FREQUENTLY ASKED QUESTIONS
- What is a workweek?A workweek is a fixed and regularly recurring period of 168 hours, seven consecutive 24-hour periods. A workweek need not coincide with a calendar week. Workweeks may start on any day of the week and any time of day. An example may be 12:00 AM Monday to 11:59 PM Sunday. An employer may establish different workweeks for different employees, but once an employee’s workweek is established, it remains fixed regardless of his or her working schedule. An employee’s workweek may be changed only if the change is intended to be permanent and is not designed to evade the employer’s overtime obligation.
- How do I establish a workweek?An employer may choose the day of the week a workweek will begin. When an employer establishes a workweek, the workweek typically must remain fixed. However, it may be moved so long as the employer intends the change to be permanent and is not attempting to avoid paying overtime.
- Can I average hours worked between workweeks?Whether an employer must pay an employee overtime is determined by each individual workweek. Each workweek stands alone, workweeks cannot be averaged. For example, if an employee works 30 hours one week and 50 hours the next, the employee must be paid overtime for the 50 hour week even though the average between the two weeks is 40 hours a week. For purposes of determining overtime, employee hours must be calculated every week whether employees work varying shifts or whether the employees are paid weekly, semi-monthly, monthly, by salary, commission, piecework, or a flat rate.
- What is a pay period?Pay frequency is commonly referred to as the pay period. The pay period may be weekly, bi-weekly (26 times a year), semi-monthly (24 times a year) or monthly.
- Am I required to use a particular pay frequency?State law dictates the required pay frequency. As an example; in Wisconsin an employer must pay employees at least once a month. Wages must be paid within thirty-one (31) days of the end of the pay period. Your state may have different requirements so be sure you understand what is required.
- Where do I find the Federal Wage and Hour Laws?Federal wage and hour laws are found mainly in the Fair Labor Standards Act (FLSA); however other laws may have impacts on payroll processing and information handling such as the Family and Medical Leave Act (FMLA), The Migrant and Seasonal Agricultural Worker Protection Act (MSPA), The Affordable Care Act (ACA) etc.
- Does my state also have wage and hour laws?Each state determines which wage and hour laws it will adopt. Some states have adopted few wage and hour laws deferring instead to the FLSA. Others have more extensive wage and hour laws regulating the relationship between employers and employees beyond that of federal law.
- If there are both Federal and State laws, which do I use?As an employer you will always defer to the law that gives the greatest benefit to the employee.
- What is the FLSA?The Fair Labor Standards Act (FLSA) affects most private and public employment. The FLSA requires employers to pay covered non-exempt employees at least the federal minimum wage and overtime pay for all hours worked over 40 in a work week. Covered employees must be paid for all hours worked in a workweek. In general, compensable hours worked include all time an employee is on duty or at a prescribed place of work and any time that an employee is suffered or permitted to work. This would generally include work performed at home, travel time, waiting time, training and probationary periods.
- I hired a high school student. Do special rules apply?The federal Fair Labor Standards Act regulates the employment of youth, specifying permitted work for particular age groups and hours allowed. Your state may also regulate youth employment so be sure to check with them also. However, overtime rules may still apply.
- Can I pay my employee salary instead of hourly?Yes, you may agree to pay an employee a salary, per piece, per hour, or based on some other performance such as commissions on sales.
- If I pay my employee other than hourly, do I still have to pay overtime?Unless your employee qualifies as an exempt employee, you must calculate a regular rate of pay and pay overtime based on that figure.
- Are there different overtime laws?Overtime laws require employers to pay employees a wage rate that is greater than their regular rate for hours worked beyond a designated threshold. The typical threshold set by most overtime laws, whether state or federal law is forty (40) per workweek. In other words, an employer is required to pay an employee an overtime rate for all hours worked in a workweek beyond forty (40). Some overtime laws contain other thresholds. For example, some state laws require employers to pay employees an overtime wage rate for any hours worked beyond eight (8) in a work day.
- Am I required to pay overtime?An employer is not necessarily required to pay overtime to all its employees. Most overtime laws exclude employees who perform certain, specific types of job duties from the overtime payment requirements. These employees are generally referred to as exempt employees; employees who are eligible for overtime are referred to as non-exempt employees. In addition to exempting certain employees from overtime requirements, some overtime laws exempt employers in specific industries from overtime standards.
