December 2010

Non-Compete Changes in Georgia
On Tuesday, November 2, 2010, Georgia voters approved a constitutional amendment which dramatically alters the way non-competition agreements (a/k/a non-competes or restrictive covenants) will be enforced in Georgia.  The constitutional amendment was the final step in a more than year-long campaign to give effect to a house bill previously passed.

Highlights of the new law are set forth below:

• The type and class of employee who may be subject to restrictive covenants is defined in the new law.  These classes consist primarily of sales people, key employees (as defined in the law) or supervisors who manage, hire and fire employees.  It also may include professionals such as doctors and architects.
• A reasonable time limitation was always a requirement of non-compete clauses.  The new law indicates that two years or less will be presumed to be reasonable.  In a sale of a business, the time restrictions may be much longer.
• Non-disclosure covenants no longer require a time limit even for confidential information that does not rise to the level of a trade secret.
• Contracts that are held unreasonable may be rewritten to be reasonable by the court.  This is known as “blue penciling”.  In the past, Georgia courts would not do this.

As you are aware, under prior Georgia law, the enforceability of non-compete covenants was highly speculative.  The Courts, because of language in the Georgia constitution, looked for any reason to invalidate such agreements.  It appears that the new law will only apply to covenants entered into after its effective date (November 3, 2010).  For this reason, we expect to see a number of employers re-visiting their non-compete agreements to take advantage of the new law. 

As we hope you can appreciate, this e-mail is not a comprehensive summary of all aspects of the new law, and merely provides an oversimplified explanation of why it might make sense to thoroughly review your non-compete agreements. The new law is complex and each client's needs and facts may dictate a different approach.

PPACA Is Effective
The nation reached an important milestone when the 2010 provisions of the Patient Protection and Affordable Care Act (PPACA) began to kick in on September 23. As of that date, the new law, among other things, prohibits the imposition of lifetime limits and annual maximums on coverage in most cases, requires 100 percent coverage of specified preventive care for non-grandfathered plans, and extends dependent coverage up to age 26 for most plans. As the New York Times noted in a story last week, getting ready to implement the changes just six months after passage of health care reform was a herculean task for health insurers requiring major systems changes, new processes and significant training. Analysts have even warned that

On the eve of the effective date of new rules on claims and appeals, the Department of Labor (DOL) last week issued additional guidance to suspend enforcement of many of the more problematic provisions that were scheduled for enforcement as of Sept. 23, 2010. The DOL announcement provides a much-needed grace period up to July 2011, which will allow insurers and employers more time to sort out just how to implement the changes demanded by the new law and the initial regulations. The new guidance applies to urgent care (going from 72 to 24 hours turnaround), publishing and explaining the ICD codes on an EOB, providing EOB notices in a "linguistically and culturally appropriate" manner and allowing a claimant to go straight to external review/court for the slightest claims process error.

The Patient Protection and Affordable Care Act (PPACA) adopted last spring includes two new reporting requirements that will increase the amount of information that businesses and their employees must report to the Internal Revenue Service (IRS). The first requirement will impact how businesses report the value goods and services purchased through third parties – probably through Form 1099-MISC; and the second will impact how employers report the aggregate value of their employees’ health insurance coverage on Form W-2. 

PART I:  NEW 1099 REPORTING REQUIREMENTS
Based upon the new health care reform law, all businesses, charities, and government entities will likely have to track and report all payments totaling $600 or more in a calendar year associated with any single vendor for either goods or services purchased. The PPACA also repeals the longstanding reporting exception for payments to a corporation. This provision takes effect in 2012, and Congress estimates it will raise $17 billion over 10 years.  Presumably, Form 1099-MISC will be used to comply with the new reporting rule, or the IRS may develop a new form. 
Historically, Form 1099 filings were limited to services only. The new reporting requirement will require businesses to issue more paperwork every time they pay rent for their offices, buy new equipment to make their workers more efficient or increase capacity, or simply purchase basic office supplies like coffee and paper towels for their break rooms.

It is possible that Congress might take some action to limit or repeal this provision before it goes into effect. But that is mere speculation at this point. 

1099 Reporting:  What Should Employers Do Next?
There are some proactive steps your clients can take now to prepare for the new reporting requirement. The way vendor information is collected and managed will be more important than ever. Basic information should include every vendor's name and TIN, the amounts spent at each vendor and the total annual amount spent at each vendor. It should be requested that each vendor, particularly regular vendors, complete IRS Form W-9 to have on record. Form W-9 will provide you with the vendor's legal name, address, and TIN.

PART II:  NEW FORM W-2 REPORTING REQUIREMENTS
Section 9002(a) of the new health care reform law provides that employers must disclose the aggregate cost of applicable employer-sponsored health coverage(s) provided to employees on the employee’s Form W-2. The cost of the health benefit is not considered taxable income, but will appear on the employee's W-2 for informational reporting purposes.  The coverage costs, whether under an insured or self-insured plan, must be reported under the new requirement. 

