Mandated Benefits

  1. FAQs
  2. INTRODUCTION
  3. SOCIAL SECURITY & MEDICARE
    1. Who is Covered?
  4. UNEMPLOYMENT INSURANCE
    1. Employer’s Obligation to Participate
  5. ADMINISTRATION
    1. Responding to Claims
  6. ELIGIBILITY FOR BENEFITS
    1. Minimum Work History
    2. Involuntary Nature of Job Loss
    3. Establishing Unemployment
    4. Short-Term Compensation
  7. TAX CONSIDERATIONS
  8. SICK PAY PLANS
    1. Paid Sick Leave
    2. Types of Sick Pay Arrangements
  9. DISABILITY PLANS
  10. WORKERS’ COMPENSATION
    1. Types of Benefits
    2. Amount of Benefits
    3. Tax Consequences
    4. Legal Requirements
  11. FAMILY AND MEDICAL LEAVE ACT
  12. RELIGIOUS LEAVE
    1. Options
    2. Required Accommodation
  13. VOTING LEAVE
  14. JURY DUTY
  15. VETERANS’ RIGHTS
  16. MANDATED BENEFITS AT-A-GLANCE
  17. FORMS AND CHECKLISTS

FAQs

  1. Are there any employee benefits that are required by law?
  2. Who is covered by Social Security and Medicare?
  3. What does unemployment compensation cover?
  4. Are small businesses subject to the requirements of the Family and Medical Leave Act of 1993?
  5. What is disability insurance?
  6. What do accident and sickness plans provide for?
  7. Are salary and wages paid for vacations, holidays or special days off, subject to regular income tax?
  8. Are small businesses obligated to grant military leave to employees serving in the National Guard and reserves?
  9. What types of accommodations must employers make for employee’s religious observance?
  10. Must employers allow work-time off to perform jury duty?

Introduction

In addition to the fringe benefits that many employers provide voluntarily, various state and federal laws require that certain minimum benefits be provided to employees. These mandated benefits include contributions to the federally-funded programs, such as Social Security and Medicare, as well as state-mandated worker’s compensation and disability insurance. These benefits—which most employers must provide—are discussed in this section.

Social Security & Medicare

Social Security pays benefits when you retire, become disabled, or die. You must meet certain eligibility requirements for each type of benefit. Other members of your family may also be eligible for benefits when you become entitled.

Who Pays?

The employer and employee pay taxes for Social Security and Medicare. The employer pays half the cost— while the employee receives all the benefits.

What Does it Cost?

The taxes that you and your employer pay each year are based on the tax rate (percent of pay) and the amount of earnings. Tax rates are established by federal law. The maximum taxable amounts increases each year, based on increases in the average wages and salaries of all the employees in the country.

Payroll Taxes

Old-Age, Survivors and Disability Insurance (OASDI). This tax pays for cash benefits to entitled beneficiaries.
Hospital Insurance (HI). This tax pays for hospital benefits for people covered by Medicare.

Payroll taxes paid by employees are not deductible on individual federal income tax returns, or most state income tax returns.

All salaries, wages, bonuses, and commissions that you receive for working are taxed and credited to your earnings record. The payroll taxes are withheld from every paycheck until the Maximum Taxable amount for the year is reached.

In addition to cash payments, taxable amounts include the value of clothing, meals, and lodging, except meals and lodging provided for the convenience for your employer. The first six months of sick pay are taxed. The value of employer-provided life insurance exceeding $50,000 is also taxed.

For more information, please visit the Payroll section.

Unemployment Insurance

Unemployment compensation provides for a continuation of income for unemployed workers and their families. Employers do not have a choice of whether to provide unemployment benefits; all employers must contribute to the unemployment insurance funds in their states. And, the amount of benefits is set by law.

