The document outlines key provisions of the Patient Protection and Affordable Care Act (PPACA) affecting small employers, detailing compliance requirements, health insurance tax credits, and upcoming changes like the employer coverage mandate and excise taxes. It highlights the significance of maintaining 'grandfather' status for health plans and introduces the small business health care tax credit, designed to incentivize employers to provide health insurance. The document emphasizes the need for employers to adapt to evolving healthcare regulations and consider policy updates regarding issues such as medical marijuana in the workplace.

1. 2010 Initiatives and Updates Employer Presentation

2. Section I Introduction

3. Who are we? Jim Thibodeau, President Founded in 1996 Serving small businesses in Colorado

4. What do we do? Much more than just payroll. We take an expanded approach. Our services We handle workplace issues Legislation Compliance & Updates Safety and Risk Management Liability is on us!

5. Section II PPACA Health Care Reform Act

6. PPACA, Health Care Reform Act The newly enacted Health Care Reform bill , formerly known as the “Patient Protection and Affordable Care Act of 2010” (PPACA), will affect every employer in the country in some way. PPACA will be implemented over the next several years, with specific effective dates for each of the key provisions. During this presentation we will focus only on those provisions in the act that pertain to small employers. The first provision employers need to consider is if their plan qualifies for “Grandfather” status . Grandfather status can have significant effect, delaying or even nullifying other key provisions of the act. As we review the timeline of key provisions, we will point out the differences when grandfather status is affected.

7. In order to qualify as “Grandfather” status, plans need to meet the following requirements: Any fully-insured or self-insured help plan in existence on March 23, 2010 is a grandfathered health plan until it does something to lose this status. Regulations are extremely restrictive and limit the changes that employers can make if they wish to maintain this status.

8. Changes that cause loss of grandfather status: Changing carriers or policies. Eliminating benefits. Increasing fixed amount cost sharing. Increasing fixed amount co-payments. if a fixed co-payment is increased by more than either (a) the medical rate of inflation plus 15 percentage points, or (b) $5 plus the medical rate of inflation. Increasing percentage co-insurance. Decreasing rate of premium contributed by employer. if employer decreases its contribution toward premium amount by more than 5% of contribution. Changing annual limits.

9. The following are key reform provisions that affect small employers categorized by their effective date: Immediate, or within first 90 days First plan year after 9/23/10 Other 2011 changes 2012 & 2013 2014 and beyond

10. Immediate, or within first 90 days: Small Business Tax Credit –Up to 35% of the employer’s contribution could be a credit. Early Retiree Reinsurance Program – a temporary insurance program established to provide reimbursement to employer health plans for the cost of providing health coverage to early retirees and their dependents. Aged 55 or older and are not eligible for Medicare. Employers must apply to participate in this program. Reimbursements are limited to 80% of the cost of benefits that are between $15,000-$90,000. Can only be used to reduce retiree costs (e.g. premiums, co-insurance, or deductibles). Program ends on 1/1/2014, when Exchanges become available.

11. First plan year after 9/23/10 Prohibiting Rescissions – Prohibits group plans from rescinding health coverage of a participant or beneficiary, except in instances of fraud or intentional misrepresentation of material fact. Does not limit carrier from canceling coverage after giving a 30 day advance notice. Eliminating Lifetime Limits – Prohibits insurers from imposing any lifetime limits on the “essential health benefits” of a participant or beneficiary. Regulating Use of Annual Limits – Regulates plans use of annual limits to ensure access to “essential health benefits” in all group plans. “ Reasonable” annual limits will be permitted until 1/1/2014, when annual limits will be banned and Exchanges operational.

12. Preventative Health Services – Requires group health plans to cover and not impose cost-sharing (e.g. co-payments or deductibles) on certain preventative services and immunizations. “ Grandfathered Plans” are not subject to this provision until January 1, 2014. Nondiscrimination Rules – Group health plans can no longer discriminate in favor of highly compensated employees. Plans can not base an employee’s eligibility on salary. Can not provide preferential benefits to highly compensated individuals. This provision already applies to self-insured plans under Section 105(h), but now applies to all plans. “ Grandfathered Plans” are not subject to this provision.

