Adopt Resolution #14-03-058 Approving an M.O.U. for Uniform Stipends with LELS and AFSCME and to Approve a Non-Union Uniform Stipend

The purpose of this case is to revise the City's current practices related to how certain employee uniforms are purchased in order to comply with the Internal Revenue Service (IRS).   This case addresses uniforms that are considered taxable earnings to the employee; taxable to the employee because the clothing item can be considered "adaptable to general usage as ordinarily clothing" (per the IRS).  

The Finance Department and Human Resources have determined that it is necessary to revise our practices related to some of our Uniform Purchases and Uniform Reimbursements in order to ensure compliance with the IRS.  This change primarily impacts employees in the Police Department and Public Works, does not have an impact on the overall budget, and reduces administrative time in the Finance Department.  

The City negotiated with LELS-Patrol, LELS-Sergeants, and the AFSCME group to come to an agreement based on an unaccountable plan.   An unaccountable plan is the least labor intensive plan from an administrative perspective and  most desired by employees.  The agreement does not have a budgetary impact, but rather changes and simplifies our process.   Please see the attached draft M.O.Us. and IRS document (pages 12 and 13)  for more information.

Police Department:   The IRS rules related to the taxability of uniforms depends on the type of uniform. Most public safety uniforms are not taxable and most of the Police Department uniform purchases will not change.  I.e., most uniform purchases will continue to be non-taxable and purchased by the Department directly. In most cases, employees will simply continue to be  provided with their uniform, as required by Department policy.   However, "Class C" uniforms (e.g. office staff uniforms) will no longer be purchased directly by the Department and are considered taxable to the employee.   Therefore, the City recommends paying applicable employees directly, via an annual stipend, for purchasing their own Class C uniform.

Public Works Department - AFSCME Employees:   The AFSCME contract currently provides for uniform reimbursements whereby the respective employee purchases their own uniforms, requests reimbursement from the City via a reimbursement request form and is reimbursed through payroll.   This is administratively labor intensive and does not properly tax the employee for the benefit of the uniform. 

Non Union Employees:   There are a handful of Public Works employees that are not covered by the AFSCME contract, yet are required to wear uniforms. This includes the PW Utilities Supervisor, the Park and Street Lead Workers, the Building Maintenance Supervisor, etc.    In the Police Department, the Office Supervisor, the Captains, and the Chief are impacted.  Previously, these employees would either be provided with their uniform or were reimbursed for their purchases via a reimbursement request; continuing this practice does not comply with the IRS.   Therefore, staff recommends providing this group of employees with an annual stipend equal to that of the respective M.O.U. or current contract. 

Definition of an Accountable Plan:  Amounts paid under an accountable plan are not considered income to the employee if the following conditions must be met:  1) Must be a business condition for the expense, 2) Must substantiate expenses, and 3) Must return to employer amounts in excess of substantiation.   However, clothing items that are considered "adaptable to general usage as ordinarily clothing" (such as a polo shirt with City logo) ARE taxable to the employee.  A non-accountable plan does not meet all three requirements and is considered income to the employee--as the stipend would be taxed, but would be far less work administratively for the Finance Department (no tracking of receipts, no sifting through receipts to determine if the item is taxable or not, and no need for the employee to return their worn out clothes to the City).

Option #1: Staff recommends authorizing the LELS-Patrol, LELS-Sergeants, and AFSCME M.O.U.; as well as authorizing the same stipend amounts for applicable non-union staff in Public Works and the Police Department. 

Option #2:  Maintain the current practice.   Staff does not recommend continuing the current practice.   The current practice falls outside of the IRS guidelines and may result in penalties and the need to reissue corrected W-2s. 

Option #3:  Direct staff to renegotiate.   Staff does not recommend this option.   This MOU will sunset on December 31, 2014 -- the City Council could direct staff to include this topic beginning with the next contract.

There is no additional funding required.

Staff recommends authorizing the LELS-Patrol, LELS-Sergeants, and AFSCME Uniform  M.O.U.; as well as authorizing the same stipend amounts for applicable non-union staff in Public Works and the Police Department. 

Motion to Adopt Resolution #14-03-058 Approving an M.O.U. for Uniform Stipends with LELS and AFSCME and to Approve a Non-Union Uniform Stipend