Benefits are available only to workers who are actively seeking suitable work to replace jobs they lost through no fault of their own. Workers laid off when there is no longer a need for their services and workers who lose their job because of lack of ability to meet the job’s requirements are eligible for benefits. However, claimants who are fired because of misconduct or who are not willing, able, and available for work are not eligible for unemployment benefits.

Employer’s Obligation to Participate

Employers are required by federal and state law to make unemployment insurance contributions on behalf of their employees. Under federal law, an employer need only have employed one employee for part of a day in each of twenty days in the current or preceding calendar year to be obligated to provide unemployment insurance for all employees. Even employers that do not meet this twenty-day test are nonetheless covered by federal unemployment laws if they have paid at least $1,500 in wages during a calendar quarter in the current or preceding calendar year.

Payment of Federal Tax

Employers must deposit each quarter’s Federal Unemployment Tax Act (FUTA) payment by the last day of the calendar month following the end of the quarter (e.g. April 30, July 31, October 31, and January 31) but may have ten extra days to file if all taxes were paid when due. For the first three quarters, no deposit is necessary if the undeposited tax due for the current and prior quarters totals less than $100. For the last quarter, the balance due can be included with the return if the tax (deposited or undeposited) for the entire year totals less than $100.

Employers must file Form 940, Employer’s Annual Federal Unemployment Tax Return, by February 10 (if taxes were not deposited in a timely fashion by January 31).

Unemployment Insurance Administration

Unemployment insurance is administered through a joint Federal-state program. Claims for benefits are presented by out-of-work claimants to offices run by the state.

Tax Considerations

Federal and state unemployment taxes are fully deductible by employers. In contrast, recipients of unemployment insurance benefits must pay federal income tax on the full amount of their benefits. Although a few states still follow the old federal formula, which provided for a partial exclusion of unemployment insurance benefits from taxable income, most states now tax unemployment compensation in the same way as regular wages.

Disability Plans

Disability insurance is insurance that provides for the payment of amounts in place of a person’s salary when physical or mental disabilities prevent the person from performing gainful employment. Short-term disability payments generally refer to payments of a disability that is of a temporary nature, where the person’s ability to return to their employment is expected. Long-term disability is a disability whose length is not ascertainable.

Workers’ Compensation

Employees need to be assured that if they are injured on the job, their medical benefits will be taken care of and they will receive some income continuation while they are unable to work.

The workers’ compensation program covers job-related injuries and illnesses. Income replacement benefits are provided—at the employer’s expense—for disabilities that are temporary or permanent, partial or total. Benefits are also provided to surviving dependents in the case of job-related deaths. In addition, full medical care and, to a limited extent, vocational rehabilitation are covered.

Family and Medical Leave

The Family and Medical Leave Act of 1993 (FMLA) is intended to provide a means for employees to balance their work and family responsibilities by taking unpaid leave for certain reasons.

The FMLA applies to any employer in the private sector who is engaged in commerce or in any industry or activity affecting commerce, and who has 50 or more employees each working day during at least 20 calendar weeks or more in the current or preceding calendar year.

This law entitles most employees to take up to a total of 12 weeks per year of leave:

  • To care for a child newly born to the employee or newly adopted or accepted into foster care by the employee;
  • To care for certain seriously ill relatives; and/or
  • Because of a serious health condition that prevents an employee from performing the functions of the job.

The Department of Labor (DOL) has taken significant steps to enforce FMLA legislation, and resolved 42 percent more complaints under FMLA in fiscal year 1998 than it did in the previous year, with no increase in the number of complaints received. The agency settled 3,795 complaints in 1998—the highest number of FMLA enforcement actions completed in FMLA’s five-year history.

Religious Leave

Employers must make provisions for religious observance by workers under Title VII of the Civil Rights Act of 1964. But, employers are not specifically required to provide paid leave or to make an accommodation that would cause the company “undue hardship.”

Voting Leave

While there is no federal statute on voting leave, many states have passed laws that require employers to grant employees time off to vote. Whether they are subject to state statutes, employers generally allow some leeway in employee arrival or departure on days when a national election or important state, city, or county election is held. Usually, pay is not deducted for missed work time.

