Lawrence Associates’ 2020 COVID-19 Survey Findings

by Lindalee A. Lawrence

We want to thank all the AHHRA of GNY, Nassau-Suffolk and New Jersey Hospital Association members for responding to our surveys during this difficult time.  Lawrence Associates, has conducted a survey of 152 market and 106 executive and middle management positions, annually since 1999, on behalf of AHHRA of Greater New York and Nassau-Suffolk Hospital Council.  Since 1994, Lawrence Associates has conducted all of the New Jersey Hospital Association surveys.  For 2020, all surveys included sections on COVID for acute, long-term care, assisted living and home health facilities.  Our findings follow:

What Was Needed?

Additional shifts, more coverage, contract employees/ agency staff, per diems, benefits supporting essential staff

Collective bargaining considerations

What Tools Were Used?

Incentive pay focus, timing and amount: weekly/one-time payments (amounts quite variable), double time, surge pay, redeployment pay, additional rate, and additional shift rate eligibility

Free meals (on site & take home)

Housing (agency workers, quarantine staff, etc.)

Additional accrued PTO

Employee Assistance Programs, mental health care/counseling

COVID testing covered (frequency, coverage, availability)

Childcare

Who Was Eligible?

Hospital-wide vs. specific positions

Full time vs. others

Cost Saving Measures (low volume services)

Incentives delayed, deferred, eliminated

Salary, hiring freezes, reduced hours, rates, and furloughs

Executive pay cuts

Where are We Now?

Considerations for Emergency Response Planning (ERP)

Consider multiple catastrophic events:  Pandemic, Hurricane, Terrorism

Align ERP with compensation practices

Respond quickly and strategically

Consider frequency, magnitude, duration of ERP protocols and compensation practices for activated staff

Minimize burnout: compensating for the cost of crisis response

Recognize/reward individual/team contributions: extraordinary service recognition, protecting employee well-being

What Worked Best?

Examine incentive frequency, form and amount: identify efficient/effective combinations

Tailor approaches to desired outcome/motivation

Consider follow-up questions and/or case analysis across organizations

What is a return to “normal”?

Principals of Tax-exempt Status and its Impact on Variable /Incentive/Bonus Compensation

Written by Daniel Crespo

Designing variable pay plans that are motivational, achieve strategic objectives, and are compliant can be complicated.  An example of one of Lawrence Associates’ innovative incentive plans is featured on NPR’s All Things Considered [1] – and remains in effect today.  Here, we provide a quick overview of key aspects of compliance for tax-exempt organizations.

Private Inurement, Intermediate Sanctions, and Unrelated Business Income

 In developing a variable compensation program for a non-profit organization, it is important to keep in mind that the distinguishing factor between non-profit and for-profit organizations is that non-profits reinvest or otherwise utilize their surplus revenues/operating income to achieve the organization’s tax-exempt mission and purpose rather than distributing the surplus as profits or dividends. An example of the IRS’s efforts to assure a focus on tax-exempt mission is that ‘Hospital organizations use Schedule H (Form 990) to provide information on the activities and policies of, and community benefit provided by, its hospital facilities and other non-hospital health care facilities that it operated during the tax year”.[2] (Note: Lawrence Associates recommends documenting and highlighting mission-related behaviors, in keeping with incentives, should the IRS inquire.)

A basic tenet of tax-exempt status is that compensation paid by a tax-exempt organization cannot result in private inurement,[3] or the accrual of a portion of the earnings or assets of the organization (other than reasonable compensation) to a non-profit company insider or shareholder. Indeed, private inurement is strictly and explicitly prohibited by the tax code and a key focal point for the IRS in evaluating the reasonableness of compensation and permissibility of variable compensation payments.

Specifically, the Code states that a 501(c)(3) organization “will not be so regarded if more than an insubstantial part of its activities is not in furtherance of an exempt purpose.”[4] The Code further states that a 501(c)(3) organization “is not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals.”[5] As these provisions make clear, the penalty for private inurement can result in the loss of an organization’s exempt status.