- Are all salary employees exempt from overtime?The overtime exemption does not apply to someone just because you pay them on a salary basis. Non-exempt employees may also be paid on a salary basis but must still be paid overtime for hours worked over 40 in a workweek. The FLSA creates two classifications of employees for purpose of minimum wage and overtime. The two classifications are exempt employees and non-exempt employees. Employers do not need to pay employees the mandated minimum wage rate and/or overtime if there is an applicable statutory exemption.
- How do I know if my employee qualifies to be exempt?The Fair Labor Standards Act provides for two categories of exemptions: (1) those that are exempt employees from both minimum wage and overtime requirements and (2) those that are exempt employees from only the overtime requirements. The U.S. Department of Labor (DOL) has fact sheets available on their website.
- My employee says they should qualify for overtime. What now?Currently, the misclassification by employers of employees as exempt is one of the most active areas of enforcement for the U S Department of Labor (DOL). If you are an employer, you need to make sure your current employees that are classified as exempt are truly exempt. Employers that improperly classify employees as exempt are generally required to reimburse the improperly classified employees for the income lost due to the improper classification. Employers may also be subject to criminal prosecution and fines up to $10,000 or $1,000 per violation depending on the willfulness of the violation.
- If my employee works on Saturday or Sunday, do I have to pay overtime for those hours?Under the Fair Labor Standards Act (FLSA), there are no limits to the number of hours an employer may require an employee to work in one workday or one workweek. However, employers are required to pay employees an overtime rate of one and a half times their regular rate for all hours worked in a workweek in excess of 40, unless the employee is otherwise exempt from the FLSA’s overtime requirements. Conversely, as long as a non-exempt employee does not work more than 40 hours in a workweek, an employer is not required to pay overtime even if the employee works on a holiday, a Saturday, or a Sunday. Thus, in order for an employer to calculate the appropriate amount of overtime owed to employees, it must first determine the employee’s regular rate and hours worked by the employee in the applicable workweek. Keep in mind that some state do require overtime be paid for time worked over 8 hours in a day or over 6 days in a row. Be sure to know the state law where you are doing business.
- My employee is hourly. Isn’t that their regular rate of pay?An employee’s regular rate is the hourly rate an employee is paid for all non-overtime hours worked in a workweek. When calculating an employee’s regular rate, all compensation received by the employee in a workweek must be included, including wages, bonuses, commissions, and any other forms of compensation. The Fair Labor Standards Act (FLSA) does not require employers to pay employees on a weekly basis. They may be paid weekly, semi-monthly, monthly, or less frequently (some states have laws regulating the frequency an employer must pay employees). However, when calculating the regular rate, it must be done on an individual workweek basis. There are statutory exceptions to the regular rate requirements found in 29 CFR778.400 through 778.421. The regular rate of pay cannot be less than the minimum wage. Payments which are not part of the regular rate include pay for expenses incurred on employer’s behalf, premium payments for overtime work or the true premiums paid for work on Saturdays, Sundays, and holidays, discretionary bonuses, gifts and payments in the nature of gifts on special occasions, and payments for occasional periods when no work is performed due to vacation, holidays, or illness. Earnings may be determined on a piece-rate, salary, commission or some other basis, but in all such cases the overtime pay due must be computed on the basis of the average hourly rate derived from such earnings. This is calculated by dividing the total pay for employment in any workweek by the total number of hours actually worked.
- Can my employee agree to not be paid overtime?No, employers and employees can make no agreement that supersedes the law. If the employee works over 40 hours in the workweek and is not otherwise exempt you must pay those hours at one and one-half the regular rate of pay.
- I told my employees no overtime and they worked anyway. Can I pay them at their regular rate?NO, you may not. If your employee works over 40 hours in the workweek and is not otherwise exempt, you must pay those hours at one and one-half the regular rate of pay. This is a human resource matter that needs to be documented for disciplinary purposes if the employee is not following orders.
- My new employee says he is an independent contractor and I should not withhold federal and state tax. Is he correct?Can the worker make a profit or suffer a loss as a result of the work, aside from the money earned from the project? (This should involve real economic risk – not just the risk of not getting paid.) Does the worker have an investment in the equipment and facilities used to do the work? (The greater the investment, the more likely independent contractor status.) Does the person work for more one company at a time? (This tends to indicate independent contractor status but isn’t conclusive as an employee can also work for more than one company.) Does the worker offer his services to the general public? Mistakenly classifying an employee as an independent contractor can result in significant fines and penalties. There are 20 factors used by the IRS to determine whether you have enough control over a worker to be an employer. The importance of each factor depends on the individual circumstances, if you are in doubt be sure to get an opinion from the IRS.
- My exempt salary employee worked additional hours. Can I pay more?Yes, you may pay additional wages to a salary exempt employee without jeopardizing the exempt status.
