That’s because it oversees the Employee Retirement Income Security Act of 1974 (ERISA). 

If you’re opening a business or expanding your company’s benefit offerings, it’s critical that you check if you need to comply with ERISA. 

What is ERISA?

ERISA was passed in 1974 to regulate pension benefit and welfare benefit plans. Its primary focal point was establishing minimum standards and protections for individuals in these retirement and health plans. 

ERISA also requires that participants and beneficiaries receive proper notice and disclosure of the benefits that their employer provides.

Primary responsibilities for employers to comply with ERISA include three important items:

1. Detailed disclosure to covered individuals (plan participants and beneficiaries).
2. A strict fiduciary code of conduct for plan sponsors.
3. Detailed reporting through Form 5500, as applicable.

Looking for ERISA compliance deadlines and common mistakes? Check out our content here. 

What Types of Employers Must Comply with ERISA?

If an employer is offering a benefit plan that is for the purpose of providing one or more benefits listed in ERISA to employees and beneficiaries (e.g., medical, surgical, or hospital care), then generally, that employer needs to comply with ERISA.

A common rule of thumb is any employer that offers a group-sponsored health plan must comply with the ERISA notice and disclosure, and possibly, reporting requirements unless an exemption applies.

Examples of benefits that are subject to ERISA include group medical, dental and vision. They can also include life/AD&D, short-term and long-term disability, health flexible spending accounts, and health reimbursement arrangements.

When Would ERISA Not Apply?

Exemptions to ERISA apply to organizations such as churches and government entities, and include plans maintained to comply with workers’ compensation or certain disability plans that fall under a statutory exemption status.  

ERISA does not apply to those exempt organizations and to employers that do not offer a benefit identified under ERISA that is for the benefit of their employees and beneficiaries.  

An example might be a municipality that offers a medical plan to their employees. The municipality would not need to comply with ERISA’s requirements.  

How Does ERISA Affect Small Businesses?

ERISA’s requirements apply to both small and large employers alike. For example, whether you have two employees or 200, you’re responsible for providing proper disclosures and meeting fiduciary obligations under ERISA.

Reporting requirements vary based on plan size and structure:

• Employers with 100 or more plan participants (not just employees) at the start of the plan year generally must file Form 5500.
• Smaller employers may also be required to file if their plan is funded through a trust, is a multiple employer welfare arrangement (MEWA), or otherwise does not qualify for the small-plan exemption.

What Do Small Employers Need to Stay Compliant?

Here is a current checklist for small employers to ensure compliance with ERISA:

• Plan document: Do you have an ERISA-compliant plan document (standalone or “wrap”)?
• Summary Plan Description (SPD) distribution: Have you distributed SPDs within 90 days of coverage for new participants, and within 120 days after a new plan first becomes subject to ERISA?
• Summary of material modifications (SMMs): Have you issued SMMs within 210 days after the end of the plan year in which a change was adopted?
• Form 5500: If required, have you filed timely annual reports?
• Eligibility rules: Are your eligibility and plan provisions updated to align with current Healthcare Reform, COBRA, and other regulations?

Tip: For a more extensive checklist, download our free ERISA Compliance Checklist to ensure you’re meeting requirements. 

What are Common Penalties for Noncompliance for Small Businesses?

While all companies want to avoid paying penalty fees, small businesses with tighter purse strings must be especially careful of rules and deadlines. 

By not adhering to ERISA requirements, businesses open themselves up to costly fines every day they’re not compliant. Some of these penalties include:

• Failure to provide an SPD to participants: If a participant or beneficiary makes a written request for a SPD and you fail to provide it, a court may impose penalties of up to $110 per day until the SPD is furnished.
• Failure to provide documents to the DOL upon request: If the Department of Labor requests plan documents during an investigation or audit and you fail to provide them, penalties can be assessed at $195 per day, up to a maximum of $1,956 per request.
• Failure to file form 5500: Late or missing Form 5500 filings can cost an employer up to $2,739 per day, with no prescribed maximum .
• Failure to provide a summary of benefits and coverage (SBC): While technically an ACA requirement, employers often confuse the SBC with ERISA’s SPD. Failure to provide an SBC when required can result in penalties of up to $1,443 per failure.

Common Mistake Alert: Many small businesses mistakenly assume the insurance certificate or carrier’s benefit summary satisfies ERISA’s SPD requirement. It does not. Employers must prepare and distribute their own SPD or use a wrap document to remain compliant.