The draconian nature of losing exempt status led the IRS to request the Intermediate Sanctions law and regulations,[6] allowing for “intermediate” penalties on compensation deemed not to be reasonable.  The IRS has also come to recognize that nonprofits want to encourage executives to find new ways for the organization to grow and prosper. The IRS believes that some revenue-generating activities encouraged by nonprofits may not support the mission.  Unrelated Business Income Tax (UBIT) can be charged for those activities.  An extensive discussion of UBIT can be found here.[7]

 Variable Pay, Incentives, Bonuses as Tools to Communicate and Motivate Strategy

 Although non-profit compensation packages may resemble the pay packages of for profits, it is important to understand that non-profits are subject to different rules. Specifically, the IRS requires that non-profit employee compensation must (1) be reasonable; and (2) further the exempt purpose of the organization.  Because bonuses and other variable compensation should be based on achievement of performance, this element of pay tends to be closely scrutinized.

Simply put, the IRS views payment of bonuses primarily based on an organization’s profitability, revenue or investment income as suspect. Typical strategic measures might include annual objectives for financial viability, customer satisfaction, quality or a Balanced Scorecard. Longer-term measures might include growth, marketshare, or financial stability.

To help organizations navigate this complex space, the IRS has published a 12-factor test for assessing the reasonableness of compensation paid by tax-exempt organizations. In determining whether compensation is reasonable, the IRS looks at whether the compensation:[8]

1)Was established by an independent board of directors or by an independent compensation committee

2)Reasonable in terms of the employee’s specialty and geographic locale;

3)The result of arms’ length bargaining;

4)Includes a ceiling or reasonable maximum;

5)Does not have the potential to reduce the charitable services or benefits the organization would otherwise provide;

6)Takes into account measures of the employee’s performance;

7)Keeps the organization within budget without charging more for services;

8)Does not transform the principal activity of the organization into a joint venture between it and the employee;

9)Not merely a device to distribute all or a portion of the organization’s profits to persons who are in control of the organization;

10)Serves a real and discernable business purpose of the exempt organization;

11)Does not result in abuse or unwarranted benefits; and

12)Rewards the employee based on services the employee actually performs.

Non-profit organizations should carefully consider (A) how the variable compensation plan will further the exempt purpose of the organization; (B) whether the amount of the bonus is determined in an arms-length manner; and (C) the reasonableness of the employee’s overall compensation relative to their role and responsibilities relative to the geographic location and the compensation paid by similar organizations for similar services.

[1]Brian Reed, NPR, For Firms that Cut Wages Keeping Workers a Worry, Nov. 23, 2009, available at: https://www.npr.org/templates/story/story.php?storyId=120709869?storyId=120709869

[2]IRS, Instructions & Forms, “About Schedule H (Form 990), Hospitals”, last updated Mar. 20, 2020, available at: https://www.irs.gov/forms-pubs/about-schedule-h-form-990

[3] See IRS, Overview of Inurement/Private Benefit Issues in IRC 501(c)(3), at pp. 1-3, available at: https://www.irs.gov/pub/irs-tege/eotopicc90.pdf

[4] 26 CFR § 1.501(c)(3)-1(c)(1), available at: https://www.law.cornell.edu/cfr/text/26/1.501(c)(3)-1

[5] 26 CFR § 1.501(c)(3)-1(c)(2), available at: https://www.law.cornell.edu/cfr/text/26/1.501(c)(3)-1

[6] IRS, “Intermediate Sanctions Overview”, last updated: Feb. 13, 2020, available at: https://www.irs.gov/charities-non-profits/charitable-organizations/intermediate-sanctions

[7] Robert Wexler & Stephanie Petit, Revenue Generating Activities of Charitable Organizations: Legal Issues, Alder & Colvin, Apr. 2016, available at: https://www.adlercolvin.com/revenue-generating-activities-of-charitable-organizations-legal-issues/

[8] IRS, General Information Letter, No. INFO 2002-0021, Release Date: Mar. 29, 2002, (as drafted: Jan. 9, 2002), available at: https://www.irs.gov/pub/irs-wd/02-0021.pdf (synthesizing 40 years of non-profit compensation law into a coherent set of 12 operative variables for consideration in 501(c)(3) compensation program design).

