Annual physicals can lead to early detection of serious health problems and set a course for better outcomes. Companies need to take the same mindset concerning HR and benefits compliance audits, says Meghann Guentensberger, Director of HR Services at Benefitdecisions, Inc.
“Don’t wait until something ‘hurts’ to try to figure out how to respond,” she says. “It’s better to know ahead of time so you’re protected if there is a disgruntled employee who files a complaint.”
Smart Business spoke with Guentensberger about HR and the benefits of compliance audits.
What areas are covered by HR and benefits compliance?
Compliance is two-pronged: There is the benefit piece, which encompasses the Employee Retirement Income Security Act (ERISA), Health Insurance Portability and Accountability Act (HIPAA), COBRA, etc. There is also the HR side, which deals with regulatory compliance such as federally mandated forms and notice postings, and making sure an organization has proper procedures in place to address and resolve discrimination issues and complaints.
Many companies fall short on compliance with the Fair Labor Standards Act regarding employee classification — whether employees are exempt or nonexempt, or are a contractor or employee. There are best practices and risk management considerations such as having all I-9 employment eligibility verification forms filled out correctly and filed separately. The penalty can range from $1,000 to $10,000 for a form that is incorrectly completed. Employers also must ensure that any protected health information documentation is not co-mingled with other employee-related documentation in the employee personnel files.
What is involved in a benefits and compliance audit?
There are three steps — discovery, evaluation, and assessment and recommendation. In discovery, you determine which areas may present the most risk. A third party conducting an audit will interview HR employees, evaluating practices and processes to determine if they are in compliance with the law.
In the evaluation stage, select policies or a random sampling of employee files are reviewed and compared to standards. This often provides insight into hiring, interviewing and employee relations procedures. Common problem areas include employment applications that contain impermissible questions. This can lead to a claim of discrimination by a candidate who was not hired for a position. Employee handbooks often contain sections that provide unnecessary risks to the employer. An audit can ensure that it provides the same information to all employees.
For the final step, a scorecard is developed that shows risks and potential associated costs of noncompliance, or savings as a result of compliance. The scorecard also identifies areas to improve.
How do you determine an audit’s value?
Some savings derived from audit findings are soft costs, because fines would only be paid if an institution such as the U.S. Department of Labor (DOL) conducts an audit and finds violations.
One of the more significant values of an audit is in showing employees they matter most. Staying compliant shows you’re providing best-in-class service and indicates the moral values of the company. It also can be very powerful when dealing with a complaint from a disgruntled employee.
How often should audits be conducted?
Conduct an audit at least annually, although non-discrimination testing for Section 125 cafeteria benefit plans should be reviewed twice each year.
Many companies establish policies but don’t review them. That’s fine until you have a scenario where a disgruntled employee files a complaint with the DOL.
Regulations change all the time, so you have to stay on top of compliance issues, which can be difficult. Small and midsize businesses would benefit most from hiring an independent third party to perform an audit because you need someone who knows what you don’t know.
Meghann Guentensberger is director of HR Services at Benefitdecisions, Inc. Reach her at (312) 376-0449 or firstname.lastname@example.org.
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