The Bottom Line: Stay Confident, Stay Compliant

ERISA compliance isn’t just for big corporations; it’s a responsibility for most employers offering benefits. Luckily, with the right processes and partners, it’s easier than you might think.

Whether you’re filing a Form 5500, updating your plan documents, or simply ensuring your employees have the right disclosures, the key is staying proactive and partnering with the right team to navigate regulations and support your people.

The post Does My Organization Need to Comply With ERISA? (and 5 Other ERISA FAQs) appeared first on PrimePay.

The annual deduction limit on HSA contributions for a person with self-only coverage under a High-Deductible Health Plan for calendar year 2026 is $4,400 (up from $4,300), and a $8,750 (up from $8,550) annual deduction limit for a person with family coverage in a HDHP.

What is an HSA?

As explained by the IRS, a Health Savings Account (HSA) is a tax-advantaged trust or custodial account you set up with a qualified HSA trustee to pay or provide reimbursement for certain medical expenses you incur. In other words, the HSA was designed to pay for day-to-day medical costs via HSA funds that an individual or family member may incur while remaining tax-free.

The account is owned by the employee and money is deposited directly into the individual’s account.

Employees may make contributions in the form of lump sum contributions or pre-tax payroll deductions. An employer may also contribute to the account.

As soon as funds accumulate, they are available. This differs from a health flexible spending account (FSA) that has uniform coverage, in which the full balance is available on the first day of the plan year.

HSA Tax Penalties

HSAs offer numerous tax benefits, but it’s important to understand the potential tax penalties associated with these accounts.

• One such penalty applies to excess contributions, which are contributions made above the annual contribution limit. If employees contribute more than the allowable limit, you will be subject to a 6% excise tax on the excess amount. Additionally, any excess contributions made are considered taxable income in the year they are made.

• Another tax penalty pertaining to HSAs relates to using the funds for ineligible expenses. Using HSA funds for non-qualified expenses before the age of 65 will lead to a 20% penalty on the amount used for such expenses. This penalty is in addition to any income tax owed on the withdrawn amount. After the age of 65, the penalty for using HSA funds for ineligible expenses is reduced to the ordinary income tax rate. However, it’s essential to note that even after the age of 65, using HSA funds for ineligible expenses will still result in taxable income.

TIP: Educate your employees to keep track of contributions to avoid exceeding the limit and incurring these penalties.

Annual Contribution Limits for 2025

It’s never too early to start thinking about future medical expenses, tax saving opportunities, and saving for retirement.

Remember, HSA contributions may be made through pre-tax salary reductions and/or on a post-tax basis, up to the maximum limit for that year. Post-tax contributions may be made up until the date an individual’s taxes are due.

The post HSA Contribution Limits for 2026 appeared first on PrimePay.

Enter Dependent Care Assistance Programs (DCAPs). Below we dive into the key features of DCAPs, benefits for employers and employees, and must-know information about compliance.  

What Is a DCAP?

A DCAP, also called a Dependent Care FSA, allows employees to set aside pre-tax dollars to cover eligible dependent care expenses. These expenses must be necessary to enable the employee (and their spouse, if applicable) to work or actively seek employment. 

Qualifying dependents typically include children under 13 and individuals who are physically or mentally incapable of self-care.

Key Features of DCAPs

DCAPs have three main features:

1. Contribution limits: For the 2026 tax year, employees can contribute up to $7,500 if they are married filing jointly or as a single parent, and $3,750 if they are married filing separately.
2. Eligible expenses: Funds can be used for various dependent care services, such as daycare centers, in-home childcare, and before- or after-school programs.
3. Tax advantages: Contributions are made pre-tax, reducing taxable income and potentially saving employees tax.

TIP: Communicate these DCAP features during your open enrollment presentation so employees can make informed decisions about their benefits for the upcoming year. 

DCAP Benefits for Employers and Employees

By offering a DCAP, employers not only provide meaningful financial support to their people but also create a more engaged and productive workplace, which benefits employers and employees alike.

Benefits for Employers

While many companies offer pre-tax benefits to employees, very few offer childcare benefits. According to research by BCG, only 12% of all full-time US employees and only 6% of part-time workers have access to childcare benefits through their employer. 

Here lies a huge opportunity for organizations to stand out among competitors, especially since childcare costs continue to be a significant concern for employees. Jessica Chang, CEO and co-founder of Upwards, explains: “Employers realize that no longer is child care just a social issue but a business issue. When you have trouble attracting and retaining employees, it affects your bottom line.”

