with pre-tax dollars, effectively giving her an increase in her take home pay. By using her flex debit card, she has tapped directly into her flex account that has been funded through payroll deduction, and has avoided having to pay cash up front and deal with reimbursement later.

Your employee has not only saved herself money in using her flex plan to pay for out of pocket medical expenses, she has also given her employer a tax break by using this increasingly popular employee benefit. Just how much can a company save by promoting employee use of this pre-tax employee benefit? Read on!

Pre-tax employee benefits have increased in popularity over the past decade as a means to offer more choices to participants in managing their health care dollars and to help employers offset the increasing costs of providing quality benefits for their employees. With the increase in interest in Health Reimbursement Arrangements (HRAs), Health Savings Accounts (HSAs) and Flexible Spending Accounts (FSAs), employers have more tools available to them to better manage their benefit offerings.

While HRAs and HSAs are fairly recent tools made available to employers, causing them to adopt a wait and see attitude, FSAs have been with us since 1986, and remain an underutilized employee benefit despite the generous tax break afforded to participants who use the plan to pay for out of pocket medical and day care expenses though payroll deduction.

Employers are now beginning to focus on the Section 125 Flex Plan employee benefit more closely for two reasons:

1. With the increasing cost of health care benefits, FSAs represent the ‘good news’ side of the ‘bad news’ about increased employee out of pocket expenses. The good news is, employees are able to pre-tax their out-of-pocket medical expenses. This means they can pay for unreimbursed medical expenses on a pre-tax basis, paying for services they would otherwise be paying for post-tax, resulting in a reduction of their tax burden and an increase in take home pay. For instance, an employee earning $35,000 who elects $1,500 in her Health FSA, will see a W-2 at the end of the year with $33,500 in taxable income. She, in effect, has given herself an increase in take home pay just by paying for items or services pre-tax that she would have paid for post-tax. This makes for a happier employee.

2. To the extent employers can foster participation in the FSA, they will realize FICA and other tax savings, as well as savings in workers compensation premiums. In the example above, the $35,000 salaried employee will save the employer $1,500 times 7.65% (FICA rate), or $114 in FICA savings alone. Add to that other California employment taxes, plus the reduction in workers compensation premiums that is measured upon taxable income, and the savings to the employer due to the employee’s participation in the Health FSA would be over $200, depending on the job classification.

Is this a lot? The average level of participation by employees in a company’s Flex Plan (both the Health FSA and Dependent Care FSA accounts) is 15%, and this number is growing due to increasing out of pocket medical expenses. The average participation amount in all the accounts is approximately $1,500. How many employees do you have? A company with 1,000 employees offering this benefit will have savings of over $30,000 annually. What if you were able to use state of the art communication tools, debit cards and web resources to facilitate participation in your plan? An increase in participation to 20% will increase the annual savings to over $40,000, and a 25% level will garner over $50,000 in annual savings. This makes for a happier employer.

HR as a “hero” and a profit center
Savvy employers have adopted a culture of fostering increased employee participation in pre-tax employee benefits. This charge has been lead by HR departments, which has made the proponents heroes for two reasons:

First, employees are getting an increase in take home pay, by learning how to pay for certain expenses on a pre-tax basis, expenses that the employees would be paying for anyway. Second, employers are learning how to incorporate in their budgeting FICA and Workers’ Compensation premium savings. To the extent employees are utilizing their pre-tax employee benefits, employers will save. It’s up to the HR professionals to make this happen, and in this way the HR department is becoming a profit center in companies across the country.

(Editor’s Note: For more information about flexible spending plans available through our partnership with eflex, contact Katherin Scott at Employers Group, (213) 765-3949 or kscott@employersgroup.com. To see how your firm stacks up, check out the evaluation tool spreadsheet on the Employers Group website. Use it to measure your firm’s current performance, and to help you see the effects of increasing your plan participation over time.