13. Pre-existing Condition Exclusion – Prohibits group plans from imposing any pre-existing conditions on covered individuals under the age of 19. This provision will change to preventing pre-existing conditions on individuals of any age beginning January 1, 2014. Extending Coverage for Adult Children – Requires group plans to offer dependent coverage to an employee’s “child” up to the age of 26. Coverage must be provided regardless of whether the child is a tax dependent, student, married, or residing with the employee. “ Grandfathered plans” have one additional exception that limits coverage to only those that lack access to other employer-sponsored coverage. This exception is only effective until January 1, 2014.

14. Other 2011 Changes: W-2 Reporting Required – Employers providing group health plans must report the aggregate cost of the employer-provided health coverage on each employee’s W-2. The aggregate cost is the full premium cost for coverage regardless of whether paid by the employer or through pre-tax or after-tax deductions from the employee’s paychecks. The reporting requirement does not apply to HSAs, FSAs or stand-alone dental or vision insurance. Over-the-counter Drugs no longer eligible under HSA and FSA Nontaxable reimbursements from FSAs, HRAs, or HSAs are no longer eligible for non-prescribed medicines other than insulin.

15. Increased Tax on non-qualified distributions from HSA The penalty for nonqualified distributions from an individual’s HSA from 10% to 20%. Nonqualified distributions are those that, prior to age 65, are used for purposes other than qualified medical expenses. Premium Rebates / Medical Loss Ratio Requirements Health insurers must provide rebates to customers if their medical loss ratios fall below 80% (85% for large groups). The medical loss ratio is a calculation of the amount the insurer spends on clinical services compared to total revenue.

16. 2012 & 2013: 2012 Uniform Plan Summary Information Group health plans must distribute a plan summary to all participants that is no longer than 4 pages, contains certain specific information, follows a uniform format, and is written in plain English. This requirement is in addition to the Summary Plan Descriptions that plans are already required to distribute. Also, material modifications to the plan must now be distributed to participants at least 60 days before they take effect. 2013 Limitation to Maximum FSA Contribution Reduces the maximum amount allowed to be contributed to a health FSA to $2,500 per year. Currently there is no maximum contribution limit enforced by the government, although many employers have already imposed a voluntary limit on their plan.

17. 2013 Required Notice Regarding Health Insurance Exchanges Employers must notify all employees about health insurance Exchanges and the potential eligibility for a federal subsidy towards the cost of insurance under the Exchange. 2013 Increased Medicare Taxes Increases the current Medicare tax from 1.45% to 2.35% on taxpayers with wages over $200,000 for individuals or $250,000 for taxpayers filing jointly. This additional tax only applies to the employee and not to the employer’s share of the tax.

18. In addition, a new annual tax of 3.8% will be assessed on “net investment income” on these same individuals. “ Net investment income” includes any income derived from interest, dividends, annuities, royalties, etc. 2013 Increase threshold for Itemized Deduction for Medical Expenses. The threshold for the deduction of medical expenses for income tax purposes increase from 7.5 % of AGI to 10%. Only those medical expenses above and beyond 10% of your adjusted gross income can be added to itemized deductions.

19. 2014 and beyond: Employer coverage mandate Requires any employer with 50 or more full-time equivalent employees to provide “minimum essential” health coverage to all its FTEs. If the employer fails to provide coverage then they would be required to pay a monthly penalty of $166.67 for each FTE over the first 30, as long as one of their employees receives a tax credit through the Exchange.

20. In addition, even if the employer provides “minimum essential” coverage, if one or more of the FTEs opt out of the employer’s plan and receives a tax credit through the Exchange, the employer must pay a penalty. This penalty is $250 per month for each FTE who opts out of the employer’s plan and receives a tax credit. Automatic Enrollment - Employers with more then 200 FTEs must automatically enroll all eligible full-time employees in the plan. Opt-out rights must be allowed. A lot is still to be determined with this provision including enactment date .

21. Free-Choice Vouchers Employers who offer health coverage must offer “free choice” vouchers to any employee with household income at or below 400% of the federal poverty level, if the employee’s cost of premiums would be between 8% and 9.8% of the employee’s household income. Vouchers must be used to purchase coverage through the Exchange. If the cost of coverage through the Exchange is less than the amount of the voucher, the employee is allowed to keep the difference. The amount of the voucher must equal the highest contribution that the employer would have made for the employee’s coverage. The voucher is tax deductible for the employee and the employer. This provision applies to all employers regardless of their size.

