Employee benefits compliance is a common concern among businesses in all sectors. Confirming that employee benefits plans fully comply with laws under the Internal Revenue Code, ERISA, COBRA, and other applicable legislation can help your business avoid costly fines, penalties, and criminal charges.
Review some of the most common compliance issues in employee benefits and learn how your business can avoid them.
Common Employee Benefits Compliance Issues to Watch For
In 2023, the Employee Benefits Security Administration (EBSA) recovered over $1.4 billion in direct payments to employee benefit plans, participants, and beneficiaries. When businesses fail to comply with employee benefits laws and regulations, they risk formal investigations to determine possible wrongdoing.
To avoid the ramifications of compliance issues, check for the following common problems:
Incomplete Documentation
Setting up, updating, and maintaining employee benefits documentation is significant. Documentation should be regularly reviewed to establish that it is complete, up-to-date, and error-free. When necessary, make immediate amendments to incomplete or inaccurate documentation.
Late or Incorrect Filings
Late or inaccurate filings can result in compliance issues. One of the most common problems plaguing employee benefits involves using the incorrect compensation base. This occurs when the plan’s definition of compensation, such as eligible compensation and exclusions, is not followed.
Also, follow the proper procedures when filing late. For example, if you’re filing a delinquent Form 5500, file an extension using Form 5558.
Misclassification of Employees
Employee benefits compliance issues can also arise when businesses fail to classify employees, particularly exempt versus non-exempt properly. The Fair Labor Standards Act (FLSA) states that non-exempt employees are entitled to overtime pay, while exempt employees are not.
This can vary from state to state. For example, the minimum salary for an employee to be considered exempt in California is $66,560 per year, as of January 1, 2024. An exempt employee must also:
- Be paid on a salary basis
- Perform exempt job duties
How to Avoid Employee Benefits Compliance Issues
Compliance with employee benefits laws and regulations can help businesses avoid legal issues and hefty fines. Compliance can also build trust between employers and employees, improving talent retention. There are several ways that companies can avoid compliance issues.
Regular Audits
Conducting regular audits of employee benefits plans can help your business identify possible compliance issues early on. Review employee benefits plans at least once a year, focusing on areas such as eligibility, plan documents, discrimination testing, filings, disclosures, and notices.
Training and Education
HR staff who receive proper training and education are better equipped to spot and prevent benefits compliance issues. Ideally, ongoing training should be provided to HR staff and benefits administrators to keep them up-to-date on the latest laws and regulations relating to benefits compliance.
Clear Policies and Procedures
Clear compliance policies and procedures can keep staff and workers informed of their rights and responsibilities. Choose the best format for communicating these policies, such as digital methods or in-person meetings.
Maintain open communication, such as an email address or contact number, to allow employees to ask questions or express their concerns regarding these policies and procedures.
Developing an Employee Benefits Compliance Strategy
Businesses must be well-versed in various regulatory areas to maintain employee benefits compliance. Developing a compliance strategy can help your business stay vigilant about identifying potential compliance issues and handling them efficiently. Several factors must be considered when developing an employee benefits compliance strategy.
Risk Assessment
Detailed compliance strategies should include regular risk assessments. A risk assessment can give your business a complete picture of its benefits compliance outlook.
It can also illuminate what laws and regulations are associated with similar businesses. Risk assessments also identify current controls in place to detect, correct, and prevent violations and give insight into where possible improvements can be made.
Policy Development
Developing an effective compliance strategy involves establishing and adopting written policies and procedures. Clear written policies and procedures can define compliance expectations and help employees understand the company’s compliance requirements. These policies and procedures should be updated as the business grows or regulations change.
Employee Communication
Maintaining employee benefits compliance requires effective communication between employees and business leaders. Employees should be made aware of their rights and responsibilities associated with benefits compliance.
Consider implementing a training program that communicates the business’s compliance requirements and enforcing a refresher course on a routine basis that reminds employees of any changes or updates.
Establish Your Employee Benefits Compliance With Help From the Experts at New City
Many businesses need help maintaining employee benefits compliance, especially as these laws and regulations constantly evolve. Working alongside an experienced benefits consultant can help your business remain compliant and avoid the financial and legal pitfalls of non-compliance.
Contact New City Insurance at 888.210.2765 to see how our team can help you manage your employee benefits.