| requirements of a deferred compensation plan.
All employees' pension fund rights must be nonforfeitable after such
time as they vest under the plan. Pension fund rights cannot be contingent
on continuance of employment or other factors. Only the amount the
contracted provider or employer contributed to the pension fund during
the reporting period is allowable and should be reported as an employee
benefit. To be allowable, contributions representing the employee's
share cannot revert to the contracted provider. However employer-paid
contributions can revert to the contracted provider in the event an
employee does not vest.
(-c-) Paid leave is reported as salaries or wages.
Paid vacations, paid holidays, sick leave, voting leave, court or
jury duty leave, and/or all-inclusive paid days, all are reported
as employee salaries and/or wages rather than as employee benefits,
as follows:
(-1-) A vacation benefit is a right granted by an employer
to an employee to be absent from his job for a stipulated period of
time without loss of pay or to be paid an additional salary in lieu
of taking a vacation. The contracted provider's vacation policy must
be consistent among all employees of a specific category. Vacation
expense subject to payroll taxes must be reported as salaries and
wages. Accrued vacation expense not yet subject to payroll taxes must
be reported as employee benefits. Providers must maintain adequate
documentation to substantiate that costs reported one year as accrued
benefits are not also reported, either the same or another year, as
salaries and wages.
(-2-) The cost of sick leave taken, or payment in lieu
of sick leave taken, is not to exceed the salary or wage the employee
would have earned had they reported for work. Sick leave costs subject
to payroll taxes must be reported as salaries and wages. Accrued sick
leave costs not yet subject to payroll taxes must be reported as employee
benefits. Providers must maintain adequate documentation to substantiate
that costs reported one year as accrued benefits are not also reported,
either the same or another year, as salaries and wages.
(-3-) A formal plan for all-inclusive paid days off
(PDO) is one under which all employees earn accrued vested leave,
or payment in lieu of leave taken, for an unallocated combination
of occasions such as illness, medical appointments, holidays, vacations,
family leave, and care of a sick child, based on actual hours worked.
The cost of PDO subject to payroll taxes must be reported as salaries
and wages. Accrued costs of PDO not yet subject to payroll taxes must
be reported as employee benefits. Providers must maintain adequate
documentation to substantiate that costs reported one year as accrued
benefits are not also reported, either the same or another year, as
salaries and wages.
(-d-) Provider-paid instructional courses benefiting
the employer's interest are not to be reported as employee benefits,
but are to be reported as costs related to specific cost report line
items. Costs related to provider-paid instructional courses for the
benefit of the employee only are unallowable costs. Refer to paragraph
(15)(A) of this subsection, concerning staff training costs.
(-e-) Contracted provider's unrecovered cost of meals
and room and board furnished on-site to direct care employees are
not to be reported as employee benefits, but are to be reported as
costs related to specific cost report line items. Any reasonable unrecovered
cost of meals and/or room and board furnished on-site by a contracted
provider to its direct care employees, which are equivalent to the
meals and/or room and board provided to clients, are allowable costs
since they are related to client care in that such reasonable costs
are appropriate and helpful in developing and maintaining the contracted
provider's operations to deliver contracted services. Such allowable
costs should be reported in the cost area where the costs were incurred,
such as meal costs being reported in the cost area associated with
food and meal preparation and room and/or board costs being reported
in the cost area associated with building costs.
(-f-) Costs of health, disability and life insurance
premiums paid or incurred by the contracted provider if the benefits
of the policy are payable to the employee or his beneficiary are reported
as employee benefits. Report allowable health, disability, and life
insurance premium costs as employee benefits. Refer to paragraph (13)
of this subsection, concerning insurance expense.
(B) Compensation of employees that is not clearly enumerated
as to dollar amount or which represent profit or surplus revenue distributions
are unallowable costs. Accrued expenses that are not legal obligations
of the contracted provider are unallowable costs, including any form
of profit sharing and the accrued liabilities of unfunded deferred
compensation plans.
(2) Compensation of owners and related parties. Compensation
includes both cash and non-cash forms of compensation subject to federal
payroll tax regulations. Compensation includes withdrawals from an
owner's capital account; wages and salaries (including bonuses); payroll
taxes and insurance; and benefits. Payroll taxes and insurance include
Federal Insurance Contributions Act (old age, survivors, and disability
insurance (OASDI) and Medicare hospital insurance); Unemployment Compensation
Insurance; and Workers' Compensation Insurance. Allowable compensation
must be reported as salaries and not as management fees. This paragraph
applies to the compensation of owners and related parties unless limits
or caps on the compensation of owners and related parties are stated
in the program specific rules, then those limits or caps take precedence.
(A) Allowable compensation of owners and related parties.
(i) A person who is a sole proprietor, partner, or
corporate stockholder-employee owning any of the outstanding stock
of the contracted provider is considered an owner for the purposes
of this subparagraph. Allowable compensation for a related party,
as defined in §355.102(i) of this title, a sole proprietor-employee,
a partner-employee, or a corporate stockholder-employee is governed
by the principles that the services rendered are necessary functions
and that the remuneration is the reasonable value of the services
rendered.
(I) A function is deemed necessary when, if the owner
or related party had not performed said function, the contracted provider
would have had to employ another person to perform that function.