Jury Duty

Employees who are U.S. citizens may be called on periodically to serve as jurors within the court system, and employers are generally obliged to permit their absence for performance of this public service.

Employers allow work-time off to perform jury duty, often without requiring them to forgo pay. Within certain constraints of the law, employers can influence the timing of jury service to requesting postponements from the courts.

Veterans’ Rights

The Uniformed Services Employment and Re-employment Rights Act of 1994 (USERRA) protects veterans who have left an employment position (other than temporary) to perform training or service in the armed forces. For the first time, Coast Guard personnel are treated equally with other uniformed service personnel. USERRA, which replaces the old Veteran’s Re-employment Rights statute, took effect on December 12, 1994, and applies to veterans coming back to work after that date. USERRA also may apply to employees who left employment for active duty within the past five years, but who have not yet returned from service.

USERRA provides that an employee or his or her dependents who have coverage under an employer’s health plan must be offered continuation coverage for up to 18 months after commencement of military service. With the exception of service-connected conditions as determined by the secretary of veterans’ affairs, if coverage under the health plan is terminated because of military service, an exclusion or waiting period may not be imposed on the employee (or family member) when the employee is re-employed.

USERRA applies to all traditional pension plans and defined contribution plans such as profit sharing plans, 401(k) plans, Employee Stock Ownership Plans (ESOPs), money purchase plans, and other deferred compensation arrangements. Returning veterans have a right to plan benefits with no break in employment service, no forfeiture of benefits already accrued, and no necessity to requalify for participation. Upon re-employment, service in the military will count as employment service for purposes of vesting and for determining the accrual of benefits.

The returning veteran is entitled to an employer contribution that he or she would have received if such person had remained continuously employed. The rate of compensation to calculate pension benefits would be the (a) rate of pay the employee would have received if not on military leave (this would include wage increases and bonuses) or (b) if it is not “reasonably certain” what the pay rate during the military absence would have been, the employee’s average earnings during the 12 months (or shorter period, if applicable) prior to military service.

For plans that allow elective deferral contributions or after-tax employee contributions, the veteran may make such contributions after returning to employment. The employer must make any matching contribution that would have been made under the plan. The matching contribution may not exceed the amount that the person would have received if he or she had remained continuously employed. The repayment period can be made over a period of three times the period of military service, not to exceed five years.

Mandated Benefits At-A-Glance

  1. Virtually everyone who is employed or self-employed is covered by Social Security and Medicare.
  2. Unemployment compensation provides for a continuation of income for unemployed workers and their families.
  3. Sick leave pay generally provides employees with full pay for occasional unplanned absences caused by non-work related personal illness or injury.
  4. Disability insurance is insurance that provides for the payment of amounts in place of a person’s salary when physical or mental disabilities prevent the person from performing gainful employment.
  5. Generally, employers are obligated by USERRA—and, in most cases, state law, as well—to grant military leave to employees serving in the National Guard and reserves and to reinstate such employees returning from service in the armed forces.
  6. The FMLA requires employers with fifty or more employees to provide up to twelve weeks of leave a year to qualified employees.
  7. Employers must make provisions for religious observance by workers; but not to make an accommodation that would cause the company “undue hardship.”
  8. Most employers allow work-time off to perform jury duty, often without requiring them to forgo pay.

FORMS AND CHECKLISTS

  • Checklist for Determining Employee Eligibility for Leaves of Absence
  • Application for a Leave of Absence
  • Model Medical Leave Certification Form
  • Short-Term Disability Benefits Policy
  • Long-Term Disability Benefits Policy
  • Military Leave Policy
  • Maternity Leave Policy
  • Request for Family Leave
  • Request for Medical Leave of Absence
  • Policy on Family and Medical Leave
  • Small-Employer Family Leave Policy

For Additional Information

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