- My exempt salary employee did not work their normal schedule. Can I pay them less?The exceptions under which an exempt employees’ pay may be docked are listed in federal wage-hour regulation 29 CFR 541.602(b). They are:
Full day absences for personal reasons other than sickness or disability.
Full day absences for sickness or disability if a bona fide plan exists to provide a reasonable number of paid sick days and the employee has no such paid days off available.
The salary for a week may be reduced by the amount of jury fees, witness fees, and military pay received by the employee for that particular week, so the employee receives his full salary for the week among all sources.
Penalties imposed in good faith for violation of safety rules of major significance.
Full day disciplinary suspensions imposed in good faith for violations of workplace conduct rules.
Prorated deductions for employees working less than a full week in their first or last week employment.
Unpaid Family and Medical Leave. This is the only situation where an exempt employee’s pay may be docked in partial day increments.
- A salary employee started in the middle of the workweek. How do I prorate his salary?29 CFR 541.602(b)(6) state that an employer may pay a proportional part of an employee’s full salary for the time actually worked in the first and last week of employment. The payment of an hourly or daily equivalent of the employee’s full salary for the time actually worked will meet this requirement. 29 CFR 541.602(b)(6) allows an employer to use the hourly or daily equivalent of the employee’s full weekly salary or any other amount proportional to the time actually missed by the employee. The pay period method reduces the salary to a daily rate by dividing the annual salary into 24 semimonthly pay periods to determine a semimonthly rate, and then dividing the semimonthly rate by the number of working days in the semimonthly pay period to determine a daily rate for the pay period in question. The final salary for the pay period in question is then determined by multiplying the daily rate by the number of actual days worked. The work week method reduces the employee’s salary to a daily rate by dividing the annual salary by 52 weeks in a year to calculate a weekly rate, and then dividing the weekly rate by 5 working days in a week to determine a daily rate. Final salary is then determined by multiplying the daily rate by the number of actual days worked.
- I lent one of my employees $500.00 and now, he is unfortunately not able to return to work. I would like to forgive the loan. Is it taxable wages?Yes, a forgiven loan amount is wages, so it needs to be handled like any other non-cash fringe benefit. It is subject to all payroll taxes, so it would be included in W-2 boxes 1, 3(up to the wage base limit), 5, 16(if applicable) and 18 (if applicable). At the very least, you will need to account for withholding of the employee’s portion of Social Security and Medicare taxes. If the employee does not have wages from which to withhold his portion of the taxes, you will need to gross up for them.
- Do I need to pay my employees for attending a meeting?Attendance at lectures, meetings, training programs and similar activities need not be counted as working time only if four criteria are met: it is outside normal hours, it is voluntary, not job related, and no other work is concurrently performed.
- How do I know if I am covered by the Fair Labor Standards Act?Enterprise coverage refers to those businesses with a gross annual dollar volume of sales made or business done of $500,000 or more. Even if a business is not a covered enterprise, many employees will be covered by the FLSA on an individual basis. Individual coverage applies to all employees who are engaged in interstate commerce or the production of goods for such commerce. Covered employees include persons who produce, receive, ship, transport or load goods that are moving in interstate commerce, as well as those who prepare, handle or transit information or documents in interstate commerce, such as credit card transactions. Other persons such as guards, janitors and maintenance employees who perform duties which are closely related and directly essential to such interstate activities are also covered by the FLSA. Contact the U S Department of Labor to ascertain coverage if you are uncertain.
- How long do I need to retain my important payroll documents?You should set up your companies record retention policy so that it takes into account the various Federal and State requirements as well as the various government entities requirements. First identify what records you have and compare the various retention times and keep for the longest required time. If times for a specific document range from 3 to 6 years – keep for the 6 years to cover all requirements. States can vary widely on minimum retention times.
- What are my employer responsibilities for Federal withholding from employee wages?As the employer, you are required to withhold the employee withholding tax based on the form W-4 filed with you by your employee and remit withheld taxes based on the frequency assigned to you by the taxing authority.
- My employee wants to withhold a percentage for Federal withholding. Can they do that?The IRS requires that you withhold as stated on the Federal W-4. The Federal W-4 does not allow for a flat dollar amount or percentage to be withheld. Withholding must be based on marital status and exemptions. The only option is to withhold a flat dollar amount in addition to the marital status and exemptions.
- My employee has asked to withhold a flat dollar amount for State withholding. Can they do that?Each state has their own requirements for withholding so be sure to check with the specific state in question. If the only form needed for state withholding is the Federal W-4 than they may not request a flat dollar amount but must withhold based on marital status and exemptions only.
