While a solid benefits package will help your company attract and retain top talent, setting one up incorrectly can subject you to fines and even criminal prosecution. Benefit planning is a complicated undertaking, and it’s all too easy for busy business owners to make mistakes. Consider the following potential legal pitfalls you need to avoid.
The law requires all employers to provide their employees with time off to vote, serve jury duty or perform military service. You must also comply with workers’ compensation requirements, pay state and federal unemployment taxes, contribute to a short-term disability program if one exists in your state, and comply with the Federal Family and Medical Leave Act (FMLA), which covers maternity and adoption leave as well time off for serious personal and family medical conditions. In addition, you must withhold FICA taxes from your employee’s paychecks and pay your own portion of FICA taxes for each worker. Failure to provide any of these required benefits may subject your business to fines or criminal prosecution.
Health insurance and retirement plans are among the benefits deemed most important by employers. They’re also subject to government regulations. For example, the Employee Retirement Income Security Act (ERISA) regulates employers who offer pension plans to their workers. It imposes a wide range of requirements, including employer-paid insurance to protect retirement benefits.
The Health Insurance Portability and Accountability Act (HIPAA) amended ERISA to impose requirements on group health plans. It increased employee access to health insurance benefits by limiting preexisting condition rules. The more recent Affordable Care Act requires all employers with more than 50 employees to offer health benefits to every member of their staff working full time hours or pay significant penalties. Implementation of the employer sponsored insurance portion of the new regulation was set for January 2014, though the government recently postponed it.
If you haven’t designed your employee benefits program appropriately, don’t think it will go unnoticed. The IRS is notoriously aggressive in their audits, as is the U.S. Department of Labor. Any discovered errors are subject to penalties. You may also need to repay any associated tax benefits your company has received.
According to benefits professionals, the most common mistake employers make is excluding employees from the plan. Regulations for voluntary benefits vary so it can be challenging for employers to determine which workers must be offered the opportunity to participate. Another common error is failing to enroll new employees in healthcare or supplementary insurance plans during the ‘open enrollment’ period—a fixed time after hire during which you may make changes without incurring additional costs. This is often the fault of poor administration by the employee responsible for the details—for example, when a small business puts a bookkeeper or office manager in charge of benefits.
Whether you have 20 employees or 200, don’t try to build a benefits plan without consulting a qualified advisor. You can reduce your costs by conducting preliminary research—including what your employees want and what your competitors are offering—on your own. Then hire a benefits consultant to walk you safely around potential legal pitfalls.