Performance Management and Employee Productivity

Richard Harder, MSM, is principal of Richard Harder & Associates, a management training and consulting firm that develops and presents interactive training workshops on a variety of topics related to leadership effectiveness, and positive employee relations. He has over 25 years of experience in human resource management and training and has provided management training and consulting services to numerous organizations in the U.S. and Canada.

Broad definitions and applications of performance management can be found in most of the organizational and management literature. The performance management concept applies generally to organizational effectiveness, departmental efficiencies, process and systems improvements, product and service quality initiatives, as well as employee retention and productivity – the latter of which is the focus of this article.

Ferdinand F. Fournies, in his book Why Employees Don’t Do What They’re Supposed To Do and What To Do About It, he states that the first reason why employees fail to meet job performance expectations is that “they don’t know what they are expected to do.” If this is the case, what must managers and supervisors do to resolve this issue?

Unclear employee job performance expectations are a key reason why employees will leave an organization – often within the probationary period of employment. Surveys conducted in a number of my management consulting and training projects over the years indicate that employee performance management continues to be a key factor in maximizing organization productivity and effectiveness, which has a positive affect on overall product and service quality.

Management respondents indicate that the most valuable asset of their organizations continues to be the employees. This suggests, therefore, that a key to organizational effectiveness is employee performance management and improved productivity.

What follows are some practical ideas that deal with what I call the first two aspects of effective employee performance management — clarifying employee job performance expectations and providing timely and constructive employee job performance feedback.

Clarifying employee job performance expectations
Managers and supervisors responsible and accountable for managing employee performance should assure that those supervised are clearly informed of their job duties and performance expectations in the early stages of their employment. For newly hired employees, this should be accomplished within the introductory (probationary period) of employment – an employee orientation and training period. Employees with time in service beyond the probationary period of employment should have their job performance expectations clarified prior to receiving a formal performance appraisal. This is a must.

Employee performance expectations are communicated and documented with employees during employee orientation and on-the-job training. This no doubt seems obvious to the reader of this article. The fact remains, however, that unclear job performance expectations continue to be a key factor leading to employee dissatisfaction in the workplace, low productivity and high employee turnover rates. Those who resign are often the most valuable employees with the organization. Conversely, those employees who understand their job performance expectations continue to be most productive and remain with organizations for longer periods of time. So, there is practical value and benefit to paying careful attention to this important aspect of HR management.

Provide timely and constructive performance feedback
One of the most commonly expressed desires of employees at all levels and all job categories is to receive timely and objective feedback on how they are performing their jobs. This is another key factor related to the retention of highly productive employees.

Employees appreciate accurate and timely feedback on how well they are performing their jobs. Giving timely and constructive job performance feedback is the informal aspect of performance appraisal. This more informal and periodic feedback is given to the employee in addition to the more formal interaction between the employee and manager or supervisor that occurs at performance reviews scheduled during the year. Such reviews usually occur at the end of the employee’s probationary period or during regularly scheduled annual employee performance evaluations.

An important HR management principle to seriously consider about the formal performance evaluation process is that, as important as the formal performance review process is, it should be a non-event – meaning no surprises. Job performance expectations should have been defined and communicated to employees prior to the formal performance review process via well-written job descriptions. It makes the job of documenting formal performance appraisals much easier – and objective.

Another important HR management principle is that job performance feedback and coaching for improved job performance should not occur after a period of employment unless job duties and performance expectations have been clearly defined. This management task can be accomplished in most instances during the initial probationary period of employment.

Minimizing litigation, maximizing productivity and retention
It is a reasonable presumption that employees who feel fairly treated and well informed of their job performance expectations are more likely to be more productive and stay longer. Conversely, employees who feel unfairly or unreasonably treated are more likely to be less productive, leave their employer sooner, and most significantly, have cause to file a grievance or take some type of litigated action against the employer based on at least the perception of wrongdoing on the part of the employer.