To be necessary, a function must pertain to direct or indirect activities
in the provision or supervision of contracted client services. The
fact that an owner may have potential supervisory and managerial authority
and responsibility is not as important as the manner in which this
authority and responsibility is actually exercised. As an example,
the right of the owner-administrator to overrule decisions does not
solely constitute a basis for recognition of compensation comparable
to nonowner-administrators.
(II) The test of reasonableness requires that the compensation
of owners or related parties be such an amount as would ordinarily
be paid for comparable services performed by nonowners or unrelated
parties. Reasonable compensation is limited to the fair market value
of services rendered by the owner or related party in connection with
contracted client care. Education and experience of the owner are
pertinent only as they relate to the job being performed and the services
being rendered. For example, where an owner-administrator is also
a physician or a nurse or a lawyer, but the services evaluated are
administrative in nature rather than the actual practice of medicine
or nursing or law, the allowable compensation is based on the compensation
nonphysician or nonnurse or nonlawyer administrators receive rather
than on the rate physicians or nurses or lawyers receive for their
professional services.
(ii) The compensation must be for services performed
by the related party, owner, partner, or stockholder that do not duplicate
services performed by another employee of the contracted provider.
(iii) Compensation for "full-time" service requires
that at least 40 hours per week be devoted to the duties of the position
for which compensation is requested. For owners devoting less than
40 hours per week to the position, allowable compensation is limited
to the proportion of 40 hours actually devoted to the contract services.
Documentation regarding owners and related parties must be kept in
accordance with §355.105(b)(2)(B)(xi) of this title (relating
to General Reporting and Documentation Requirements, Methods, and
Procedures).
(iv) Compensation must be in accordance with paragraph
(1)(A) of this subsection concerning compensation of employees, must
be made in regular periodic payments, must be subject to payroll or
self-employment taxes, and must be verifiable by adequate documentation
maintained by the contracted provider.
(B) Unallowable compensation of owners and related
parties.
(i) Forms of compensation that are not clearly enumerated
as to dollar amount or that represent profit or surplus revenue distributions
are unallowable costs.
(ii) Compensation in the form of salaries, benefits,
or any form of perquisite provided to owners, partners, officers,
directors, stockholders, employees, or others who do not provide services
directly to clients or who do not provide services required in the
normal conduct of operations to provide contracted client services,
is an unallowable cost. Services which would be required in the normal
conduct of operations to provide contracted client services would
include expenses such as administration of the program or supervision
of direct care staff.
(3) Compensation for outside consultants and fees for
services provided by outside vendors. Allowable compensation for outside
consultants and contracted services must meet the criteria in §355.102
of this title. Specific criteria for certain types of compensation
of outside consultants and contracted services are as follows:
(A) Accounting and audit fees.
(i) Allowable accounting and audit fees. Fees for preparation
of business tax reports and returns, financial statements, and cost
reports are allowable costs. Audit fees associated with the performance
of a financial audit are allowable costs.
(ii) Unallowable accounting and audit fees. Expenses
related to the preparation of personal tax returns are unallowable
costs as are certain taxes. Refer to paragraph (12) of this subsection,
concerning tax expense and credits. Audit fees associated with the
performance of a single audit are unallowable costs. The cost attributable
to a financial audit that was conducted along with a single audit
is allowable if the cost of the financial audit can be identified
separately from the cost attributable to the single audit. Accounting
fees and related costs associated with litigation between a provider
and a governmental entity are unallowable. Accounting costs associated
with any other unallowable costs are also unallowable. Fees related
to the preparation of annual reports, reports to stockholders or other
interested parties, or for investment management are unallowable costs.
(B) Legal fees. Legal retainers are not allowable in
and of themselves, but rather must be documented as specified in §355.105(b)(2)(B)(viii)
of this title. Legal costs associated with litigation between a provider
and a governmental entity are unallowable. Legal costs associated
with any other unallowable costs are also unallowable.
(4) Value of services of nonpaid workers. Since the
contracted provider incurs no actual costs for nonpaid and/or volunteer
workers, the value of the nonpaid work is not an element of cost;
and the value of such nonpaid work is an unallowable cost.
(5) Boards of directors and trustees. Fees and expenses
related to boards of directors and trustees are unallowable costs
except for:
(A) Travel costs incurred by the contracted provider's
board members or trustees to attend meetings of the contracted provider's
board of directors or trustees are allowable costs in accordance with
the travel guidelines as stated in paragraph (15)(B) of this subsection;
and
(B) Errors and omissions (liability) insurance for
boards of directors or trustees are allowable costs.
(6) Management fees.
(A) Allowable management fees. Reasonable management
fees paid to unrelated parties are allowable costs. Allowable management
fees paid to related parties are the actual costs to the related party
for the materials, supplies, and services provided directly to the
individual contracted provider. Any related party compensation or
owner compensation included in allowable management fees paid to related
parties must follow the guidelines specified in §355.102(i) of
this title and in paragraph (2) of this subsection, concerning compensation
of owners and related parties. Expenses for management provided by
the contracted provider's central office must be reported as central
office costs on the cost report. Cash management fees related to minimizing
interest costs and banking expenses in the management of operating
revenue necessary for contracted services are allowable costs.
(B) Unallowable management fees. Fees for management
of personal investments or investments not necessary for the provision
of contracted services are unallowable costs.
Cont'd... |