Written by Daniel Crespo

The U.S. Department of Justice and Federal Trade Commission’s released a joint statement announcing a step-up in their antitrust enforcement efforts and heightened scrutiny of the healthcare sector to identify and prosecute providers, entities and associations that may be exploiting the circumstances created by the COVID-19 pandemic, particularly in the health care labor market.[1]

Healthcare providers should be aware that similar efforts and enforcement actions began years prior to the 1996 issuance of the Agencies’ Enforcement Policy in Health Care, and Statement 6 regarding Enforcement Policy on Provider Participation in Exchanges of Price and Cost Information.[2]  These renewed enforcement actions cover the conduct of compensation and other surveys, and provide an Antitrust Safety Zone for the conduct of surveys.  On an annual basis since 1994, Lawrence Associates has administered one of the few major surveys in the U.S. seeking guidance under the FTC and DOJ’s business review, or advisory opinion request on the conduct of a survey.

In relevant part, the Joint Statement on Antitrust Enforcement states that: [3]

The [FTC and DOJ] are on alert for employers, staffing companies (including medical travel and locum agencies), and recruiters, among others, who engage in collusion or other anticompetitive conduct in labor markets, such as agreements to lower wages or to reduce salaries or hours worked. For years, the Agencies have challenged unlawful wage-fixing and no-poach agreements, anticompetitive non-compete agreements, and the unlawful exchange of competitively sensitive employee information, including salary, wages, benefits, and compensation data. Moreover, the Division may criminally prosecute companies and individuals who enter into naked wage-fixing and no-poach agreements. Even absent a collusive agreement, the Bureau may pursue a civil enforcement action against companies and individuals that invite others to collude. The Agencies may also use their civil enforcement authority to challenge unilateral anticompetitive conduct by employers that harms competition in a labor market (monopsony power). Companies and individuals involved in the hiring, recruiting, retention, or placement of workers should be aware that anticompetitive conduct runs the risk of civil and/or criminal liability.

Although some in the industry have shrugged off these concerns, enforcement actions can (and will) arise whenever there is a possibility of collusion, regardless of an intent to promote compassion and flexibility. Historically, the DOJ has rigorously enforced antitrust laws in the healthcare sector, with notable enforcement actions in the industry dating back to a 1994 lawsuit against the Utah Society for Healthcare Human Resources Administration (settlement requiring the Society to appoint an Antitrust officer to monitor compliance going forward, coupled with stiff criminal penalties for further violations),[4] and a 2007 action against the Arizona Hospital and Healthcare Association ($22.4 million settlement).[5] Indeed, the footprint of the DOJ’s antitrust enforcement actions spans more than 51 judgments entered and estimated damages, fees and settlement payments exceeding $100 million in the healthcare sector alone.[6]

As highlighted in a recent Bloomberg Law article, “History has shown that severe recessions are followed by increased antitrust cartel enforcement. And given the current economic climate, the incentives to engage in potentially unlawful antitrust conduct may be higher than ever”.[7]  These violations carry with them stiff fines, penalties and potentially prison sentences in some situations.

[1] Federal Trade Commission, Press Release, “Federal Trade Commission and Justice Department Issue Joint Statement Announcing They are on Alert for Collusion in U.S. Labor Markets”, April 13, 2020, available at: https://www.ftc.gov/news-events/press-releases/2020/04/federal-trade-commission-justice-department-issue-joint-statement

[2] https://www.lawrenceassociates.com/pdfs/DOJ%20and%20FTC%20Survey%20hlth3s.pdf

[3] U.S. FTC & DOJ, Joint Statement, “Joint Statement Regarding COVID-19 and Competition in the Labor Markets”, April 13, 2020, available at: https://www.ftc.gov/system/files/documents/advocacy_documents/joint-statement-bureau-competition-federal-trade-commission-antitrust-division-department-justice/statement_on_coronavirus_and_labor_competition_04132020_final.pdf

[4] U.S. Dept. of Justice, Press Release, “Justice Department Files Antitrust Case Against Utah Hospitals”, Mar. 14, 1994, available at: https://www.justice.gov/archive/atr/public/press_releases/1994/211784.htm

[5] U.S. Dept. of Justice, Press Release, “ Justice Department Reaches Settlement with Arizona Hospital and Healthcare Association”, May 22, 2007, available at: https://www.justice.gov/archive/atr/public/press_releases/2007/223470.htm