- What are my employer responsibilities for Federal or State withholding if an employee does not complete a valid W-4 form?Currently, the default withholding for employees who do not complete a valid Federal W-4 form is withholding at a single status with zero deductions. The withholding requirements vary by state if an employee has not submitted the proper State withholding form.
- Does my business entity type affect my payroll?Wages paid to employees are not affected by the business entity type. However, wages paid to employers, owners, LLC members and in some cases owners minor children and spouse may be. Be sure to clarify your specific classification with your accountant or legal advisor.
- It is daylight savings time. Does this affect my payroll?Employers must consider the effect that the change from standard time to daylight saving time and back again can have on employees who are working overnight shifts. For most of the U.S., the change occurs at 2:00 AM. When the clocks are set forward one hour, employees whose shift includes the changeover will work one less hour than usual during that shift. If the employee is paid for the full shift, the employer need not count the extra paid hour as an hour worked for overtime purposes and need not include the extra pay when determining the employee’s regular rate of pay for the workweek. The extra pay also cannot be credited against any overtime pay due the employee. When the clocks are turned back one hour to standard time the same employee will work one extra hour during that shift. The employee must be paid for the extra hour, and the hour must be counted for regular rate of pay and overtime calculations.
- There will be 27/53 pay periods this year. What do I do?The 27th/53rd payroll only affects those with weekly and bi-weekly pay frequencies. Your process should be addressed as far in advance as possible. You will need to investigate the impact of a number of potential issues such as state regulations, agreements and contracts, accounting, employee perceptions, outsourcing partners, annual bonus payments, deductions and benefit accruals: vacation, personal time off, sick. Your solution will depend on the way you have your payroll set up to withhold deductions, as well as, the way you state your salary amounts when communicating wages to employees.
- I have a third party processor and they file my payroll tax deposits. Am I still liable?Be aware that you are responsible for the timely filing of employment tax returns and the timely payment of employment taxes for your employees, even if you have authorized a third party to file the returns and make the payments. The Internal Revenue Service recommends that you enroll in EFTPS to monitor your account and ensure timely tax payments are being made for you. You may enroll in EFTPS online at www.eftps.gov or call (800) 555-4477 for an enrollment form. State tax authorities generally offer similar means to verify tax payments. Contact the appropriate state offices directly for details.
- Do I have to offer paid vacation, sick or leave?In most locations you are not required to offer paid time off for vacations, sick time or general leave. However, check with your state or locality as a few do require paid time off and more are working on legislation to require it. Employers generally would offer some sort of paid time off to remain competitive and attract qualified employees.
- Am I required to pay my terminated employee for their unused vacation and sick time?In most locations, you are not required to pay unused leave time. However, check with your state or locality as a few do require some payout of unused time. This should then be specified in your employee handbook and applied consistently to your employees.
- Clearly there are discrepancies between federal and state law – if the two apply to the same situation which one should I use?When both federal and state laws apply to the situation always use the one most beneficial to the employee. As an example, if federal minimum wage is $7.25 and your state minimum wage is $8.00, you would use the state minimum wage because it is most beneficial to the employee.
- I held a meeting and required my employees to attend. Do I have to pay them and does the time apply to overtime?Required meetings are considered time worked and should be paid, as well as, apply to overtime for the workweek.
- Can I require my employees to participate in direct deposit?Check with your state for statutes that may apply. For example, in Wisconsin an employer can require employees to receive wages by direct deposit as a condition of employment.
- My employee wants to set up five accounts to direct deposit wages. Do I have to do this?No. An employer does not have to offer more than one direct deposit account. Employers will usually allow one checking deposit and one savings deposit but this is entirely up to you to determine your companies’ policy.
- Can I supply my employee pay stubs electronically?State law will dictate what form is acceptable for an employee pay stub. Some states allow electronic stubs only but dictate that you supply computer and printer availability for any employees who cannot access on their own.
- Do I have to supply my employees on direct deposit with a stub containing the payment breakdown?State law dictates what information you must supply on your employees wage statement (pay stub) and usually what form it must take. In Wisconsin an employer must state clearly on an employee’s paycheck, pay envelope, or paper accompanying the wage payment, including direct deposit payments: the number of hours worked, the rate of pay and the amount of and reason for each deduction from wages due or earned by the employee.
- An employee just quit and he wants his pay right now, do I have to pay him immediately?Payment upon separation from employment is dictated by state law. There may be different rules for a voluntary quit, a discharge or a location closure.
