1. Affordable Care Act
The Affordable Care Act (aka ACA, Obama Care) has entered enrollment for the third year. The combination of employer mandates, individual sign up requirements and changing implementation schedules has created a completely new industry of "Obama Care Experts".
As ACA continues to roll out, this impacts how employers look at full time employees (FTE's) vs. part time vs. contract labor. The cost curve on medical benefits will continue to change.
There is so much coverage on this topic, enough said here.
1+1=2. Federal Insurance Contributions Act (FICA)
The Federal Insurance Contributions Act (FICA) is made up of two items, Social Security and Medicare taxes. According to the Society for Human Resource Management, the cost of living adjustment (COLA) had not increased in 2015 so the rates for 2016 remain stable. The FICA rates are adjusted by mandate and do not require legislation for change.
While COLA may or may not increase based on the Consumer Price Index into 2017, it is apparent the FICA calculations may have to change. According to the 2015 Trustee Report for Social Security and Medicare Benefits report conclusion:
Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will permit consideration of a broader range of solutions and provide more time to phase in changes so that the public has adequate time to prepare.
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| Medicare Cost and Non-Interest Income by Source as a Percentage of GDP |
With increased wages, the employer match will increase as it is a percentage of wage dollars. For example, the new Nebraska minimum was of $9 per hour will be a $0.69 employer match FICA cost. At $15, the FICA match becomes $1.15. This is a $0.48 increase per hour in FICA additional cost alone.
Second, the pressure to raise the overall 15.3% (reminder: half employee, half employer match currently) will have to be considered for increase contribution to the deficit of total cost. Project that with certainty, at minimum, the employer contribution will have to change.
The
annual Social Security cost of living adjustment (COLA) is based on the
Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W), a broad measure of consumer prices generated by the Bureau of
Labor Statistics. The COLA is calculated by comparing consumer prices in
July, August and September each year with prices in the same three
months from the previous year.
“Each year, Social Security calculates the automatic cost-of-living adjustment, if any, that our program beneficiaries will receive the following year. For years when there is a Social Security COLA, this adjustment is intended to keep inflation from eroding the purchasing power of Social Security and Supplemental Security Income benefits,” explained J. Jioni Palmer, associate commissioner for external affairs at the SSA. “Because the CPI-W has not increased, there will be no COLA for 2016.”
He added, “Since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax, as well as the retirement earnings test exempt amounts.”
“The calculation is automatic. It goes strictly by inflation,” said Harry Sit, CEBS, who writes and blogs on financial matters. “You get a higher COLA only if inflation is higher.”
- See more at: http://www.shrm.org/hrdisciplines/compensation/articles/pages/fica-social-security-tax-2016.aspx#sthash.fRvIrq6C.dpuf
“Each year, Social Security calculates the automatic cost-of-living adjustment, if any, that our program beneficiaries will receive the following year. For years when there is a Social Security COLA, this adjustment is intended to keep inflation from eroding the purchasing power of Social Security and Supplemental Security Income benefits,” explained J. Jioni Palmer, associate commissioner for external affairs at the SSA. “Because the CPI-W has not increased, there will be no COLA for 2016.”
He added, “Since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax, as well as the retirement earnings test exempt amounts.”
“The calculation is automatic. It goes strictly by inflation,” said Harry Sit, CEBS, who writes and blogs on financial matters. “You get a higher COLA only if inflation is higher.”
- See more at: http://www.shrm.org/hrdisciplines/compensation/articles/pages/fica-social-security-tax-2016.aspx#sthash.fRvIrq6C.dpuf
The
annual Social Security cost of living adjustment (COLA) is based on the
Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W), a broad measure of consumer prices generated by the Bureau of
Labor Statistics. The COLA is calculated by comparing consumer prices in
July, August and September each year with prices in the same three
months from the previous year.
“Each year, Social Security calculates the automatic cost-of-living adjustment, if any, that our program beneficiaries will receive the following year. For years when there is a Social Security COLA, this adjustment is intended to keep inflation from eroding the purchasing power of Social Security and Supplemental Security Income benefits,” explained J. Jioni Palmer, associate commissioner for external affairs at the SSA. “Because the CPI-W has not increased, there will be no COLA for 2016.”
He added, “Since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax, as well as the retirement earnings test exempt amounts.”
“The calculation is automatic. It goes strictly by inflation,” said Harry Sit, CEBS, who writes and blogs on financial matters. “You get a higher COLA only if inflation is higher.”
- See more at: http://www.shrm.org/hrdisciplines/compensation/articles/pages/fica-social-security-tax-2016.aspx#sthash.fRvIrq6C.dpuf
“Each year, Social Security calculates the automatic cost-of-living adjustment, if any, that our program beneficiaries will receive the following year. For years when there is a Social Security COLA, this adjustment is intended to keep inflation from eroding the purchasing power of Social Security and Supplemental Security Income benefits,” explained J. Jioni Palmer, associate commissioner for external affairs at the SSA. “Because the CPI-W has not increased, there will be no COLA for 2016.”
He added, “Since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax, as well as the retirement earnings test exempt amounts.”
“The calculation is automatic. It goes strictly by inflation,” said Harry Sit, CEBS, who writes and blogs on financial matters. “You get a higher COLA only if inflation is higher.”
- See more at: http://www.shrm.org/hrdisciplines/compensation/articles/pages/fica-social-security-tax-2016.aspx#sthash.fRvIrq6C.dpuf
The
annual Social Security cost of living adjustment (COLA) is based on the
Consumer Price Index for Urban Wage Earners and Clerical Workers
(CPI-W), a broad measure of consumer prices generated by the Bureau of
Labor Statistics. The COLA is calculated by comparing consumer prices in
July, August and September each year with prices in the same three
months from the previous year.
