Corporate Governance - Business Policies

Legal Employer 

It is the policy of Pepco Holdings, Inc. and its affiliates (collectively, “PHI” or the “Company”) for employees to be employed by an appropriate legal entity, to ensure that the costs associated with employing that employee are charged to the correct business entity. 
Some basic facts: 

  1. The legal entity that employs the employee will not always match the business or group for which the employee does work. For instance, service company employees may spend all or most of their time working for one of the Company’s Power Delivery businesses.   
  2. Compensation and benefit policies and programs may differ, so assigning an employee to the correct legal entity is necessary to ensure costs are appropriately tracked.   
  3. Who works for what legal entity may be controlled by legal and regulatory requirements -- so deciding which entity should be the legal employer for a particular employee will not always be obvious.

Basic principles to follow in deciding which entity should be the legal employer for a particular employee: 

  1. Employees doing work primarily for one legal entity should be employed by that entity.   
  2. Employees regularly performing services for more than one legal entity, where one of those companies is a “utility” (i.e., ACE, DP&L or Pepco) should be employed by the service company. There are three types of service company employees:   
    1. Corporate Services - these employees provide services for the operating (i.e., utility) companies (such as Legal Services, People Strategy & Human Resources, Treasury and Accounting). 
    2. Line of Business Support - these employees provide direct support for a specific line of business that crosses legal entities, such as the common management staff for Power Delivery, which is comprised of ACE, DP&L and Pepco. 
    3. Convenience - employees providing services for a legal entity that is small or newly-formed. 
  3. Employees regularly performing services for more than one legal entity, none of which is a “utility,” should be employed by the legal entity for which they perform the majority of their services.

Impact of Changing an Employee’s Legal Employer:
Transferring an employee to another legal employer during the year (i.e., other than effective as of January 1) will have the following results:

  • The Company will incur additional expense related to payroll taxes for FICA, federal and state unemployment taxes.   
  • The employee's Social Security withholding will start over effective with the first day of employment with the new entity and the employee will receive two W-2s, one from each entity. If the employee's salary exceeds the limits for FICA, the employee will need to file a federal tax return to obtain any overpayment of FICA taxes. Employees should always be told in advance by their management if this will happen to them.  
  • Wherever possible, transfers of an employee between legal entities should take place as of January 1. Interim accounting can be arranged to assure that the costs related to the employee are charged to the right business and entity between the time when the change would otherwise occur and January 1.