- What is a wage garnishment?A wage garnishment is any legal or equitable procedure through which some portion of a person’s earnings is required to be withheld by an employer for the payment of a debt. Most garnishments are made by court order. Other types of legal or equitable procedures for garnishment include IRS or state tax collection agency levies for unpaid taxes and federal agency administrative garnishments for non-tax debts owed the federal government. Different types of garnishments will have different withholding limits and may have different applicable wages so read the order completely. Employers who do not comply with legal wage assignments may be held responsible for amounts owed but not withheld from the employee.
- My employee wants me to withhold $50.00 per pay period and remit it to his car loan company. Do I have to do that?In most states (including Wisconsin), wage garnishments do not include voluntary wage assignments. Meaning that for situations in which employees voluntarily agree that their employers may turn over some specified amount of their earnings to a creditor or creditors, employers are not required to withhold these deductions. Be sure to check your state requirements.
- I received a child support order, do I have to withhold?Yes. The employer is required by law to withhold and remit as stated on the order. Read the order carefully and comply with the requirements timely or you could be held liable for any amount not withheld and remitted.
Retirement Plan Services
- What is a Roth 401(k) plan? This is an account that employees contribute to on a post tax basis. When certain requirements are met, the Roth contributions and associated earnings are able to be distributed tax free.
- What kind of fees are associated with a 401(k)? Typically there are two types of fees associated with 401(k) plans.
- Administrative fees are the costs associated with the day to day and annual compliance activities. These fees can be paid for by the sponsoring company, or can be passed on to plan participants.
- Investment fees are the expenses that fund providers use to pay for the management of the investments as well as recordkeeping expenses. The investment expenses are paid for by plan participants based on the investments they have money allocated to.
- What is fiduciary?Fiduciaries are those who have discretion over the administration of the plan, oversight of plan assets and investments, and are involved with overall management of the 401(k) plan. They are required to act in the best interest of the plan participants, with the sole purpose of providing a benefit to them.
- What is a Third Party Administrator? This is the group that provides various administrative tasks to the plan. This can include processing government reporting (form 5500, compliance testing, etc), monitoring loans and distributions, and providing plan design consulting.
- Can I start a second 401(k) account at my new employer and still keep the 401(k) account at my former employer? Is there an advantage to that? You can have multiple 40(1)k accounts through multiple employers. The contributions to the plan if an employee is active at both employers, are limited to the annual contributions as directed by the IRS. When an employee terminates employment from one employer, they can leave their 401(k) assets with the prior employer, can roll the balance into a new 401(k) plan or into another retirement vehicle, or can take a taxable distribution. A financial advisor can assist with making a recommendation as to which option may benefit the employee the most.
- How do I combine 401(k) plans if I have more than one? Are there penalties for that? Employees that move from one employer to another employer may roll their prior 401(k) monies into their new employer’s 401(k) plan, provided the new employer allows for rollovers into the plan. If the money is rolled into the new plan, there are no taxes withheld, and no penalties incurred.
- What is a Safe Harbor 401(k) Plan? The government allows plan sponsors to add certain provisions to their 401(k) plans which potentially allow employers to be exempt from non discrimination testing. There is well defined criteria that must be met by the plan design in order to qualify as a Safe Harbor plan.
Commonly, employers provide either:
- A basic match of $1 per $1 on the first 3% of employee contributions, and $.50 per $1 on the next 2 percentage for all participating employees or,
- A 3% non discretionary contribution to all eligible employees.
In any Safe Harbor plan design, the employer must vest employees at 100% once they are receiving the Safe Harbor contributions.
- Who is a key employee?A key employee as defined by the IRS, is any employee during the plan year that was:
- An officer making over $170,000 (2015)
- A 5% owner of the business
- An employee making over $250,000 and owning more than 1% of the business
- How is a top heavy plan determined? Top heavy is a compliance test required by the government. It ensures that the 401(k) plan is not unfairly benefiting the key employees of a company. A 401(k) plan is top heavy when the key employee account values are greater than 60% of the total assets in the 401(k) plan.
Health Savers HSA
- Who Administers my HealthSaversHSA™ Account?Bancorp Bank is an FDIC insured financial institution with a core focus on Health Savings Account administration who provides administrative services and an FDIC insured interest bearing account.
- Who handles my decision to buy or sell a mutual fund and/or individual stock in my HealthSaversHSA™ account?National Financial services (NFS), a wholly owned subsidiary of Fidelity Investment, handles all trades.
- How many different investment options do I have in my HealthSaversHSA™ account?