[6] U.S. Dept. of Justice, Case Summary Archive, “Summary of Antitrust Division Health Care Cases”, available at: https://www.justice.gov/atr/file/783756/download

[7] Stephan Meisner & Lisa P. Rumin, Bloomberg Law Insights, If Past is Prologue, Ramped Up Antitrust Compliance is Critical”, Jun. 16, 2020, available at: https://news.bloomberglaw.com/health-law-and-business/insight-if-past-is-prologue-ramped-up-antitrust-compliance-is-critical?utm_campaign=COVID-19%20Daily%20Digest%206-16-20&utm_medium=email&utm_source=Eloqua

Written by Daniel Crespo

The Government Accountability Office (GAO) recently released its report on the IRS’s Form 990 Series (including EZ and PF) analysis and non-compliance identification models.  The GAO assessed (1) the IRS’s use of data to select returns for examination and, (2) the process IRS has established for selecting returns. In its assessment, the GAO analyzed (1) examination data from fiscal years 2016 through 2019, including results from the largest Form 990 model, and (2) model documentation for a generalizable sample.

Interestingly, the Tax Exempt and Government Entities (TE/GE) division within IRS identifies exempt organization returns for examination from many sources and categorizes examinations into three groups, known as portfolios: (1) Data Driven Approaches, (2) Referrals and Other Casework, and (3) Compliance Strategies. All three rely on data, to some extent, to make decisions on selecting returns for examination.

Comment:  Given the extent and critical nature of the GAO’s report, Lawrence Associates expects that the IRS will enhance its review and audit processes of nonprofit Forms 990 in the coming years in order to demonstrate effective remediation of the issues identified by the GAO. Indeed, the GAO has already issued a list of 13 recommendations focused on enhancing the examination selection and risk scoring functionality of the IRS Form 990 model.[1]

In turn, nonprofits should expect to see a targeted increase in scrutiny by the IRS, and penalty assessments as the agency recalibrates and validates its Form 990 models in a manner that results in higher rates of discrepancy detection going forward.

Of course, none of this specifically indicates what the IRS is looking at.  Stay tuned.  Perhaps we will speculate on that in a future blog.

The GAO found that the IRS used the data to select 70% of its examinations in fiscal year 2019, and nearly 50% of those data-based examination selections were driven by IRS models determinations.[2] Of the returns examined that were selected using the model, 87% resulted in a change to the return, indicating that IRS had effectively identified noncompliance.[3]

Nevertheless, the GAO report was largely critical of the IRS’s Form 990 model, particularly with respect to its noncompliance risk scoring and examination selection functionality. Specifically, the GAO found that the IRS model did not improve change rates compared to prior selection methods and also found that a higher model score is not necessarily associated with a higher change rate.[4] In fact, examinations of “pick-up” returns and substitutes for returns (SFRs) accounted for most closed examinations and produced a higher change rate than examinations of primary returns scored by the model, with 61% of changed returns the IRS had credited to its Form 990 model actually having been a pick-up or SFR return, rather than one that one that the model had identified for examination in the first instance.[5]

The GAO found several additional shortcomings in the IRS’s evaluation processes as well, including:[6]

The IRS has not fully implemented or documented internal controls in its established processes for analyzing data for examination selection.

The IRS has not defined measurable objectives for using data to select returns for examination.

The IRS’s models have deficiencies affecting the validity and reliability of return scoring and selection. In particular, the IRS has incomplete definitions and procedures and does not always follow its definitions when assigning point values for identifying potential noncompliance for examination.

The IRS did not consistently document the processing and use of data in decision-making on examination selection.

The IRS does not regularly evaluate examination selection. Examination data was inconsistent across years and the IRS only tracked one prior year of data.

The IRS did not save data on all returns that its Form 990 model scored. As a result, the IRS could not assure that its models are selecting returns as intended and that deficiencies are being identified and corrected.

[1] See Id. at pp. 37-38.

[2] U.S. Government Accountability Office, Tax Exempt Organizations: IRS Increasingly Uses Data in Examination Selection, but Could Further Improve Selection Processes, GAO-20-454, Jun. 2020, at p. 1, available at: https://www.gao.gov/assets/710/707607.pdf

[3] Id.

[4] Id. at pp. 13-16.