On October 12, 2010, the IRS announced a one-year delay in the start date of this requirement (See http://www.irs.gov/pub/irs-drop/n-2010-69.pdf ). The new reporting requirement goes into effect for Form W-2s issued in 2012 (instead of the original date of 2011). 

Why add this additional reporting burden? The drafters of PPACA could have created this new requirement to better educate employees on the cost of their health insurance benefits, help businesses determine whether they have a high-cost plan that will be subject to the PPACA’s excise tax on “Cadillac” health plans, and/or maybe to allow the federal government to track the individual insurance mandate that goes into effect in 2014.

If an employee participates in more than one employer-sponsored insurance coverage program under multiple plans, the aggregate value of all such health coverage (except certain benefits discussed below) must be disclosed. Here is an illustrative example: 
If an employee enrolls in one or more employer-sponsored health insurance coverage programs under a major medical plan, a dental plan and a vision plan, the employer is required to report the total value of the combination of all of these health-related insurance coverages. For this purpose, employers generally use the same value for all similarly situated employees receiving the same category of coverage (such as single or family health insurance coverage).  Employers will not be required to provide a specific breakdown of the various types of coverage, but must only report an aggregate cost.
Reporting is required not only for current employees, but also to former employees who are provided with health coverage. This will include early retirees, retirees, terminated employees on COBRA and surviving spouses if they are on the employer’s health plan.  Many of these individuals would not typically receive a Form W-2 from the employer, at least not for taxable years following their termination of employment. Accordingly, an employer's overall W-2 reporting requirements may increase dramatically. 

Reported Coverage
Pursuant to this new requirement, the information that must be reported relates to “applicable employer-sponsored coverage.” Applicable employer-sponsored coverage is, with respect to any employee, coverage under any group health plan made available to the employee by the employer, which is excludable from the employee’s gross income under The IRS Code Sect. 106. 
  
Plans for which coverage costs MUST BE reported under the new requirement include: 

• Medical plans
• Prescription drug plans
• Executive physicals
• On-site clinics if they provide more than de minimis care
• Medicare supplemental policies
• Employee assistance programs
• Coverage under dental and vision plans (unless they are “stand-alone” plans)

Coverage Not Reported
Coverage that is NOT included in the aggregate cost of coverage include:

• Long-term care
• Accident or disability income insurance
• Coverage for a specific disease or illness
• Hospital indemnity or other fixed indemnity insurance
• Salary reduction contributions to a health Flexible Spending Arrangement (FSA) under a cafeteria plan
• Contributions to an Archer Medical Savings Account (Archer MSA)
• Contributions to a Health Savings Account (HSA)

Additional Information
Items that are required to be reported separately on Form W-2:

• The individual’s name
• Social security number
• Wages
• Tax deducted
• The total amount incurred for dependent care assistance under a dependent care assistance program
• The amount contributed to any HSA by the employee or his or her spouse

How to Value Plans
The aggregate cost of coverage under the plans (including the employee and employer portions of cost) is determined under rules similar to COBRA—minus the two percent administrative charge permitted under COBRA. For purposes of this reporting requirement, it does not matter whether the employer or the employee pays for the coverage.
Effective Dates:

• December 31, 2011: The new Form W-2 reporting requirements are effective for tax years beginning after midnight. 
• January 2012: Employers will need to update their payroll systems because employees are entitled to request their Form W-2s early if they terminate during the year.
• January 2013: The first Form W-2 to include the aggregate cost of employer-sponsored health coverage will be the 2011 Form W-2.

W-2 Reporting:  What Employers Should Do Next?
Although this requirement is not fully effective until the 2012 tax year, employers should not wait to prepare for these changes. An employee who terminates in the month of January 2012 is entitled to receive a W-2 with the new information included shortly after the employee’s termination. Employers should ensure that they or their payroll provider are prepared to gather this information in advance of having to complete the Forms W-2 for the tax year 2012. In doing so, they should make sure they can identify the applicable employer-sponsored coverage that was provided to each employee and be prepared to calculate the aggregate cost of that coverage.

The IRS Notice and press release indicate that further guidance will be issued in the near future. Presumably, this guidance will provide more details on the items that must be reported and how the cost of those items is to be determined.
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In order for you to conveniently share this information with your clients, please view the fillable document, W-2 and 1099 Employer Reporting Requirements .
Please visit www.BenefitMall.com to view past Legislative Alerts in the “Newsroom” section. Or, you may visit www.HealthcareExchange.com for blog posts, polls, surveys and numerous resources. If you have any questions, please contact your local BenefitMall Sales Team and they will be happy to assist you. Thank you for taking the time to read through this important notification.
Sincerely,