- FDIC insured interest bearing account
- Mutual Funds
- Individual Stocks
- Who is eligible for a HealthSaversHSA™ Account?
Individuals enrolled in a qualified High Deductible Health Plan (HDHP) are eligible for a HealthSaversHSA account. Your employer or your insurance agent can easily verify your eligibility.
Employee Benefit Glossary
- Click here for glossary terms.Accreditation Certification of a health plan by professional reviewers to measure how the plan meets quality standards.
Allowable Charge The amount insurance plan determines to be a reasonable charge for a service.
Ambulatory Surgery Surgery performed on an outpatient basis: patient goes home the same day of the surgery.
ASO (Administrative Services Only) A contract between an insurance company and a self-funded plan where the insurance company performs administrative services only and the self-funded entity assumes all risk.
Basic Benefits A set of “basic health services” specified on the member’s plan and those services required under applicable federal and state laws and regulations.
Behavioral Health Insurance Mental health care coverage.
Benefits The types of care or services an insurance plan will pay for certain types of medical care.
Benefit Package The list of covered services an insurance plan offers to a group or individual.
Capitation A per-member, monthly payment to a provider that covers contracted services, and is paid in advance of the delivery of the service. A provider may agree to provide specified services to HMO members for this fixed, predetermined payment for a specified length of time, regardless of how many times the member uses the service.
Case Management The comprehensive coordination or supervision of a member’s health care when the chronically ill or otherwise impaired individual may require long-term and possibly costly care.
Catastrophic Health Insurance A health insurance plan which provides protection against the high cost of treating severe or lengthy illnesses or disabilities. Generally, such policies cover all, or a specified percentage, of medical expenses above an amount that is the responsibility of another insurance policy up to a maximum limit or liability.
COBRA A federal law which permits many people who lose eligibility under a group health plan to continue that coverage without lapse.
Coinsurance The percentage of costs of medical care that a patient pays out of pocket. Coinsurance is most commonly found in indemnity, fee-for-service insurance and the PPO market. Its absence in the HMO arena is one of the strong marketing appeals of HMOs.
Coinsurance Maximum The total amount of coinsurance that a member pays each year before the insurance plan pays 100% of allowable charges for the covered services. Coinsurance amounts differ with each plan.
Continuum of Care Medical, nursing, and social services most appropriate for the level or type of care required. For example, a hospital may offer services ranging from nursery to a hospice.
Conversion Plan A member’s group plan is discontinued; the member chooses to continue coverage under an individual plan.
Coordination of Benefits If an individual has two group health plans, the amount payable is divided between the plans so that the combined coverage amounts to, but does not exceed, 100 percent of the charges.
Co-pay (co-payment) A supplemental cost-sharing arrangement in which the member pays the provider a specified amount for a specific service and the insurance plan pays the balance.
Custodial Care Care provided primarily to assist a patient in meeting the activities of daily living, but not care requiring skilled nursing services.
Customary and Reasonable Refers to a fee which falls within a common range of community fees.
Deductible The annual amount a member must pay before the plan begins to pay benefits.
Dependents Spouse (husband or wife) and/or children age 18 or under who are covered by an employee’s insurance plan.
Disability Insurance or Loss of Income Provides a regular income for a person who is unable to work because of illness or accidental injury. It is a limited benefit no more than two-thirds or three-quarters of an insured’s usual income. This limitation encourages a person to return to work as soon as possible.
Drug Formulary List of designated prescription drugs eligible for coverage by a managed care plan. Approved drugs are selected on the basis of safety, effectiveness, and cost.
Durable Medical Equipment Equipment which meets the following criteria: (a) can withstand repeated use; (b) is primarily and customarily used to serve a medical purpose; (c) generally, is not useful to a person in the absence of illness/injury; and (d) is appropriate for home use.
EAP (Employee Assistance Program) A program of counseling and other forms of assistance for alcoholism, substance abuse, or emotional and family problems.
Effective Date The date on which the Health Plan Agreement goes into effect. On this date, employees begin receiving insurance coverage and employers begin paying for it.
Eligible Person A person who meets the qualifications of a health plan contract.
Emergency Services Services provided in connection with an unforeseen acute illness or injury requiring immediate medical attention.
Enrollee Synonymous with member. A person eligible to receive benefits from an insurance policy. Includes both those who have enrolled or “subscribed” and their eligible dependents.
Enrollment The number of members in an HMO. The number of members assigned to a physician or medical group providing care under contract with an HMO. Also, the process by which a health plan signs up individuals or groups as subscribers.
ERISA The Employee Retirement Income and Security Act, which places regulations on employee benefit plans, including health insurance.
