November 2015
Time to clear out Halloween’s cobwebs and prepare for the upcoming holiday season. November is a month for thanksgiving, and showing your employees gratitude can go a long way. Employees invest their time into your organization, so it’s important to invest in your employees. This month we’ll look at the benefits of a 401(k) program and some ways to motivate millennials.
HR Alerts
Home Care Final Rule Update
As of October 13, the Department of Labor’s (DOL) Home Care Final Rule is in effect.
The Home Care Final Rule, which greatly narrows the home health care and companionship services exemption under the federal Fair Labor Standards Act (FLSA), was slated to go into effect in January 2015. In late December 2014, however, a federal judge struck down its two main provisions, thus delaying its implementation. The DOL appealed, and the Court of Appeals ruled in their favor. Most recently, the Supreme Court announced that it wouldn’t hear the further appeal of the case, which cleared the way for the rule to proceed.
The Final Rule will make almost two million home care workers who were previously classified as exempt eligible for minimum wage and overtime under the FLSA. In addition to narrowing the definition of “companionship services” for the exemption, third party employers of direct care workers are no longer permitted to claim the exemption for companionship services or live-in domestic service employees; their employees will have to be paid minimum wages and overtime even if the services rendered would otherwise meet the home care criteria for exemption.
While the official effective date was October 13, the DOL won’t begin enforcement of the rule until November 12, and then only with limited and targeted prosecutions. Full enforcement will begin January 1, 2016.
In the meantime, however, employees can still make their own wage claims, so we recommend working toward compliance as quickly as possible. Home care companies should review their policies to ensure their employees are paid at least minimum wage and any applicable overtime.
401(k) Basics
A retirement plan shows that you are invested in the futures of your employees and gives employees the opportunity to plan ahead and care for their financial futures. The 401(k) is a type of retirement account, aptly named after its section description in the IRS tax code (26 U.S. Code § 401(k)). This code section allows you to provide employees with an option to receive their earnings in cash or in a deferred compensation structure.
Plan Options
There are two main ways that employees can contribute to a 401(k) plan: they can do so on a pretax basis, meaning that their deferrals will come out of their checks prior to any applicable taxes being taken out, or they can do so on a post-tax basis, meaning that all applicable taxes will be taken out of their pay prior to making the contribution to their retirement account.
Traditional 401(k)
The pretax option, also known as the traditional 401(k), was written into the tax code back in 1978. The traditional 401(k) allows employees the option of setting aside a portion of their compensation towards their retirement, in which they will not pay taxes on their contributions to the plan or their earnings until they reach retirement age and take the money out.
Roth 401(k)
The post-tax option, also known as the Roth 401(k), was written into the tax code in 2006. This option requires that employees pay taxes on their contributions at the time at which they are made, but when they take a distribution at retirement, they no longer need to pay taxes on that money since they have already done so. Employers are slowly adding this option to their plan documents, as it gives their lower earning employees the opportunity to contribute post tax while they are low income earners, given that they are likely predicting their tax rate to be higher at retirement than at the time of their contribution.
*NOTE there is another option, called a SIMPLE 401(k) that is an option for some small employers. As the rules for the SIMPLE 401(k) are vastly different from the other retirement plan options listed above, we will primarily focus on the rules around the other types of 401(k) plans here.
Employer Contributions
Employer Matching
You have the option of matching your employee contributions to the plan. Most employers who contribute do so based on providing a certain percentage up to a specific contribution limit (e.g., 50% of the first 6% of employee contributions). The added benefit of employer matching encourages employees to save for their retirement by offering an incentive to do so. This is not a requirement, but many employers tend to offer this whenever possible.
Nonelective contributions
Some employers choose to make a contribution on behalf of their employees that is not tied to the employee contribution. This is called a nonelective contribution, and the contribution will be made to all employees regardless of whether or not they choose to contribute to the 401(k) plan.
Contribution Limits
As with many benefits allowed by the IRS, there are limits to how much employees can contribute to the plan. These limits are set on an annual basis.
For 2016, the following yearly limits apply:
Traditional or Roth 401(k) employee contribution limit: $18,000
Traditional or Roth 401(k) employee catch-up contribution limit (for employees age 50 and over): $6,000
SIMPLE 401(k) contribution limit: $12,500
Employee catch-up contribution limit (for employees age 50 and over): $3,000
Total limit for employer plus employee contributions: $53,000—or $59,000 including catch-up contributions.
Investment Options
Typically employees will have the options of choosing between several different mutual fund options, bonds, stocks, cash, and a variety of other investment options. Some plans offer employees the option of choosing a time managed portfolio, which allows the 401(k) administrator the option of selecting a mix of investment options for the employee based on their predicted retirement age.
