4 Compliance Tips for Small Business to Reduce Compliance Risks
Ninety-nine percent of employer firms in the United States are small businesses. Collectively, they employ roughly 59 million people. Small businesses are classified as “small” following the industry size standards set by the Small Business Administration.
Considering these numbers from the Voice of Small Business in America: 2019 Insights Report by Goldman Sachs and Babson College, small businesses are clearly engines of economic growth. However, compliance risks for small businesses are a big hurdle for entrepreneurs to conquer. The same study revealed that over 60 percent of business owners claim regulations impact their growth. The regulations they refer to include labor laws, healthcare laws, and tax laws, among others.
Small business owners spend an average of 300 hours per year managing compliance issues. Add to the equation all the other hats small business owners (SBO) wear to grow their brand, and the problem becomes clear.
Being compliant is a big challenge, but being out of compliance is a bigger headache for SBOs. When you fail to follow the regulations, you risk dealing with hefty fines, legal woes, and damage to your reputation.
Compliance Issues Amid Evolving Regulations and Work Environments
Compliance for small businesses is not an easy game to win, considering the complexity of regulations and the costs to be compliant. Constantly changing markets and an evolving workplace environment, especially amid the COVID-19 pandemic, can further complicate the situation.
Some of the top compliance topics that small businesses regularly deal with include:
ERISA wrap document: The Employee Retirement Income Security Act, or ERISA, sets the standards for welfare plans and health coverage to protect workers and their beneficiaries. A wrap document lowers the compliance risk for SBOs by “wrapping” around all the welfare and health benefits. It serves as one document to satisfy the requirements to disclose ERISA benefits.
Continuation of Health Coverage (COBRA) administration: COBRA requires the temporary continuation of healthcare benefits when workers lose their benefits eligibility. Non-compliance translates into penalties, civil suits, and legal fees.
Non-discrimination Testing (NDT): The IRS requires businesses to perform NDT when offering benefits to employees. The rule safeguards fair treatment of key employees, highly-compensated employees, and other employees of a company.
Family and Medical Leave Act: This law grants certain workers the right to take a 12-week unpaid leave based on specific circumstances, and provides for their reinstatement with certain protections in place.
Compliance risks for small businesses are significantly high, considering that you need to follow local, state, and federal laws. As a small business owner, you may be particularly vulnerable to compliance risks if you operate with a small HR team, or have just one person managing your human resources.
5 Events that Trigger Compliance Engagement on the Employee Level
Improper administration of benefits to your new hires and other employees may result in fines or other penalties. Below are some of the common trigger events for compliance issues revolving around employee benefits:
1. Benefit Administration to New Hires Eligible for Health Plans
As a small business, you need to define the type of benefits that you can administer, and which employees can receive them. Before the new employee’s start date, it is best to send them an overview of benefits. The more information provided to an employee, the less risk for non-compliance for your business.
It is important that you clearly communicate to the employees when they need to complete and submit their enrollment forms. The forms must be signed, dated, and should be sent to the insurance provider or third-party benefits administrator typically within 31 days of the effective date of coverage.
2. During Initial Enrollment in the Health Plan
By providing health insurance, your company encourages employees to better take care of their health proactively. When an employee becomes eligible to enroll in a plan, they will have a period of initial eligibility. An employee must also request any enrollment of newly eligible family members, who will also have a period of initial eligibility. The health plan will remain active until the next open enrollment, a status change, termination, or change in employee classification.
3. During the Yearly Open Enrollment
Open enrollment happens every year. During this period, employees will have the option to change their benefit options. For small businesses, this usually happens a month prior to the renewal date of their health plan. An open enrollment can last for a week or longer.
During the open enrollment, your employees will receive various educational materials about their employee benefits and will have the opportunity to ask questions about their options. They can sign up for a different plan, add options, and add or drop dependents.
4. Annually Based upon Federal Deadlines
As part of compliance for small businesses, employers providing group health plan coverage must complete specific filings and disclosures every year. The federal government imposes specific regulations, but state laws may also add defined obligations.
Depending on the size of your business, you will be required to meet certain deadlines revolving around employee paperwork and health care coverage. These annual deadlines include:
January 31 for Form W-2
March 1 for Medicare Part D Reporting
PCORI Fee by end of July
Summary Annual Report by September
1094-C and 1095B paper forms are due end of February (or end of March if filing electronically)
5. Upon a Member’s Coverage Termination
When an employee is terminated, the benefits coverage typically extends to the end of the month of termination. However, this depends on whether the business imposes same-day termination or mid-month termination policies.
The terminated employee may be eligible for an extension of their current coverage for a certain period following federal or state regulations. Some carriers allow workers to switch from group to individual life or disability coverage.
How to Organize and Capture Compliance
Benefits administration is no easy task for small businesses. If you slip along the way and fail to follow necessary regulations, your business will face compliance risk.
You and your team must develop an effective compliance strategy to avoid risking both your finances and your reputation. Follow these tips to help you lower your compliance risks:
1. Keep a Calendar of Compliance Events
Navigating through all the compliance requirements is quite a challenge. You must keep track of all the key deadlines and compliance dates. It’s a good idea to set reminders to avoid missing the crucial dates that you know are coming throughout the year.
Your calendar of compliance events may include healthcare coverage protocols, tax deadlines, anti-discrimination regulations, and other regular events that can trigger potential compliance issues.
2. Engage with Different Vendors to Manage and Maintain Certain Aspects of Your Compliance Requirements
There are vendors or providers specializing in the implementation of comprehensive benefit programs, HR services, and technology solutions. These benefit agencies can relieve SBOs and from the burden of administering benefits.
Benefit agencies understand the everyday challenges small businesses face when it comes to compliance risks. Tapping the services of these HR professionals will not only save you from potential legal and financial woes, but will help make your employees happier. And happy employees work wonders for businesses.
3. Complete an Annual Compliance Review with Your Benefits Broker or Account Manager
If you want to manage compliance risks for your small business, you need to understand your specific risks. Conducting regular risk assessment allows you to make the necessary adjustments to remain compliant with state and federal requirements, before there are consequences.
As a small business owner, you should have a trusted HR benefits broker or administrator who can help you monitor changing risks. Looking ahead will help you prevent being caught flat-footed when changes are implemented.
Compliance experts are highly familiar with the risk landscape. They have the knowledge and tools to help your business navigate compliance issues safely. With their help, you can focus on the more important aspects of business, like further developing your products and services or pushing for growth.
4. Watch Out for Client Alerts and Determine if Action is Needed
Compliance solution providers tailor their services to meet your needs. They can send you important benefits administration alerts or compliance issue notifications in a timely manner to prevent problems before they arise.
Implementing technology and making the most of such solutions can help you effectively reduce compliance risks and compliance costs.
Mitigate Risks for Small Business with the Help of Compliance Specialists
Benefit Concepts offers a comprehensive line of compliance, HR services, and technology solutions to help your small business achieve your goals and fulfill your potential, without the headache of worrying about compliance.
Do you need a tailored compliance solution? Contact BCI today.
NOTE: This content is not intended to be taken as legal, benefits, or HR advice. Since regulations change over time and can vary by location and employer size, consult a licensed broker or HR certified expert for specific guidance.