Exclusions Specific health care services, sicknesses or injuries that aren’t covered by the insurance policy.
EOB (Explanation of Benefits) A statement sent to covered individuals explaining services provided, amount to be billed, and payments made. A summary of benefits provided subscribers by the carrier.
Fee A charge for professional services.
FFS (Fee-For-Service) The traditional form of health insurance, in which physicians are paid for each service they provide.
Fee Schedule A listing of charges or established benefits for specified medical or dental procedures.
Fully Insured An insurance company funds health care costs from the premiums paid to it by policyholders.
Gatekeeper The primary care physician who must authorize all medical services.
Group Two or more unrelated persons and their dependents receiving coverage under one policy.
HMO (Health Maintenance Organization) A managed-care organization that combines the function of a health insurance company and a health-care provider. Providers affiliated with an HMO are frequently paid on a capitated basis, meaning they are paid a set amount of money for care of patients, as opposed to paying for each individual procedure performed. There is a great deal of variation among HMOs. In Wisconsin, 51 percent of workers who are covered by a group health plan are in HMOs. Types of HMOs: Staff Model Organization owns its clinics and employs its physicians. Group Model Contract with medical groups for services. IPA (Independent Physician Association Model) Contract with an IPA that in turn contracts with individual physicians. Direct Contract Model Contracts directly with individual physicians. Mixed Model Members get options ranging from staff to IPA models.
HIRSP The Health Insurance Risk Sharing Plan (HIRSP) provides insurance coverage to high-risk and otherwise uninsurable individuals in the state of Wisconsin. Only those under age 65 are eligible. Automatic eligibility is granted to people with disabilities who are receiving Medicare part A. Also eligible are HIV infections who meet program criteria. No one who is currently covered by an insurance plan is eligible for coverage. Premium and deductible reduction programs are based on income.
Hospice Services Services to provide care to the terminally ill and their families.
IPA ( Independent Physician Association) Individual physicians and physicians groups who see HMO members, as well as their own patients, in their own private offices. It is the ability of IPA physicians to see both IPA and private patients in their own offices that principally differentiates an IPA from a group or staff HMO. Physicians in an IPA are paid either on a capitation or a modified fee-for-service basis.
Indemnity Insurance Traditional insurance in which patients pay bills, then receive partial reimbursement (generally 80 to 90 percent) from their carrier.
Individual Coverage One person and dependents receiving coverage under one policy; separate from state small group law.
Lifetime Maximum Benefit The total amount of money an insurance contract will pay a provider for treatment of a patient.
Managed Care Systems and techniques used to help direct the utilization, cost and quality of health care services. Includes a review of medical necessity, incentives to use certain providers and case management. Managed care is a broad term and encompasses many different types of organizations, payment mechanisms, review mechanisms, and collaborations. The term is generally used to describe the activity of organizing doctors, hospitals, and other providers into groups in order to enhance the quality and cost-effectiveness of health care.
Managed Behavioral (or Mental) Health Program A program of managed care specific to psychiatric or behavioral health care. This usually is a result of a “carve out” by an insurance company or managed care organization. Reimbursement may be in the form of sub-capitation, fee-for-service, or capitation.
Mandated Benefits The requirement by state law of certain coverages to be included in health insurance contracts.
Medicaid A joint federal-state health insurance program that is run by the states and covers certain low-income people (especially children and pregnant women), and disabled people.
Medicare A federal program for the elderly and disabled, regardless of financial status. The health insurance program is for people aged 65 and over, for persons eligible for social security disability payment for two years or longer, and for certain workers and their dependents who need kidney transplants or dialysis. Monies from payroll taxes and premiums from beneficiaries are deposited in special trust funds for use in meeting the expenses incurred by the beneficiaries. Medicare consists of two separate but coordinated programs: hospital insurance (Part A) and supplementary medical insurance (Part B). Medicare covers more than 34 million Americans (16 percent of the population) at an annual estimated cost of more than $133 billion.
Medigap (Medicare Supplement Insurance) Provides additional individual benefits under Medicare. There are 10 standardized Medigap plans with specific packages of benefits, sold by private insurers.
Member A person eligible to receive benefits from an HMO or other insurance policy. Includes both those who have enrolled or “subscribed” and their eligible dependents. Synonymous with subscriber and enrollee.
Network An affiliation of providers through formal and informal contracts and agreements. Networks may contract externally to obtain administrative and financial services.
Open Enrollment The annual period during which people can choose among the plans being offered by their place of employment. Also the period during which a federally qualified HMO must make its plan available without restrictions to individuals who are not part of a group.