22. Second phase of Small Business Tax Credit – Increases the maximum tax credit to 50% of the employer’s contribution. Adds additional restrictions such as: requiring the coverage to be provided through the Exchange, and limiting availability of the credit to two consecutive years. We will review in more detail after the timeline presentation. 2018 Excise tax on “Cadillac Plans” – Imposes a nondeductible 40% excise tax on insurers (which will flow down to the employer or participant) if aggregate value of employer-sponsored health coverage for an employee exceeds $10,200 for individual coverage or $27,500 for family coverage. The tax applies to the value of coverage exceeding the threshold, and will be adjusted for inflation in subsequent years. *This is a partial list of PPACA provisions that StaffScapes believes are key or may affect most small employers, it is not a complete list on changes and provisions made by the PPACA. **The information in this presentation is provided solely for informational purposes only and is not intended to provide legal advice or counsel on any matter.

23. Section III Small Business Health Care Tax Credit

24. Small Business Health Care Tax Credit The Small Business Health Care Tax Credit provision is designed to encourage small employers to offer health insurance coverage for the first time or maintain coverage they already have. In general, the credit is available to small employers that pay at least half the cost of single coverage for their employees. The maximum credit is 35 percent of premiums paid in 2010 by eligible small business employers and 25 percent for tax-exempt organizations. The credit phases out gradually for firms with average wages between $25,000 and $50,000 and for firms with the equivalent of between 10 and 25 full-time workers.

25. Eligible small businesses can claim the credit as part of the general business credit starting with the 2010 income tax return they file in 2011. For tax-exempt employers, the IRS will provide further information on how to claim the credit. Eligibility Rules Providing health care coverage . A qualifying employer must cover at least 50 percent of the cost of health care coverage for some of its workers based on the single rate. Exempt Workers . Owners and their families as well as seasonal workers do not count toward the credit. Firm size . A qualifying employer must have less than the equivalent of 25 full-time workers (for example, an employer with fewer than 50 half-time workers may be eligible) Number of FTEs = total hours worked in year / 2080.

26. Eligibility Rules – continued Average annual wage . A qualifying employer must pay average annual wages below $50,000. Average Annual Wage = Total Gross Wages paid for year / number of FTEs. Both taxable (for profit) and tax-exempt firms qualify. Additional information can be found on the IRS’s website: Small business Health care tax credit FAQ. http://www.irs.gov/newsroom/article/0,,id=220839,00.html

28. Below is an example of a small employer whose workers worked 24,753.25 number of hours for the year and had $429,339.21 in gross wages and paid a total of $44,911.86 in premiums for health insurance. Total number of Full-time Employees: 24,753.25 Total number of hours worked 2010 (no employee can have > 2080, and drop owners, family and seasonal) 12 Total FTEs (Total hours worked / 2080) Average Annual Wage per Employee: $429,339.21 Total annual wages 2010 (not including owners, family or seasonal) $35,778.27 Average annual wage per employee (annual wages / number FTE) Maximum credit if 10 or less FTEs and average annual wages $25,000 or less: $44,911.86 Total employer paid health premiums (less amount paid for owners, family or seasonal) 35% maximum credit percentage $15,719.15 Maximum amount of tax credit (before phase out) Phase out provision: ($2,095.89) FTE phase out: (FTE – 10)/15 x max tax credit (12-10) / 15 * $15,719.15 ($6,777.01) Average wage phase out: (AAW-25k)/25k x max tax credit (35,778.27 - 25,000) / 25,000 * $15,719.15 Applicable tax credit: $6,846.25 Maximum Tax Credit less FTE phase out and Average Wage phase out $15,719.15 - $2,095.89 - $6,777.01

29. Onerous 1099-Misc Provision Section IV

30. A highly overlooked aspect of the PPACA is the expanded 1099-MISC reporting requirements . The 1099-MISC reporting is being expanded in two different ways: The first expansion requires businesses to include payments made to corporations. The second expands reporting to include payments of property. The definition of “property” is still unclear, but IRS Commissioner Douglas Shulman recently made reference to “goods” instead of property which would suggest the IRS is looking at using a larger, more comprehensive definition. Increased reporting requirement being placed on all businesses. Onerous 1099-Misc Provision

31. Businesses required to report hundreds of 1099-MISC reports for any individual or corporation for which it pays $600 or more to. The AICPA , American Institute of Certified Public Accountants, is currently trying to influence Congress to repeal this section of the new health care law. Businesses should begin preparing for additional reporting burdens coming in 2012.

