Benefits and Compensation

Jordan Kirkness and Susan MacMillan in our Toronto office report that the government of Ontario announced yesterday that it will introduce new legislation to require certain employers to track and publish their compensation information.

The proposed legislation is part of the province’s initiative to advance women’s economic status and create more equitable workplaces (the initiative is titled “Then Now Next: Ontario’s Strategy for Women’s Economic Empowerment”). Yesterday’s announcement comes on the heels of last week’s budget plan in which the Canadian federal government outlined proposed proactive pay equity legislation that would apply to federally regulated employers — see here for our article on the proposed federal legislation.

For more on Ontario’s new pay transparency legislation, see here.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law bringing significant changes to US tax law. One provision of the Act may further incentivize individuals to work as independent contractors instead of as traditional employees.

The new provision allows for independent contractors, and for service providers structured as a partnership or other flow-through entities, the potential to deduct up to 20% of their revenue from their taxable income. And while some companies might view the opportunity to re-classify individuals from employees to independent contractors as a “win–win” scenario, it could create substantial legal exposure for employers.

Continue Reading New Tax Law Could Incentivize Employees To Become Independent Contractors – Employers Should Proceed With Caution

[As reported by our Baker McKenzie Compensation colleagues]

As of December 20, 2017, both the House of Representatives and the Senate have voted to approve the final version of the Tax Cuts and Jobs Act, in substantially the form released by the Conference Committee on December 15th. The bill is expected to be presented to the President for signature before Christmas, making US tax reform a reality for 2018.

What’s In? From a Compensation & Benefits perspective, among other things, the approved bill includes:

  • Significant changes to Code Section 162(m);
  • A new tax deferral regime for options and RSUs granted by private companies;
  • Elimination of exclusion for fewer than expected employer-provided fringe benefits; and
  • Increased disallowance of compensation-related deductions under Code Section 274.

What’s Out? Fortunately, the final bill does not include a Senate proposal to require the use of a first-in-first-out (FIFO) methodology when calculating capital gains on sale of shares, nor does it add back any of the changes to non-qualified deferred compensation that were proposed in the initial House version of the bill. Also, most of the changes proposed to qualified retirement plans have been eliminated.

Continue Reading Breaking News! Tax Cuts And Jobs Act Expected To Come Into Effect In 2018

Last week, we discussed 5 executive agreement provisions to consider now to help avoid future risk. This week, we are back with our second installment.

As with the previous 5 provisions, companies should pay close attention when drafting the following executive agreement terms so as to best position itself in the event of future disputes.

6.  Trade Secret – Last year, the Defend Trade Secrets Act was passed and created a federal cause of action for misappropriation of trade secrets. However, to recover exemplary damages and/or attorneys’ fees under the Act, companies must provide explicit notice to employees that identifies the Act’s immunity provisions for certain types of trade secret disclosure, such as when a trade secret is disclosed through the reporting of a violation of law to federal, state, or local government officials. To maximize their recovery potential, companies should include the relevant notice in their executive agreements.

7.  Tax Code § 409A – The Internal Revenue Code includes significant tax penalties for certain deferred compensation arrangements. Under IRC Section 409A, there could be penalties if an executive agreement allows for payments to be made to the executive more than 2.5 months after the tax year in which the executive acquires a legal right to the compensation. This could apply to contract provisions regarding bonuses, severance payments, equity payments, change in control, terminations, and other compensation and benefits provisions. Given the intricacies surrounding these rules and exceptions, companies should engage in a specific review of all executive agreements for compliance to avoid these risks. For more information and updates on 409A in light of recent US tax reform, visit The Compensation Connection.

Continue Reading Executive Agreement Litigation – Part 2 of The Top 10 Agreement Provisions To Consider Now To Avoid Future Risk

The Tax Cuts and Jobs Act proposes sweeping changes to the taxation of executive compensation and employee benefits. It aims to be effective as of January 1, 2018 – which means limited time to react.

This week our friends over at the Compensation Connection published a helpful alert regarding the proposed tax reform bill.

Click HERE to read a detailed outline of the key proposed changes.

Contact your Baker McKenzie lawyer for more details and stay tuned!

On October 12, 2017, California Governor Jerry Brown signed a landmark new law barring California employers — and their agents — from inquiring about applicants’ previous salaries and benefits.

The law goes into effect on Jan. 1, 2018.

Here are 3 steps to take now to prepare:

  1. Remove all salary questions from hiring forms (including job applications, candidate questionnaires and background check forms)
  2. Update interviewing and negotiating policies and procedures
  3. Train recruiting, hiring managers and interviewers on the new law to include instructions regarding the importance of ensuring that candidates are not pressured (even indirectly) to disclose salary history and how to respond to requests for pay scale information

Read more here and reach out to your Baker McKenzie lawyer for more details.

The TLDR on the new UK pay gap reporting regs:

New Requirements

  • From April 2017, employers with at least 250 employees (which may include some contractors) in the UK will need to publish details of their gender pay gap on an annual basis.
  • The gender pay gap reflects the difference between what women are paid, on average, compared to what men are paid, looking across the company as a whole.
  • Employers must publish six different metrics, including the differences in hourly pay and bonuses between men and women and the proportion of women in each pay quartile.
  • The information will be publicly available and is likely to be considered by employees, potential job applicants, the media and in some cases by clients / customers.
  • Employers will have until April 4, 2018 to publish their first set of data, but it must be based on a “snapshot” of pay data as at April 5, 2017.

New Challenges

  • CALCULATION – The rules are complex and not always clear. Being compliant may require employers to make judgment calls on tricky issues such as whether particular payments or employees are in scope. Employers need to find practical solutions but also want to ensure their calculation approach and their pay gap figures are in line with their peers.
  • PRESENTATION – The government is encouraging employers to explain the causes of their gender pay gap and what they are doing about it. Employers will need to consider carefully what to include in this narrative to best manage multiple stakeholders.
  • CLOSING THE GAP – The Regulations shine a light on the challenges for employers seeking to close the gender pay gap. Considering existing diversity and inclusion initiatives, and considering how to achieve further progress, is a good first step.
  • CLAIMS & AUDITS – The new requirements may prompt more equal pay claims, either because employees misinterpret the figures or because they expose areas of potential discrimination. Some employers are therefore taking a more in-depth look at the discrimination and equal pay risks within their business.

Multinationals Take Note!

  • Outside of the US, legislation either mandating or encouraging gender pay gap reporting is on an uptick (see e.g. Germany and Switzerland)
  • Unfortunately, a one-size-fits-all approach is not a solution. The legal requirements, types of data involved and comparator groups all vary by jurisdiction which means you may end up with very favorable numbers in one country, and something substantially different in another.

Contact your Baker McKenzie lawyer to prepare an action plan to address key potential risks and meet your compliance obligations globally.

If your plan year coincides with the calendar year, the time to review your commission / bonus compensation plans is NOW.

We’re getting down to the wire. Friendly reminder that if you hope to make changes to 2018 commission / bonus compensation plans, act fast!

Recall that in most jurisdictions OUS, changes to terms and conditions of employment cannot be made unilaterally and require consent. For this reason, best practice is to keep commission plan details separate and apart from employment agreements. Because once the details are in, the practical effect is that you can’t just change the plan without employee consent.

For more on commission and comp plans, contact your Baker McKenzie lawyer.