Out-of-pocket Maximum The total amount paid each year by the member for the deductible and coinsurance. After reaching the out-of-pocket maximum, the plan pays 100% of the allowable charges for the covered services for the rest of that calendar year.
Out-of-Area Refers to treatment given an HMO member outside the geographical limits of his own HMO. The coverage generally is restricted to emergency services.
Participating Provider Health care professionals or organizations who have an agreement with an insurance company to accept the plan’s allowable charge as payment-in-full for services. Charges not billed to the member because of these agreements are called participating provider savings.
POS ( Point of Service) A managed care plan that’s really two plans in one. Each time a member needs care, that person is free to choose the level of benefits he or she wants: in-network or out-of-network. Generally, benefits are higher with in-network benefits. With out-of-network benefits, you are responsible for a larger share of the cost.
PPO (Preferred Provider Organization) A group of hospitals and physicians who provide health care for covered patients. PPOs offer reduced fees to companies. In Wisconsin, 15% of workers receive their health care through PPOs.
Pre-Authorization A process in which a member, a doctor, or a hospital calls the insurance company before obtaining or providing certain kinds of health care services. Representatives of the insurer – often registered nurses- analyze the situation to ensure that the treatment is appropriate and cost efficient.
Pre-Existing Condition A mental or physical problem present prior to the effective date of a member’s insurance coverage.
Preventive Care Proactive health care designed to keep people from getting sick or hurt. It includes immunizations and screenings. A key part of preventive medicine is making sure patients know how to improve their health by altering their lifestyles.
Primary Care Physician (PCP) A physician who provides general medical services or who plays the role of what formerly was known as the family doctor. Usually refers to a general practitioner, family practitioner, general internist, or pediatrician, or sometimes an obstetrician/gynecologist.
Provider A doctor, hospital, or other person or company that takes care of the health care needs.
Referral A verbal or written approval of a request for a member to receive medical services or supplies outside of the participating medical group.
Referral Physician A physician who has a patient referred to him/her by another physician for examination, surgery, or to have specific procedures performed on the patient, usually because the primary physician is not qualified to provide the needed service.
Risk Sharing The process whereby a managed care health plan and contracted provider each accept partial responsibilities for the financial risk and rewards involved in cost effectively caring for the members enrolled in the plan and assigned to a specific provider.
Self Funded A health plan for which the employer sets aside funds to cover employee medical claims and assumes the risk, as opposed to paying premiums to an insurance company. Claims administration is usually handled by a third party.
Service Area The geographic area served by an insurer or health care provider.
Specialist A health care provider who has received advanced medical training in a specific field of medicine.
Specialty Care Services delivered by a health care provider who has received advanced training in a specific field of medicine. Specialty care also includes care provided by specialty facilities and emergency care.
Staff Model HMO A model in which the HMO hires its own physicians. All premiums and other revenues accrue to the HMO, which in turn, compensates physicians. Very much like the group model, except the doctors are employees of the HMO. Generally, all ambulatory health services are provided under one roof in the staff model.
Subacute Care Facility An intermediate medical facility used in lieu of a hospital to care for patients too ill to be released to long-tem care or homes, and not so ill that they require ongoing hospitalization.
Subscriber An individual meeting the health plan’s eligibility requirement, who enrolls in the health plan and accepts the financial responsibility for any premiums, copayments, or deductibles. Synonymous with member and enrollee.
Supplemental Benefits Benefits contracted for by an employer group, which are not included in the basic health plan.
Stop-Loss The practice of an insurer of protecting itself or its contracted medical groups against part or all losses above a specified dollar amount incurred in the process of caring for its policyholders. Usually involves the insurer purchasing insurance from another company to protect itself. Also referred to as reinsurance.
TPA (Third Party Administrator) An organization that administers health care benefits, mostly for self-insured employers. Services may include claims review and claims processing.
Tertiary Care Services provided by specialists. Such services frequently require sophisticated technological and support facilities.
Twenty-four hour Coverage Integrated health, disability and workers’ compensation insurance coverage designed to coordinate and manage on and off the job claims more efficiently, cost effectively and with an emphasis on appropriate medical care and return-to-work.
Uninsured People without health insurance.
Utilization The frequency with which a benefit is used.
Utilization Review A process in which an insurance company reviews the health care services provided by a doctor or hospital. The company conducts this review to ensure that it is paying for appropriate health care services that produce desired incomes.
Worker’s Compensation Insurance against liability to pay benefits for injuries incurred by employees in the course of or arising out of their employment.