32. HIRE Act Section V

33. The HIRE Act created two new tax benefits to employers who hire unemployed workers in 2010 between Feb. 4 and December 31. The first tax benefit is an exemption from the employer’s portion of social security taxes paid on wages to qualified employees paid from March 19, 2010 through December 31, 2010. This reduction will have no effect on the employee’s future Social Security benefits, and employers would still need to withhold the employee’s 6.2-percent share of Social Security taxes, as well as Medicare and income taxes. HIRE Act

34. The second tax benefit is a general business tax credit applied to the employer’s 2011 tax return, for retaining the qualified employee for at least 52 consecutive weeks. The general business tax credit is the lesser of $1,000 or 6.2% of wages paid to the qualified employee for the 52 consecutive weeks of employment. A qualified employee is an employee who: begins employment after February 3, 2010, and before January 1, 2011. is not hired to replace an employee unless the other employee separated from employment voluntarily or for cause. is not related to the employer.

35. The new law requires that the employer get a statement from each eligible new hire certifying that he or she was: unemployed during the 60 days before beginning work. alternatively, worked fewer than a total of 40 hours for someone else during the 60-day period. Employers can use the new IRS form W-11 to meet the certification requirements of the HIRE Act. Businesses, agricultural employers, tax-exempt organizations, tribal governments and public colleges and universities all qualify to claim the payroll tax exemption for eligible newly-hired employees. Household employers and federal, state and local government employers, other than public colleges and universities, are not eligible.

37. Medical Marijuana Section VI

38. Medical Marijuana Statistics from the Colorado Department of Public Health and Environment as of December 31, 2009: 43,769 new patient applications received from June 2001 through December 2009. 39 applications have been denied and 28 cards have been revoked. 74% of approved applicants are male. Average age of all patients is 40. Currently 17 patients are minors Severe pain accounts for 92% of all reported conditions. The Current fee is $90. Are some of these patients in your workforce? Medical Marijuana is becoming a hot topic in the employment realm for employers to take a closer look at their workforce and the policies that are in place.

39. Medical Marijuana is not a prescribed drug. The employee can not require you to allow them to smoke during their lunch break because of a prescription from a doctor. The doctor signs off on the application for them to receive a registry card for the right to acquire, posses, use, and produce medical marijuana. Whether a policy should be created or updated. Is it time to update your policies? We recommended you create a policy before a situation develops. Consideration must be given to all circumstances prior to implementing a policy. Ask questions like “Is it ok for someone who is treating for cancer to use medical marijuana but not ok for someone who is treating for sever pain?” The policy must be applied uniformly.

40. Policy Options for Positive Test Results Policy acknowledges Federal Law , employee is terminated. Policy required rehab program, employee must enroll. Policy acknowledges Colorado Law , employee may use outside of work and remain employed with proper registry information. Tests that can be used to detect Marijuana Use: Urine Test Hair Test Blood Test

41. Case Law & The Colorado Off Duty Question Employers are permitted to test employees for Pre-employment testing, safety sensitive jobs, reasonable suspicion, post-accident, return to duty and random. These tests results are still a challenge for employers to interpret as marijuana affects everyone differently. Depending on the employee’s height, weight, and frequency of use it has different impact of intoxication. If you have a no tolerance policy it is best to state that the employee is not allowed to have any detectable amounts in their system. Employers can look to Washington, Oregon and California for similar case law for guidance. 14 states and DC have enacted laws legalizing medical marijuana. However, Colorado does have an Off Duty policy that p rohibits employers from taking adverse action against employees for off duty activities. Currently there are no legal cases in Colorado regarding application of law.

42. Things to consider: Registry card does not mean positive drug test or use (if an employee/applicant informs you that they have a registry card it doesn’t mean that they are using marijuana. It could be a lawful violation to fire or not hire the person based on the information of possessing the registry card). Company liability if have knowledge of use of medical marijuana – If an employee causes an accident that results in injury or death of others and the employer had knowledge the employee was using medical marijuana and was negligent resulting in accident, the employer could be held accountable. ADA Accommodations – underlying disability – ADA is a federal law and the medical marijuana law in Colorado does not apply to federal laws, but if the employee is using medical marijuana because of cancer or headaches, there may be a disability that require the employer to make accommodations, but medical marijuana would not have to be an accommodation.