Vesting
Many employers have chosen to incentivize employees to stay within the organization for a certain timeframe in order to reap the benefits of the company match. This is typically done through a vesting schedule. In most cases, employee contributions are vested at 100%. This means that the employee is entitled to 100% of their contributions when they leave the company. When it comes to the company match, however, the vesting schedule may vary significantly from company to company.
Plan Testing
Plan sponsors must test traditional 401(k) plans each year to ensure that the contributions made for rank-and-file employees – those considered non-highly compensated – are proportional to those made for owners and managers. These non-discrimination tests are called Actual Deferral Percentage and Actual Contribution Percentage tests.
Distribution Rules
There are specific requirements regarding when and how employees can access their retirement funds. There are some unique requirements, but generally distributions of elected deferrals cannot be made outside of the following events:
The employee dies, becomes disabled, or otherwise has a severance from employment.
The plan terminates and no successor defined contribution plan is established or maintained by the employer.
The employee reaches age 59½ or incurs a financial hardship.
Distribution rules can be difficult to maneuver, but typically it is the responsibility of the employee to understand the limits imposed on 401(k) plan distributions. A third party administrator is one of the best resources to help employees in this regard.
Conclusion
The 401(k) is widely popular benefit—many employees even expect employers to provide it. If you’re able to offer a retirement plan, the 401(k) is a good investment—for your employees and for you!
Question & Answer
Question: My employer has asked that we create a Non-Disclosure Agreement for employees to sign regarding discussion of their salaries. Can this be done legally?
Answer: No, this cannot be done legally. Under Section 7 of the National Labor Relations Act (NLRA), employees have the right to discuss the terms and conditions of their employment, including their work hours, work conditions, pay, and managers.
The National Labor Relations Board has taken an aggressive approach to this issue, suing employers over the last few years for infringing upon these rights, so you’ll want to avoid putting any language conflicting with the NLRA into company documents. Besides, NDAs are more appropriately used for proprietary and trade secret company information, not for keeping employee salaries confidential.
The best defense against employees discussing or griping about their salaries is to have a working environment where everyone feels valued and that they are treated fairly.
Motivating Millennials
Millennials are now the largest segment of workers in the United States, and in five years, they’ll make up nearly half of the workforce. Now’s the time to learn about this young, diverse demographic and find effective ways to motivate them.
Who Are the Millennials?
The group includes those born sometime between the early 1980s and the early 2000s. Generally speaking, they’re an optimistic bunch, self-driven and achievement-oriented. Think Lena Dunham and LeBron James. Facebook co-founder Mark Zuckerberg is a millennial, as are the co-founders of Dropbox, Airbnb, Stripe, and Blue Apron.
No generalization will accurately describe everyone, but millennials tend to prefer professional development over high pay, coaching over managing, collaboration over isolation. They want to be a part of something big, but they also want a life outside of work.
Tech is their world, and they’re naturally suited to it. The older millennials were entering pre-school when the Nintendo Entertainment System first hit the shelves. Some millennials weren’t even born yet when cell phones first became widely popular!
Sure, millennials love their selfies, but they also like to witness what others are doing. They plug into social media to see as much as to share. Digital solidarity is still solidarity. And, besides, millennials grew up learning to work together with others—in school, at camps, in sports and band. They may prefer texting to talking, but they’re all about team-building.
With these common characteristics in mind, let’s look at some effective ways to motivate millennials. Just remember that your millennial employees may not conform to these traits, and that’s okay. Useful as generalizations may be, they’re no substitute for getting to know your individual employees.
In What Ways Can You Motivate Millennials?
First, have a discussion with your employees about what’s happening in the company, where it’s going, and what their place is within it. Ask them about where they see the company going and how they’d like to contribute to its success. Let this discussion be the basis for an action plan. If millennials feel involved, they’ll be committed. If they sense they don’t belong, they’ll go elsewhere.
Second, challenge them to grow, not only by addressing their limitations, but also and especially by coaching them on their strengths. Having less knowledge and experience than others in the workforce, millennials haven’t had as much chance to develop their talents and perfect their skills. They want that chance. Give it to them. You and they will benefit from the fruit of their labor, even if they eventually take their skills elsewhere.
Third, make smart use of technology. Consider having an internal social media platform where employees can communicate with one another and with you. It can be a space for conducting business, sharing ideas, and even socializing. Encourage your millennials to take the lead in using this technology to build community in the office. It’s their world, after all!
Finally, allow millennials the space to innovate, take risks, make mistakes, and succeed in your company. For them, success isn’t only something to work towards over the course of a long career, not in a world where college roommates create the most successful social networking site or where a young blockbuster star like Jennifer Lawrence wins the film industry’s most coveted award. Millennials in your organization are most likely short on cash and buried under student loan debt—but they want to make a meaningful difference now. If you get them involved, grant them the freedom to be themselves, and recognize their achievements, you’ll find your organization thriving and ready to take on the future.