Some specific benefits for employers include:

• Payroll tax savings: Employer-sponsored DCAPs reduce taxable payroll, which can lower an employer’s share of FICA and FUTA taxes.
• Stronger employee retention: A competitive benefits package, including dependent care assistance, can enhance job satisfaction and reduce turnover. Research shows that 86% of employees say they’re more likely to stay with their employer because of its childcare benefit.
• Enhanced recruitment: DCAPs appeal to working parents, helping businesses attract top talent in a competitive job market. 
• Greater workplace productivity: Employees with access to affordable dependent care are less likely to experience absenteeism and workplace distractions due to childcare concerns.

Benefits for Employees

It’s no secret that childcare is expensive, but did you know that most families spend between 10-20% of their income on childcare? And that’s just for one kid. 

Unfortunately, 41% of workers report that their compensation isn’t high enough to cover their childcare costs, leading to increased absenteeism, disengagement, and higher turnover (not to mention resentment towards employers). 

The good news is that companies can help offset costs by offering a DCAP so employees can realize: 

• Lower child care costs: With the average cost of childcare exceeding $15,000 annually per child, employees can save up to $2,000 in taxes annually by using pre-tax dollars for these expenses.
• Increased take-home pay: Since DCAP contributions are made pre-tax, employees effectively reduce their taxable income, resulting in lower payroll taxes.
• Higher engagement: When employees have reliable child care, they’re more likely to be present, engaged, and productive. One employee told BCG researchers, “Having a place where I know my child is safe during the day gives me peace of mind and allows me to focus at work.”

Employees should always have access to their benefits and payroll information. Equip them with an employee self-service portal so they can keep track of their contributions.  

DCAP Compliance

DCAPs have to comply with the requirements in Internal Revenue Code Section 129 in order to provide tax-free dependent care assistance benefits. Also note that:

• DCAPs that allow employees to make pre-tax contributions are subject to the Code Section 125 rules for cafeteria plans, including some of the rules that apply to health FSAs (excluding the uniform coverage rule).
• A DCAP that reimburses employees for their dependent care expenses will rarely be subject to ERISA, so ERISA’s requirements (including the Form 5500 reporting requirement) don’t apply to DCAPs.
• DCAPs are not group health plans, which means they are not subject to requirements under many federal rules, such as: COBRA continuation coverage, the Affordable Care Act (ACA), or HIPAA. Because DCAPs are not group health plans, participating in a DCAP does not disrupt eligibility to make contributions to health savings accounts (HSAs).

Considerations for Employers

Implementing a DCAP can be a valuable addition to your benefits package, but it’s essential to be aware of your company’s employee population and administrative capabilities. 

DCAPs must undergo annual NDT to ensure they don’t disproportionately benefit highly compensated employees (HCEs). For some employers whose employees are predominantly highly compensated or top-heavy, the program might add increased administrative burdens and minimal benefit due to a greater likelihood of NDT failures. 

In fact, some of the most common NDT failures relate to DCAPs. Examples of these types of businesses include legal, engineering, and accounting firms as well as medical practices.

The good news is, if a plan discovers a potential failure mid-year, it can adjust employee withholdings to avoid that failure. 

However, if a failure is not discovered until after the end-of-year tax, you must adjust employee withholdings or issue amended Forms W-2. Chances are noone will be pleased in this situation: Not only does this scenario create an administrative burden for employers, employees’ gross salary will be adjusted and they can’t utilize the full $5,000 benefit limit.

TIP: Because maintaining compliance with DCAP regulations requires diligent record-keeping and regular plan reviews, employers should be prepared to manage these administrative tasks or consider partnering with a third-party administrator, like a payroll provider.

The Bottom Line

Offering a DCAP can enhance your benefits package and support employees in managing the high costs of dependent care. However, it’s crucial to understand the associated compliance requirements and administrative responsibilities. By carefully implementing and managing a DCAP, you can provide meaningful assistance to your workforce while maintaining regulatory compliance.

The post What is a DCAP and How Does it Work? appeared first on PrimePay.

If a plan fails the test, it could mean serious tax consequences for both the company (such as costly penalties) and its top earners (such as losing their tax-free status).

The good news? You can avoid compliance headaches by understanding how these tests work and taking proactive steps to prevent issues before the plan year ends. 

Download our Nondiscrimination Testing Checklist to help plan and maintain compliance.

What is Nondiscrimination Testing?

Nondiscrimination testing is a series of IRS-mandated tests designed to ensure that tax-advantaged benefit plans don’t disproportionately favor highly compensated employees (HCEs) over non-highly compensated employees (NHCEs). 