[5] Id. at p. 13.

[6] Id. at p. 1.

Written by Daniel Crespo

On June 5, 2020 the IRS issued a 177-page proposal intended to provide comprehensive guidance on I.R.C. § 4960 which currently imposes an excise tax of 21 percent on certain tax-exempt organizations on remuneration paid to a “Covered Employee” that either exceeds $1 million in a year, or amounts to an excess parachute payment.[1]

The proposal is largely based on IRS Notice 2019-09[2] and is intended to clarify and codify certain defined terms, in addition to providing rules to guide determinations of:

The amount of remuneration paid for a tax year, including for purposes of identifying Covered Employees.[3]

Whether and in what amount excess remuneration was paid by the organization.[4]

Whether and in what amount excess parachute payment(s) were made.[5]

How liability for payment of the excise tax shall be allocated among any related organizations.[6]

The proposed regulation is expected to codify and clarify certain issues which some have questioned. For example, whether volunteers who are employees of a related taxable organization can trigger the excise tax.[7]

The new regulation is proposed to apply to tax years beginning after the Federal Register publication date (expected June 11, 2020).

With the notice and comment period expected to remain open until mid-August 2020, Lawrence Associates will be following these developments closely and reporting on any notable changes or comments being considered. A full update will be issued once the final rule is adopted.

[1]  Dept. of Treas., Internal Revenue Service, Tax on Excess Tax-Exempt Executive Compensation, 26 C.F.R. Parts 15 and 26 (2020), Treas. Reg. 122345-18, available at: federalregister.gov/d/2020-11859

[2] Internal Revenue Service, Interim Guidance Under Section 4960, IRS Notice 2019-09, Dec. 31, 2018, available at: https://www.irs.gov/pub/irs-drop/n-19-09.pdf

[3] See, Treas. Reg. 122355-18 (2020), Fed. Reg. Doc. No. 2020-11859, at pp. 10-13, available at: federalregister.gov/d/2020-11859

[4] Id. at pp. 39-56.

[5] Id. at pp. 56-69.

[6] Id. at pp. 69-76.

[7] See e.g., Client Alert, May 15 Deadline Approaching for New Excise Tax Triggered Even When Tax-Exempt Organizations Pay No Compensation, Pepper Hamilton, Apr. 30, 2019, available at: https://www.pepperlaw.com/publications/may-15-deadline-approaching-for-new-excise-tax-triggered-even-when-tax-exempt-organizations-pay-no-compensation-2019-04-30/

Written by Daniel Crespo

On March 16, 2020, the Colorado Overtime and Minimum Pay Standards Order (COMPS) went into effect and replaced the Colorado Minimum Wage Order (CMWO).[1] For employers, the COMPS Order increases the overtime pay exemption threshold statewide and imposes several new requirements related to break time and the scope of the Order’s applicability, including:

Clarifying that the Order applies to employers in all industries.

Raising the minimum salary required to be exempt from wage protections to $35,568 in July 2020 and gradually adjusting to $55,000 in 2024.

Clarifying certain ambiguous wage rules under CMWO that had generated litigation and confusion for employers and employees.

Expanding overtime pay requirements for employers.

Increasing worker’s access and rights to breaks and down time.

The biggest change brought by COMPS appears to be the expansion of the order’s scope to cover all industries. Although COMPS is significantly broader than the former CMWO it replaces, it is worth noting that partial exemptions will still exist for certain positions and in certain industries. As such, employers will want to take a close look at the regulations and their job duty descriptions to determine whether and to what extent certain partial exemptions to overtime pay may exist, as well as considering the extent to which job duties can be modified or reassigned.

With respect to the heightened exemption salary threshold imposed by COMPS, is worth noting that the new $35,568 threshold for 2020 is identical to the revised federal threshold exemption level that had already gone into effect on January 1, 2020.[2] As such, 2020 is largely a wash in terms of how COMPS will affect employee exemption status since employers should already be in compliance with the federal rule that had gone into effect prior.

The issue to keep an eye on here comes down to COMPS’s provision for annual upward adjustments, ultimately reaching $55,568 by 2024. As such, employers will need to review their payrolls annually to ensure that employees who may have been exempt in 2020 are still exempt in 2021. Planning will be key here to ensure that employers are fully complying with COMPS each year as an increasing number of employees will find themselves in non-exempt roles over the next four years.

