Federal Employment Laws That Impact Compensation and Benefits

Benefit Legislation

Broad-based employee benefit programs are highly regulated by federal legislation. We will examine three types of benefits in the remainder of this course:

1. Required benefits covered by the Old Age, Survivors, Disability and Health Insurance Program or OASDHI
2. Health and medical benefits covered by FMLA, COBRA, HIPAA, and the Affordable Care Act
3. Retirement plans that must meet ERISA requirements

OASDHI

The Old Age, Survivors, Disability and Health Insurance Program is the U.S. federal social insurance program that provides monthly benefits to qualified retirees, after age 65, with a partial benefit for retirees beginning at age 62, their dependents, their survivors, and, in some cases, disabled workers. The source of funding for these benefits are federal taxes withheld from the paychecks of most workers with the exception of public employees and certain union employees. Self-employed persons are also required to pay the tax. Most workers are covered by OASDHI provisions with the following exceptions:

• federal civilian employees in the federal retirement system
• state and local government employees who have chosen not to participate
• some agricultural and domestic workers
• employees of some nonprofit organizations who have not arranged coverage

Social Security and Medicare (FICA)

The common payroll deductions known as FICA, required by the Federal Insurance Contributions Act of 1936, are for Social Security and Medicare. Both employers and employees pay taxes to contribute to Social Security which is also known as old age, survivors, and disability insurance (OASDI) and Medicare which is hospital and medical insurance for the aged and disabled. Employer and employee taxes and the earnings subject to tax have been rising along with benefits. For 2026, the maximum taxable wage is $184,500.

Medicare

Employee	1.45% on all wages
Employer	1.45% on all wages
Self-employed	2.9% on net earnings

Social Security (OASDI)

Employee	6.2% on first $184,500 of wages
Employer	6.2% on first $184,500 of wages
Self-employed	12.4% on first $184,500 of earnings

Social Security Record Keeping

Social Security requires employers to provide each employee with a W-2 form by January 31 for the previous calendar year. For each employee receiving wages, employers are required to maintain and report the following information:

• amounts and dates of wage payments
• amount of tips received
• name, address, occupation, periods of employment
• Social Security number

Unemployment Insurance

Unemployment insurance is a state-administered program that operates under general requirements set out by OASDHI. It exists to provide partial income replacement when a worker loses a job through no fault of their own.

Unemployment insurance is funded by a tax levied by states on employers. In a few states, employees also contribute to unemployment insurance. The employer's tax depends on benefit levels in the state and the employer's record. Depending on the employer's record or experience rating, the employer's tax is adjusted up or down from the standard tax. States vary somewhat in the way they compute the experience rating, but in all states, the greater the number of successful unemployment insurance filers, the higher the tax.

Employers should contact the local State Tax agencies in each of the states where they have operating sites to get instruction forms and requirements. (oui.doleta.gov/unemploy/agencies.asp)

If workers lose jobs through circumstances beyond their control, they are eligible to draw unemployment insurance as long as they are:

• able to work
• available for work
• actively seeking work and
• willing to take a suitable job

Workers cannot collect unemployment insurance if their jobs ended because they:

• quit without good cause or
• were discharged for cause

In almost all states, workers may receive unemployment insurance if they are unemployed because of a labor dispute in which they are participating.

Employees can learn about the state-specific eligibility requirements for unemployment benefits from the local state administration offices. (careeronestop).

Both workers and employers have the right to appeal unemployment insurance eligibility decisions. Employers concerned with their experience ratings challenge claims they deem inappropriate and carefully document discharges.