An effective employee performance management initiative, at a minimum, assures that employees:

1. Are adequately trained in their job duties – they know what is expected.
2. Are informed on a timely basis of job-performance problems – a variance between actual job performance and the specific performance expectations as determined by the manager or supervisor.
3. Are provided opportunities, through additional coaching and training, to correct any job performance deficiencies.
4. Are informed of the consequences of a failure or inability to perform the reasonable and clearly stated job performance expectations.
5. Receive any type of punitive disciplinary action only if the manager can substantiate that job performance expectations were made clear to the employee, that the employee was informed of the job performance problem in a timely and constructive manner, that the employee was given an opportunity to improve the job performance, and is provided with a fair warning of the consequences of an inability or unwillingness to perform the clearly stated job performance expectations satisfactorily.

Incorporating these practices of human resource management into an employee performance management process within an organization can lead to increased employee productivity and retention, improved employee morale, and, most importantly a reduction in employee grievances and litigated claims filed against employers.

(Editors note: For more information about Richard’s training services and how to make them available to you, contact Patricia Burke, Director of Learning Services at Employers Group, (800)748-8484, extension 3910.)

HR Practices & Benefits Survey: Hours in Workweek

By Salvador Curiel,
Research Services Analyst

As I write this article, the California Division of Labor Standards Enforcement is proposing changes to the Meal and Rest Period (see page 3 for the latest news). They are making modifications to certain elements of the regulation and those proposed modifications are in response to comments by HR Managers in California.

The recent results of the HR Practices & Benefits Survey covered the topic of lunch periods and others, such as Workweek and Pay Period, and Hours in Workweek. The results provide an idea of what other organizations are doing and how they might be influencing the proposed changes, in addition to providing information on the other topics mentioned above.

According to the survey, more than half of the firms indicated that the length of the lunch periods for production, service, and maintenance workers was up to 30 minutes. The remaining firms let employees choose between 30, 45 or 60 minutes (16.6%) or take between 46-60 minutes (19.3%) while only 4.9% had lunch periods between 31 and 45 minutes. Office, clerical and technical employees had much more time. Over two-fifths selected to have 46-60 minutes lunch periods for these employees, while 34.6% allowed them to have a choice of their lunch period and 21.7% had lunches up to 30 minutes. Again, a small percentage of 4.7% had lunch periods between 31 and 46 minutes.

Meanwhile, exempt employees had more time for lunches, with 40.8% of the firms allowing them to choose the amount of time for their lunch and 43.5% had lunches between 46-60 minutes. Only 14.5% of the participating firms had lunches up to 30 minutes and an even smaller percentage of 2.7 for 31-45 minutes. Therefore, depending on the type of employee, they are given a certain length for lunch periods and production, service and maintenance employees seem to meet the minimum amount given by the DLSE.

Most of the firms that participated in the January edition of the HR Practices and Benefits Survey indicated that they preferred “normal” workweeks rather than alternative work schedules. According to the data, 93.5% of the participating firms selected to have five days in the regular full-time workweek for production, service and maintenance employees while exempt and office, clerical, and technical employees had five days for 98% of the total firms. The majority of the firms indicated that the number of hours in a workweek was 40 hours. Production, service, and maintenance employees had 40 hours in a workweek for 93.3% of the participating firms while the percentage for exempt and office, clerical, and technical employees was lower with 87.5% and 89.9%, respectively. Firms favored these days and hours rather than the alternative of having compressed workweeks.

The information is categorized under all firms surveyed in the survey. The January edition of the HR Practices & Benefits Survey may categorized more specifically by the number of employees within an organization and by the industry. The survey covers the above topics along with Retirement Plans, Rules & Policies, Pay Practices, and Bonuses, Awards & Incentives. If your firm would like to purchase the survey or would like to ask questions about this survey please contact me at (800) 748-8484 or by email at surveys@employersgroup.com.