In addition, a new Colorado bill  signed into law in May 2019  gave cities and counties permission to set their own minimum wages at or above the state or federal minimum wage levels starting in January 1, 2020, with those new wages taking effect as soon as January 2021.[3]  This far, Denver has increased its minimum wage[4] and prior to the pandemic other cities like Boulder had begun considering increases as well.  Although Boulder in particular has not come to a final decision yet, the city has a stated objective of achieving a living wage for City employees and Lawrence Associates anticipates the city will likely vote to increase its minimum wage above the state minimum in the relatively near future.[5]

Lawrence Associates has been analyzing solutions for employers concerned with how COMPS may affect their businesses, especially as the rule takes effect amid the COVID-19 pandemic. If you have any questions about COMPS and how it might affect your organization, please feel free to contact us for more information.

[1] Colorado Dept. of Labor and Employment, Colorado Overtime and Minimum Wage Standards “COMPS”, Order No. 36, as adopted Jan. 22, 2020,  7 CCR 1103-1 (2020) available at: https://www.colorado.gov/pacific/sites/default/files/Temporary%207%20CCR%201103-1%20COMPS%2036_Clean.pdf

[2] 29 C.F.R 541 (2020) as adopted Sept. 27, 2019 available at: https://www.federalregister.gov/documents/2019/09/27/2019-20353/defining-and-delimiting-the-exemptions-for-executive-administrative-professional-outside-sales-and; see also U.S. Dept. of Labor, Fact Sheet #17G: Salary Basis Requirement and the Part 541 Exemptions Under the Fair Labor Standards Act (FLSA), available at: https://www.dol.gov/agencies/whd/fact-sheets/17g-overtime-salary

[3] See Colorado HB 19-1210 (2019) as adopted May 28, 2019, available at: https://leg.colorado.gov/sites/default/files/2019a_1210_signed.pdf

[4] James Leary, “Denver Becomes First Colorado City To Set Its Own Minimum Wage”, CBS, Nov. 28, 2019, available at: https://denver.cbslocal.com/2019/11/28/denver-minimum-wage/

[5] City of Boulder, Human Services, Statement on Living Wage, available at: https://bouldercolorado.gov/community-relations/living-wage

The ongoing COVID-19 pandemic has created challenges on many fronts for the nonprofit sector, which encompasses foundations, healthcare, education, nonprofit service providers and others.  Foundations are pressed to respond to the needs of grantees.  Educational institutions face decisions regarding the conduct of classes, safety of students, transitioning to remote access, and reduced tuition revenue.  Healthcare must provide care throughout the pandemic crisis, maintaining and supporting essential staff, and facing lost revenue from the cancellation of other care.  Not all sectors are impacted equally; nor should all respond in the same way.

Opportunities for leadership are many – from CEOs taking pay and bonus cuts, to physicians and nurses working in the ICU and environmental staff supporting patients and caregivers.  Regarding executive compensation, The Wall Street Journal observed that “Senior executives are taking pay cuts in an attempt to show solidarity with their employees who are being downsized in unprecedented numbers. And while forgoing a few high-end salaries may be immaterial to the bottom line, companies whose leaders don’t follow suit face reputational risks for years to come.”[1]

Optics matter to employees and stakeholders, and the media are likely to call out nonprofit executives who receive incentives and/or pay increases (e.g., University of Colorado and Denver Health).[2]  However, some argue for a more measured longer-term view of executive compensation.[3]  Despite a time of great uncertainty, organizations should review short-term and longer-term incentive plans to assure that they remain attainable, measurable, realistic and motivational.

Your organization is not alone.  Society for Human Resources Management (SHRM) research found that 7 out of 10 organizations are struggling to adapt to remote work; 65% say that maintaining employee morale has been a challenge; 83% have changed business practices; 40% have shut down certain aspects of the business; and 38% have decreased hours for employees.[4]

Each organization’s approach, and the tools it chooses to utilize will differ by:

Short-term and long-term strategy;

Determination to maintain the status quo, grow to respond to community/ client needs, pare expenses, restructure and/or re-focus to survive; and

Perspective on the duration of the pandemic.