These tests apply to various benefit plans, including:

• Cafeteria plans (Section 125 plans)
• Health flexible spending accounts (FSAs)
• Dependent care assistance programs (DCAPs)
• Health reimbursement arrangements (HRAs)

Since these plans offer pre-tax benefits, the IRS requires employers to prove that all employees, regardless of pay level, have equal access to participation and benefits. 

Note: NDT tests vary for certain benefits (e.g., DCAPs have different requirements than the 125 plan), so the following information focuses on testing for the overall 125 plan and contributions.

Who is Considered a Highly Compensated Employee (HCE)?

The IRS defines highly compensated employees as anyone who owns more than 5% of the company, or an employee earning above a certain threshold (this amount changes annually; for 2025, it’s someone who earned $160,000 in 2024).

Employers must also identify key employees, which include officers earning above a specific threshold, major shareholders, and highly paid employees. Note that key employees are important for certain tests, especially in cafeteria plans.

Why is Nondiscrimination Testing Required?

The IRS mandates these nondiscrimination tests to ensure that tax-advantaged benefit plans don’t unfairly favor HCEs over rank-and-file employees.

If a plan fails, the consequences can be costly. Highly compensated employees lose the tax-free status of their benefits, meaning their pre-tax contributions become taxable income. Employers may also face compliance penalties and added administrative burdens, such as issuing corrected W-2s and amending tax filings for multiple years.

On the other hand, if organizations maintain compliance with IRS rules, they avoid unexpected tax liabilities, prevent payroll issues, and ensure fair access to benefits for all employees. This scenario is a win-win for employers and employees alike. 

When is Testing Required?

Employers must conduct nondiscrimination testing annually, taking into consideration all changes made throughout the year up until the final day of the plan year. NDT often can’t be finalized until after the plan year is over because changes can be made throughout the year, but it should be completed soon after.

However, testing mid-year is a smart move because it allows you to identify potential compliance issues early and adjust benefit elections before it’s too late.

Why Work with a Compliance Expert?

Working with a payroll or benefits provider can help ensure accurate and timely compliance. Nondiscrimination testing requires precise calculations, and errors can lead to serious tax consequences. Many employers partner with providers and experts to handle compliance testing and avoid last-minute surprises.

How to Conduct Nondiscrimination Testing

As stated, companies must follow IRS guidelines to ensure their plans remain compliant and avoid costly tax consequences. While nondiscrimination testing might sound complicated, breaking it down into steps makes it more manageable. 

1. Identify HCEs and key employees: Determine which employees qualify as HCEs based on IRS thresholds. Then, identify key employees (owners, officers, and highly paid individuals) for cafeteria plan testing.
2. Gather payroll and benefits data: Collect data on employee participation, contributions, and benefit elections for the plan year. Also, ensure accuracy in salary reduction amounts and employer contributions.
3. Perform IRS-mandated tests: Each benefit plan has specific tests, so document and plan the ones you need to run. Some of the most common include:
   • Eligibility test: Ensures a sufficient percentage of non-HCEs can participate.
   • Contributions and benefits test: Confirms that HCEs don’t receive disproportionately higher benefits.
   • Key employee concentration test: Checks whether key employees receive more than 25% of total benefits.
4. Review the results: If the plan passes, maintain documentation for IRS compliance. Alternatively, if the plan fails, take corrective action before the end of the plan year, or as soon as possible if plan failure is not discovered until after the plan year ends.
5. Make mid-year adjustments if needed: By testing early and making necessary adjustments, HR and Finance leaders can ensure their benefit plans remain equitable, compliant, and tax-advantaged for all employees. If a mid-year test indicates potential failure, employers can adjust HCE elections to rebalance the plan and ensure that it passes at year-end. 

Common Reasons Plans Fail and How to Fix Them

Even well-structured benefit plans can fail nondiscrimination testing if employers aren’t proactive. Luckily, you can correct many issues if they’re caught before the end of the plan year.

Top Reasons Benefit Plans Fail Nondiscrimination Testing

• HCEs participate at higher rates: If more HCEs enroll in a benefit plan than non-HCEs, the plan may fail the eligibility test.
• HCEs receive more tax-free benefits: If HCEs elect significantly higher contributions (such as to an FSA or DCAP), the plan could fail the contributions and benefits test.
• Key employees control a large share of benefits: If key employees receive more than 25% of total benefits for cafeteria plans, the plan fails the key employee concentration test.
• Errors in plan administration: Mistakes in classifying employees, tracking contributions, or setting eligibility rules can lead to compliance failures.