43. Employee Misclassification Could Be Costly In Colorado! Section VII

44. The Colorado Department of Labor and Employment (CDLE) is required by House Bill HB09-1310, to accept complaints and conduct investigations regarding alleged misclassification of employees as independent contractors. An additional notification has been added to the required Unemployment Notice Poster, alerting employees and contractors of their right to file a complaint. Any person may file a written complaint. After a complaint is received, the CDLE determines within 30 days whether an investigation is needed. If it is determined that an investigation is warranted, the CDLE will notify the company. Once the investigation is completed, the CDLE will issue a written order either dismissing the complaint or finding that the company has engaged in the act of misclassifying employees. EMPLOYEE MISCLASSIFICATION IN COLORADO COULD BE COSTLY

45. If an investigation finds that an employer has misclassified employees, the employer must pay all back taxes owed with interest. Additionally, the employer may be fined up to $5,000 per misclassified employee for the first misclassification and up to $25,000 per misclassified employee for a second or subsequent misclassification. In addition, upon a second or subsequent misclassification, the employer is prohibited from contracting with, or receiving any funds from, the state of Colorado for up to two years. The law also allows an employer to request an advisory opinion. The opinion is available to employers seeking advice on proper classification of workers. If you would like to request an advisory opinion on whether you should classify individuals as employees or independent contractors a written, signed request must be submitted.

46. Some of the questions CDLE will base their determination on are: Does the individual(s) have an independent trade, profession, or occupation? If so, what is that trade, profession, or occupation? How is the rate of pay determined? Is the individual paid a salary, hourly rate, fixed rate, contract rate, or by the completion of work? Does the individual(s) work exclusively for you? Do you oversee the actual work or instruct the individual as to how the work will be performed? Can you terminate the work the individual is performing at any time? If so, for what reasons?

47. What training do you provide the individual(s)? What tools or benefits do you provide to the individual(s)? What materials and equipment do you provide to the individual(s)? What are the individual’s work hours? How is the time he or she works determined? How is the individual(s) paid? If by check, who is the check made payable to? Is the individual(s) business a part of your business? Is it separate and distinct?

48. Colorado State Continuation Requirements Section VIII

49. Colorado State Continuation Requirements Continuation of employer group Health Insurance benefits in Colorado where COBRA doesn’t apply. COBRA applies to employers with the equivalent of 20 or more employees. Colorado Continuation /Conversion applies to any employer where COBRA doesn’t apply. The employer is not required to do anything if the employee is covered by the insurance plan for less than 3 months. The employer must inform the employee of a conversion option if the employee was covered on the group plan for 3-5 months or at conclusion of continuation. So if the employee elects continuation at the end of the continuation the employer must inform the employee of a conversion option.

50. Employers must inform the employee of Continuation option if the employee was covered on the group plan for 6 consecutive months of coverage or more. The employer is required to notify the employee within 10 days of termination of their right to continue coverage. The notice must include the amount the employee must pay monthly to the employer. How, where, and when payment is to be made. Fact that loss of coverage will result if timely payment is not made to the employer.

51. The employee is to notify the employer in writing they want to continue coverage within 30 days and submit payment to continue coverage. The employee will be able to continue coverage for 18 months, providing they pay the premiums to the employer in a timely manor. The employer is not allowed to collected additional administration fee on premium.

52. Colorado Minimum Wage Changes Section IX

53. Colorado Minimum Wage Changes Colorado State Minimum Wage Is $7.24 per hour effective January 1, 2010 under minimum wage order 26. Article XVIII, Section 15, of the Colorado Constitution requires minimum wage to be adjusted annually for inflation as measured by the Consumer Price Index used for Colorado. Effective January 1 each year the minimum rate is affected. January 1, 2009 there was an increase to $7.28 January 1, 2010 the rate decreased to $7.24 Since there was a decrease in the CPI, the rate was decreased.

54. Currently employers are required to pay the Federal Minimum wage of $7.25 since it is a higher minimum wage that provides greater benefit to the employee. Employers are required to display a wage order poster in an area where it may be easily ready by the employee.

55. © Copyright 2010, StaffScapes, Inc. This presentation is provided solely for informational purposes only and is not intended to provide legal advice or counsel on any matter. 1070 West 124 th Avenue, #900 ■ Westminster, CO 80234 Phone: 303-466-7864 ■ Fax: 303-466-7947 ■ E-mail: info@StaffScapes.com Thank You!