Lawrence Associates routinely conducts compensation and benefits surveys.  We anticipate having specific market data on compensation practices under COVID in September 2020.  For now, we offer some observations.

 What opportunities exist?

Focus on employee welfare, lead by example and balance short-term with anticipated rebound.

Be attentive to disparate impact of policies – gender, internal equity, protected classes, pay equity.

Review short-term and longer-term talent management strategies.

Assure a succession strategy.

Consider the overall impact and optics of pay actions across executives, management, staff, care providers, and essential workers.

Implement Lean, Six Sigma, and other quality and efficiency improvement processes.

Assure the culture is aligned with the short-term and longer-term recovery strategies.

What pay and benefits tools can support essential staff?

Over-and-above pay for special/hazardous working conditions, surge pay, hero pay

Guaranteed pay continuity

Expanded benefits, extra vacation, shortened eligibility

Bonuses

Expanded overtime

What tools are available to reduce expenses?

Salary freeze

Salary cuts

Deferred merit adjustments

Below market, flat, across-the-board increases

Reduced hours

Furloughs

Layoffs

Management of leaves, sabbaticals and early retirement

Re-structuring, job changes, job-sharing

Delaying new hires

Hiring freeze

Managing overtime

Managing outsourced work

What does the future hold?

Greater application of remote technology

Greater shift to digital presence

Focus on expense reduction and cash flow

Short-term and longer-term changes to strategic plans, and related incentive targets for executives, management and staff

What resources are there?

Exponent Philanthropy (foundations)

Ogletree Deakins’ Newsletter[5]

WorldatWork

Society of Human Resource Management

[1] Nina Trentmann & Kristin Broughton, Wall Street Journal, “Companies that Don’t Cut Executive Pay Now Could Pay For it Later, April 21, 2020, available at: https://www.wsj.com/articles/companies-that-dont-cut-executive-pay-now-could-pay-for-it-later-11587477361 .

[2]  See, Kate Langford, Boulder Daily Camera, “Kennedy will receive $200k bonus”, April 25, 2020, available at: http://boulderdailycamera.co.newsmemory.com/?publink=3bb8a3f22 ; and Brian Maas, 4 CBS Denver, “Denver Health Executives Get Bonuses 1 Week After Workers Asked To Take Cuts”, April 24, 2020, available at: https://denver.cbslocal.com/2020/04/24/coronavirus-denver-health-bonus-ceo-pay-cuts/?fbclid=IwAR3uf-Pjq8ghFqP_QAtjudPt1NhqspLNrcUsaepBTwsL-3oYL3XH53oWGHU .

[3] See Ryan Reish, et. al., Executive Compensation Programs & COVID-19, Harvard Law School Forum for Corporate Governance, April 3, 2020, available at: https://corpgov.law.harvard.edu/2020/04/03/executive-compensation-programs-covid-19 /

[4] SHRM, COVID-9 Research, “How the Pandemic is Challenging and Changing Employers”, from a sample of 2278 HR professionals from SHRM’s membership surveyed between April 1 and April 7, 2020.

[5] Available at: https://clientservices.ogletree.com/7/15/forms/subscribe.asp?sid=8dc0065a-4116-4311-a5f1-da53f8d51e5c.

On November 22, 2016 US District Court Judge Mazzant granted an Emergency Motion for Preliminary Injunction and thereby enjoined the Department of Labor from implementing and enforcing the Overtime Final Rule on December 1, 2016. In its notice, the Department remains confident in the legality of the rule.

Many employers have already implemented changes in readiness for the December 1 deadline. What to do? The Wagner Law Group’s Employment Law Alert comments “If an employee has been offered a job at a higher rate because of the DOL’s rule, it may not be possible to rescind that offer because of the injunction. The employee could claim detrimental reliance. Similarly, broad reductions in compensation can create morale and employee engagement issues.”

BMWL speculates on What lies ahead? “The injunction applies until Judge Mazzant issues a full ruling on the validity of the new overtime pay regulations. Some observers have reported that they believe it is likely that Mazzant will ultimately rule that the new rule is invalid, based on the legal analysis contained in his 20-page order. Such a decision would be subject to appeal to a higher court by the Obama administration. But given its lame duck status and the transition to the Trump administration in January of 2017, an appeal by the executive branch seems doubtful.”

