No matter how many benefits you provide, you’re required to administer them in a compliant manner. However, benefits compliance is no stroll in the park.
Benefits compliance means adhering to the federal, state, and local laws your mandatory and voluntary benefits are subject to. Failure to comply with these laws can trigger investigations by the administering agency, such as the Internal Revenue Service or the Department of Labor. These agencies may assess penalties on employers whose benefit plans are out of compliance.
As stated by Forrester Research, “Companies whose governance, risk, and compliance (GRC) programs are poorly managed are vulnerable to enormous fines, erosion of customer trust, and — most important — millions or even billions in corporate losses.” Compliance is, therefore, the chief reason many employers outsource benefits administration to a third party provider.
According to a survey by the International Foundation of Employee Benefit Plans (IFEBP), “The top two challenges facing benefits departments by a wide margin are compliance with benefits laws and regulations (72.6%) and rising health care costs (51.9%).” Per the IFEBP, “On average, companies report outsourcing 40% of their benefit functions.”
Despite the prevalence of outsourcing, most employers handle at least some benefits administration in-house — and some utilize only manual methods. In a survey by CareerBuilder, human resource managers broke down their HR functions that are fully automated, partially automated, or not automated. The results for benefits administration show:
- 34%, fully automated (no human intervention is needed)
- 49%, partially automated (some human intervention is needed)
- 13%, not automated (completely reliant on human intervention)
Not automating HR processes often leads to mistakes and wasted time/productivity, none of which are conducive to benefits compliance.
Breaking down HR automation
HR automation occurs via technology that decreases human labor by automating workflows. With workflow automation, manual steps in a process are removed and replaced with digitized processes. This cuts down on human errors and saves time — plus enables processes to be faster, smoother, and more efficient.
Benefits administration is a core HR function that can be automated via standalone benefits technology, or more commonly, integrated with HR management technology. Employers are moving toward integrated HR technology because it eradicates repetitive data entry and minimizes errors.
With integrated HR technology, benefits data is entered only once into a centralized database, which can be accessed for both HR and benefits purposes. Many integrated HR/benefits systems include payroll as well. In this case, data is still entered only once, into the centralized database.
With workflow automation, manual steps in a process are removed and replaced with digitized processes. This cuts down on human errors and saves time — plus enables processes to be faster, smoother, and more efficient.
Conversely, with standalone technologies, benefits data must be entered separately into the benefits, HR, and payroll systems. That’s thrice instead of once, inevitably requiring more manual labor and potentially opening up a minefield of issues pertaining to accuracy and compliance.
Note that standalone systems can help with compliance, if adeptly utilized. The catch is that they call for more manual labor, which raises the risk of errors. At a minimum, employers typically integrate HR and benefits, because the 2 are practically kindred spirits. Ultimately, you should aim for an automated HR system that vastly diminishes paperwork and paves the quickest, most precise road to benefits compliance.
HR automation helps you comply with benefits laws
At the epicenter of benefits compliance are a host of benefits laws and regulations. Whether they apply to your business depends on various factors, including your business size, location, and industry.
Below is a non-exhaustive list of common benefits laws and regulations; most of their requirements can be drastically simplified via HR automation:
Employee Retirement Income Security Act (ERISA)
Establishes the minimum standards for private-sector retirement and health plans, including plan document operation and management, Form 5500 filing, and employee disclosures.
Affordable Care Act (ACA)
Mandates employers with at least 50 full-time employees to offer affordable, minimum essential health coverage, or pay a penalty. Applicable large employers must meet ACA standards, including employee eligibility, affordability threshold, ACA reporting to the IRS, and ACA form distribution to employees.
Consolidated Omnibus Budget Reconciliation Act (COBRA)
Requires applicable employers with group health plans to continue providing health coverage (for a limited time) to participants who lost coverage due to a qualifying event. Employers must determine COBRA eligibility, issue COBRA notices, and set COBRA payment terms.
Equal Employment Opportunity Commission (EEOC)
Oversees a range of federal nondiscrimination laws protecting employees across various aspects of employment, including benefits. These laws include Americans with Disabilities Act (ADA), Age Discrimination in Employment Act (ADEA), Title VII of the Civil Rights Act, Pregnancy Discrimination Act (PDA), and Equal Pay Act (EPA). Each law has its own conditions.
Family and Medical Leave Act (FMLA)
Requires covered employers to provide up to 12 weeks of unpaid, job-protected leave to eligible employees. Employers must follow FMLA rules when determining FMLA eligibility and issuing FMLA notices.
These include taxation, reporting, and payroll deduction criteria for fringe benefits, pre-tax benefits (e.g., Section 125 plans), after-tax benefits (e.g., Roth 401k), and plan contribution limits (such as for 401k, health savings account, and flexible spending account).
State workers’ compensation laws
Mandates employers to carry workers’ compensation insurance, which provides benefits to employees (or their survivors) who suffer an injury or fatality while on the job. Employers must post compliance notices, complete injury reports, and coordinate with the insurance provider.
State leave laws
May include disability leave, family and medical leave, sick leave, military leave, voting leave, jury duty leave, maternity leave, paternity leave, bereavement leave, donor leave, victims of violence leave, school activity leave, and alcohol or drug rehabilitation leave. Some local governments have leave laws, as well.
Remember, these are only some benefits laws, regulations, and requirements. There are many others, including privacy laws. Administration normally comes down to whether the mandatory or voluntary benefit is governed by federal, state, or local law.
Benefits compliance can be extraordinarily complex and confusing, especially without a structured system in place. HR automation is pivotal to achieving this structure.
If a benefit is not regulated by the government, then the employer must generally refer to company policy when administering the benefit. For instance, some states mandate employers to pay out unused vacation upon the employee’s termination. Others require employers to pay out unused vacation (or other fringe benefits) only if the employer has a written policy or agreement promising the payout.
Obviously, benefits compliance can be extraordinarily complex and confusing, especially without a structured system in place. HR automation is pivotal to achieving this structure.
Technology that works
Best practices for benefits compliance demand technology that lets you:
- Develop, implement, enforce, and maintain standardized policies and procedures for each benefit, in accordance with the law.
- Abide by company policy to ensure consistent benefits practices.
- Honor benefits agreements/contracts, with current and departing employees.
- Establish a comprehensive leave management system, for planned and unplanned leave, doctor’s notes, disability forms, reasonable accommodations, and employee leave communications.
- Provide mandatory benefits information to employees during open enrollment.
- Automatically calculate benefits deductions and withhold them from employees’ pay.
- Store benefits documents, as required by law.
- Stay on top of new and changing benefits laws. Note that HR software usually comes with compliance standards hard-coded in the system, including annual benefits changes.
- Perform online benefits reporting with government agencies.
- Remit benefits payments to third party entities.
Essential technology tools for self-managing benefits compliance:
- User-friendly interface
- Analytics, to observe external and internal trends impacting compliance
- Process management, which allows you to map and track benefits activities
- Compliance notifications/alerts
- Audit management, to help you build and preserve internal controls
HR automation is in demand
A 2020 survey by PricewaterhouseCoopers (PwC) found that 74% of companies “plan to increase spending on HR tech in 2020 to address pressing talent needs.”
Benefits compliance is an ongoing challenge for most employers. Therefore, compliance should be top of mind when seeking an automated system for benefits administration. Of utmost importance is choosing a technology vendor that caters to your specific compliance needs.