As a growing startup, there are many legal issues to deal with. One area of law that startups often don’t pay enough attention to is employee benefit law. Employees are one of the most valuable components of a successful startup’s growth, especially in the early stages.
Broadly, there are two categories of employee benefits: deferred earnings and goods and services other than deferred earnings.
Conversion of remuneration refers to the payment of wages and benefits beyond the day on which the employee provides the performance-based benefits. The employer often defers the compensation to a later tax year rather than the tax year in which the employee performed the benefits. Payment can be made subject to a condition based on a future determination. Such data can be, for example, when the employee turns 65 or the employee actually retires.
Stock bonus plans, also known as Employee Stock Ownership Plans (ESOPs), are another example of deferred compensation. The employer finances them with his shares. Special executive retirement plans, sometimes referred to as Supplemental Executive Retirement Plans (SERPs), also fall into the deferred compensation category.
Employee benefits other than deferred compensation
Goods and services other than deferred compensation include insurance coverage, health insurance, and coverage for unforeseen life events. When creating an employer-funded health plan, it’s important to consider the various federal regulations under the Internal Revenue Code and the Employee Retirement Income Security Act of 1974 (ERISA). Insurance coverage for unforeseen life events includes categories such as employee compensation and unemployment benefits.
Important laws affecting employee benefits
The two main employee benefit laws that startups should know about are the Internal Revenue Code and ERISA. Other useful laws that affect employee matters include the Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights Act of 1964, the Family and Medical Leave Act (FMLA), and the Uniformed Services Employment and Reemployment Act (USERRA. ). ). These laws affect the way employees are designed and how organizations treat their employees.
The Internal Revenue Code, the statutory federal tax law in the United States, has a significant impact on employee benefits. Startups in particular should observe Section 409A, which regulates non-qualified deferred compensation. The IRS can impose a 20% excise duty if the taxpayer violates the rules in Section 409A.
The Employee Retirement Income Security Act of 1974, better known as ERISA, is one of the most important federal labor and tax laws. It describes the rules for the administration of employee benefits and the rights that employees have to these benefits. The Department of Labor (DOL) and federal courts enforce ERISA regulations.
Employee retirement plans that provide employees with future retirement income are ERISA plans. Pension plans, which allow employees to defer income for retirement purposes, are also ERISA plans. Employers who offer ERISA benefit plans can be held liable for violations of ERISA standards. In recent years, the Department of Labor has been more vigilant in addressing violations by the employer. Therefore, startups should be aware of the ERISA guidelines to follow when managing employee retirement plans.
Anti-Discrimination Laws and Employee Benefits
The Age Discrimination in Employment Act (ADEA) prevents employers from imposing discriminatory practices on people aged 40 and over based on their age. For example, the ADEA prohibits increases in employee contributions in connection with increasing age and restrictions on plan eligibility due to increasing age.
Title VII of the Civil Rights Act of 1964 prevents discrimination based on race, color, religion, gender, and national origin. Insured benefit plans that aim or are deliberately operated to discriminate on the basis of any of these categories are considered a Title VII violation. Startups must be careful in the design of their benefit plans and other terms of employment to prevent Title VII violations.
Gender discrimination based on pregnancy is prohibited by the Pregnancy Discrimination Act of 1978 (PDA), which amended Title VII. This applies to all aspects of employment, including hiring, firing, pay, promotions, health insurance benefits, and more.
Startups should also consider various federal vacation laws. The Family and Sick Leave Act (FMLA) of 1993 is a labor law that requires employers to give workers up to 12 weeks of unpaid leave if they meet certain criteria, such as: B. after the birth of a newborn. It also provides job protection for workers if they opt for unpaid leave. Another federal vacation act that comes up with some frequency is the Uniformed Services Employment and Reemployment Act (USERRA).