| (I) Benefits paid to employees in arm's length transactions
as nonowners and non-related parties are allowable costs, subject
to the reasonable and necessary costs which must be incurred by providers
in the provision of contracted client care. To be allowable, benefits
paid to owners and/or related parties must not discriminate in favor
of certain employees, such as employees who are officers, stockholders,
or the highest paid individual(s) of the organization.
(II) Allowable benefits are reported on cost reports
either as salaries and/or wages, as employee benefits, or as costs
applicable to specific cost report line items, as specified in this
subclause and in subclause (III) of this clause. Any benefit subject
to payroll taxes is reported as salaries and wages. Allowable benefits
that are routinely reported as salaries and wages include paid vacations,
paid holidays, sick leave, voting leave, court or jury duty leave,
and/or all-inclusive paid days, as specified in subclause (III)(-c-)
of this clause. Allowable benefits which are routinely reported as
employee benefits include employer contributions to certain deferred
compensation plans, as specified in subclause (III)(-a-) of this clause,
employer contributions to an employee retirement fund or certain pension
plans, as specified in subclause (III)(-b-) of this clause, and costs
of certain employer-paid health, life, and disability insurance premiums,
as specified in subclause (III)(-f-) of this clause. The contracted
provider's unrecovered cost of meals and room and board furnished
to direct care employees, uniforms, employee personal vehicle mileage
reimbursement in accordance with paragraph (15) of this subsection,
job-related training reimbursements in accordance with paragraph (15)
of this subsection, and job certification renewal fees in accordance
with paragraph (15) of this subsection are not to be reported as benefits
but are to be reported as costs applicable to specific cost report
line items, unless they are subject to payroll taxes, whereas they
are reported as salaries and wages.
(III) Benefits include the following:
(-a-) Employer contributions to certain deferred compensation
plans are reported as employee benefits. Deferred compensation is
remuneration currently earned by an employee but which is not received
until a subsequent period, usually after retirement. For the cost
to be allowable, the deferred compensation plan must be formal, established,
and maintained by the contracted provider and communicated to all
eligible employees. A formal plan is one that is provided for in a
written agreement executed between the contracted provider and the
participating employees. The plan must:
(-1-) prescribe the method for calculating all contributions
to the fund;
(-2-) be funded with contributions made systematically
to a funding agency outside the contracted provider's ownership or
control, such as a trustee, an insurance company, or a custodial bank
account;
(-3-) provide for the protection of the plan's assets;
(-4-) designate the requirements for vested benefits;
(-5-) provide the basis for the computation of the
amounts of benefits to be paid;
(-6-) be expected to continue despite normal fluctuations
in the contracted provider's economic experience; and
(-7-) use all fund contributions and earnings for the
sole benefit of the participating employees. Contributions made during
the cost-reporting period to a deferred compensation plan meeting
the requirements specified in subitems (-1-) - (-7-) of this item
which represent legal obligations of the contracted provider and which
are clearly enumerated as to dollar amount are allowable costs and
should be reported on cost reports as employee benefits. Reasonable
trustee or custodial fees paid by the contracted provider will be
allowed as an administrative cost. However, such fees will not be
allowable where the deferred compensation plan provides that they
will be paid out of the corpus or earnings of the fund. To be allowable,
contributions representing the employee's share cannot revert to the
contracted provider. However employer-paid contributions can revert
back to the contracted provider in the event an employee does not
vest if designated in the requirements for vested benefits.
(-b-) Employer contributions to an employee retirement
fund or certain pension plans are reported as employee benefits. A
pension plan is a type of deferred compensation plan which is established
and maintained by the employer to provide systematic payment of definitely
determinable benefits to its employees over a period of years, or
for life, after retirement. Such a plan may include disability, withdrawal,
option for lump-sum payment, or insurance or survivorship benefits
incidental and directly related to the pension benefits. A pension
plan must meet all the 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 Cont'd... |