The IRS recently released Reports of the Advisory Committee on Tax Exempt and Government Entities (ACT) Fifteenth Report of the ACT – June 8, 2016 – on five issues:

• “Employee Plans: Analysis and Recommendations Regarding Changes to the Determination Letter Program;
• Exempt Organizations: Stewards of the Public Trust: Long-Range Planning for the Future of the IRS and the Exempt Community;
• Federal, State and Local Governments: Revised FSLG Trainings and Communicating with Small Local Governments;
• Indian Tribal Governments: Survey of Tribes Regarding IRS Effectiveness with Current Topics of Concerns and Recommendations; and
• Tax Exempt Bonds: Recommendations for Continuous Improvement and Enhancing Resources in the Tax Exempt Bond Market.”

The 2016 report of the Exempt Organizations Subcommittee of the IRS Advisory Committee on Tax Exempt and Government Entities focused on planning for the future and the areas that Exempt Organizations should consider while planning for overseeing exempt organizations in the next few decades. The report provides the following recommendations:

1. Ensure that EO staff are equipped to carry out the responsibilities of EO.

2. Provide leadership and guidance on major issues impacting the exempt organizations sector, both current and those anticipated in the near future.

3. Give exempt organizations the tools they need to be tax compliant:

a. Detailed audit data.
b. Relevant, user-focused guidance, akin to former CPE (Continuing Professional Education) text.
c. An easily navigated website.

4. Assure cyber integrity through technology tools, data collection and secured cyber storage.

5. Release and share data where appropriate for public use.

a. IRS information sharing with state charities officials.
b. Electronic filing and dissemination of IRS information.

6. Foster two-way communication between the IRS Exempt Organizations division and the nonprofit sector.

a. Find ways to solicit input from a greater number of voices (including small nonprofits) and provide open channels for stakeholders to take issues to the IRS.
b. Revise the Determination Letter to educate exempt organizations on their tax obligations and responsibilities.
c. Use current technology to communicate with exempt organizations.
d. Increase the availability of strong expert resources through IRS TE/GE phone customer service.”

Full Report: https://www.irs.gov/government-entities/reports-of-the-advisory-committee-on-tax-exempt-and-government-entities-act 

Jackson Lewis PC presented an informative webinar “Mind the Gap: The Massachusetts Act to Establish Pay Equity.” The webinar discusses the pay equity gap that exists in the US, and the ongoing efforts at both the federal and state levels to eliminate the gap. See webinar https://vimeo.com/183538697.
At the federal level, the EEOC and OFCCP have become much more attentive to pay equity. According to Jackson Lewis:

• “EEO-1 reports will include ‘W-2 earnings’ and work hours for all employees starting in 2018
• EEOC and OFCCP will use the pay data to “assess complaints of discrimination, focus investigations, and identify employers with existing pay disparities that might warrant further investigation”
• OFCCP [is] adding pay equity inquiries to every audit and asking more information than ever before.”

At the state level, Massachusetts recently amended its Fair Pay Act, making it the strongest pay equity law in the country.

The law defines “comparable work” as “work that is substantially similar in that it requires substantially similar skill, effort and responsibility and is performed under similar working conditions; provided, however, that a job title or job description alone shall not determine comparability.”

The law prohibits employers from discriminating in any way on the basis of gender in the payment of wages, or paying any employee less than other employees of a different gender for comparable work, unless the wage disparity is based on:

(i) a system that rewards seniority with the employer; provided, however, that time spent on leave due to a pregnancy-related condition and protected parental, family and medical leave, shall not reduce seniority;
(ii) a merit system;
(iii) a system which measures earnings by quantity or quality of production, sales, or revenue;
(iv) the geographic location in which a job is performed;
(v) education, training or experience to the extent such factors are reasonably related to the particular job in question; or
(vi) travel, if the travel is a regular and necessary condition of the particular job.

Other provisions include:

• “’Wages’ is now defined as ‘all forms of remuneration for employment’
• Employers must not prohibit employees from discussing pay
• Employers can no longer ask employees about their pay history
• Tougher sanctions
• AG’s Office will provide forms and guidance to employers”