“Each year, Social Security calculates the automatic cost-of-living adjustment, if any, that our program beneficiaries will receive the following year. For years when there is a Social Security COLA, this adjustment is intended to keep inflation from eroding the purchasing power of Social Security and Supplemental Security Income benefits,” explained J. Jioni Palmer, associate commissioner for external affairs at the SSA. “Because the CPI-W has not increased, there will be no COLA for 2016.”
He added, “Since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax, as well as the retirement earnings test exempt amounts.”
“The calculation is automatic. It goes strictly by inflation,” said Harry Sit, CEBS, who writes and blogs on financial matters. “You get a higher COLA only if inflation is higher.”
- See more at: http://www.shrm.org/hrdisciplines/compensation/articles/pages/fica-social-security-tax-2016.aspx#sthash.fRvIrq6C.dpuf
“Each year, Social Security calculates the automatic cost-of-living adjustment, if any, that our program beneficiaries will receive the following year. For years when there is a Social Security COLA, this adjustment is intended to keep inflation from eroding the purchasing power of Social Security and Supplemental Security Income benefits,” explained J. Jioni Palmer, associate commissioner for external affairs at the SSA. “Because the CPI-W has not increased, there will be no COLA for 2016.”
He added, “Since there is no COLA, the statute also prohibits a change in the maximum amount of earnings subject to the Social Security tax, as well as the retirement earnings test exempt amounts.”
“The calculation is automatic. It goes strictly by inflation,” said Harry Sit, CEBS, who writes and blogs on financial matters. “You get a higher COLA only if inflation is higher.”
- See more at: http://www.shrm.org/hrdisciplines/compensation/articles/pages/fica-social-security-tax-2016.aspx#sthash.fRvIrq6C.dpuf
1+1+1=3. Joint Employer
The ruling on August 27 by the National Labor Relations Board (NLRB) is still being examined.
In the Browning-Farris Industries case, the NLRB has expanded the Joint Employer concept beyond the boundaries previously set. If this stands, the exposure for all employers on the Family Medical Leave Act (FLMA), prevailing wage and employee benefits increase will be crippling.
According to the LA Times, the ranks of temporary workers have swelled to more than 3.4 million nationwide, or more than 2% of total U.S. jobs. This does not take into effect the general contractor to subs, franchise to franchisee and other company to vendor relationships that are potentially effected.
Joint Employer definitions look to impact union reach, benefit extensions, and breaking the barrier to moving off employees from company payrolls to another, cheaper employment arrangement.
1+1+1+1=4. The Growing Movement to $15 an Hour
The National Employment Law Project has recently published a report on the growing movement toward $15 an hour.
Here is a partial excerpt:
Review recent economic analysis of $15
wages, profile the experiences of localities and employers that are
transitioning to that level, and give an overview of recent and current
$15 wage policy campaigns. We find the following:
- Cost-of-living analyses show that, just about everywhere in the United States, a single low-wage worker needs $15 an hour to cover basic living costs—and that in higher-cost states and regions, workers supporting families need much more.2
- Both economic analysis and the experiences of localities and employers that have raised wages significantly suggest that pay in the affected jobs can be upgraded to $15—with far-reaching benefits for America’s workers. For example, more than 200 economists have advised that “raising the federal minimum to $15 an hour by 2020 will be an effective means of improving living standards for low-wage workers and their families and will help stabilize the economy.”3
- State-of-the-art economic modeling of the impact a $15 wage on employers and jobs—conducted by University of California researchers under contract with the City of Los Angeles—finds that the measure would raise pay for approximately 41 percent of the workforce by an average of $4,800 per worker per year, and have very little adverse impact on employment levels.4
- Los Angeles, Seattle, San Francisco, and other cities have all adopted $15 minimum wages; New York approved the first state-level $15 wage for fast-food workers; New York and California appear likely to enact the first statewide $15 minimum wages in 2016; and more cities and states, including Washington, D.C. and Massachusetts (for fast-food and retail workers in large stores), are proposing to follow their lead.
- Private-sector employers, such as insurance giant Aetna, Facebook, Amalgamated Bank, the university-affiliated hospital Johns Hopkins Medicine, and academic institutions such as the University of Rochester, the University of California, and Duquesne University, have also raised base pay to $15 per hour or more for their workers and/or their contractors.
Where do we stand today? As Nebraska employers are facing an increase from $8 to $9 an hour minimum wage on 1/1/2016, Nebraska ranks 16 in the country (46.2% of workers) and Iowa ranks 20th (45%) of estimated workers making less than $15 per hour. Nebraska's average median wage is $15.52 and Iowa is $15.91 currently. The jump from $9 to $15 minimum wage is a 40% increase in wages.
Can construction companies and suppliers ramp hourly pay 40% and still bring in projects? Or will new construction projects slow? How fast could the new pay normal be absorbed?
2016 and Beyond
In the current labor market, there are at least four forces pressuring businesses today. Obama Care, the FICA looming crisis, Joint Employer NLRB ruling and the national push to go to a $15 per hour minimum wage.
In Nebraska's current 3% unemployment environment, there is already pressure to pay more and give better benefits. However, by demonstrated by the national statistics, Nebraska and Iowa are still at a lower wage than the average.
It is a political year. The 2016 presidential election will be the telling of how these forces will combine to change how business hires, pays and provides benefits to their employees.