How to Fix Nondiscrimination Testing Failures

• Conduct mid-year testing: By testing mid-year, employers can identify potential failures early and make necessary adjustments.
• Adjust HCE elections before year-end: If the plan is failing, employers can reduce HCE benefit elections to bring it back into compliance.
• Modify plan eligibility or contribution rules: Employers may adjust eligibility requirements or employer contributions to encourage greater non-HCE participation.
• Improve employee education: Increasing awareness about benefits can help boost non-HCE participation rates, improving the chances of passing eligibility tests.

Best Practices for Passing Nondiscrimination Testing

Staying ahead of nondiscrimination testing requires a proactive approach. By implementing best practices, companies can avoid compliance issues and maintain the tax-advantaged status of their benefit plans.

1. Test Early and Often

Waiting until the end of the plan year to conduct nondiscrimination testing can lead to compliance failures with no time for corrections. Running tests mid-year and toward the end of the year allows employers to make necessary adjustments before it’s too late.

2. Encourage Greater Participation from Non-Highly Compensated Employees (NHCEs)

Plans often fail because HCEs enroll at much higher rates than NHCEs. Employers can:

• Offer better employee communication about benefits to NHCEs.
• Use matching employer contributions to incentivize participation.
• Make enrollment automatic where allowed.

3. Monitor Benefit Elections and Contributions

Regularly reviewing the elections and contributions of HCEs can prevent a plan from becoming top-heavy. Employers should track contribution levels and make adjustments before they create compliance risks.

4. Work with a Third-Party Administrator (TPA) or Payroll Provider

Nondiscrimination testing involves complex calculations and IRS regulations. Many employers partner with a TPA, payroll provider, or benefits consultant to ensure accurate testing and compliance throughout the year.

5. Review and Update Your Plan Design

If your plan consistently fails testing, it may be time to update eligibility requirements, contribution structures, or employer match strategies. Even though pivoting will take time and resources, strategic design changes can help ensure long-term compliance.

By following these best practices, HR and finance leaders can reduce the risk of nondiscrimination testing failures and keep their benefit plans fair, compliant, and tax-advantaged.

The post What You Need to Know About Nondiscrimination Testing appeared first on PrimePay.

You should also consider the actual structure of your benefits plan – specifically, whether a cafeteria plan that allows for pre-tax salary deductions for health and other benefits is beneficial for your employees and organization. While cafeteria plans can incorporate several benefit components, they can also be as simple as a premium only plan (POP).

What is a Premium Only Plan?

A premium only plan (POP) falls within the Internal Revenue Code’s Section 125, which lets employees use some of their earnings before taxes to pay for group insurance and other pre-tax contributions. It’s the simplest form of a cafeteria plan and a smart way for employers and employees to save on taxes.

Beyond the umbrella term of health insurance premiums, POPs can encompass various insurance products (including group term life insurance, disability insurance, and even dietary supplements), provided they align with the cafeteria plan’s rules.

Why You Should Offer a 125 Plan

Imagine your ideal benefits plan. Does it involve saving everyone money, empowering employees to be their best selves, or elevating your company’s competitive edge?

If you answered any (or all), you’re in luck. A POP is a win-win scenario where employees gain access to a cafeteria plan without bearing the full brunt of associated costs, and employers amplify their benefits offerings.

Moreover, integrating a 125 cafeteria plan nurtures your workforce and signals that you’re committed to fostering a supportive and financially savvy work environment. Offering a POP allows you to:

• Save everyone on pre-tax deductions: Employers realize 7.65% in FICA tax savings, and employees average 25% tax savings. 
• Invest in your team’s financial well-being.
• Set the stage for attracting the 80% of candidates who believe financial wellness is an integral part of a comprehensive benefits package. 
• Provide a menu of benefits that employees can tailor to their unique needs, enhancing their satisfaction and loyalty. 

Allowing employees to select benefits on their own time and for their unique needs adds value to the employee experience and ensures people will choose the plans and pre-tax savings that are right for them.

Maximizing Tax Savings with Cafeteria Plans

A 125 plan should be a part of your strategic financial planning, as it offers businesses and their employees a wealth of potential tax savings (pun intended). By skillfully navigating payroll taxes, a POP plan strengthens the financial defenses of both parties against unnecessary tax liabilities.

Whether it’s a health savings account, a flexible spending account, or even Archer medical savings accounts, pre-tax contributions made to these vehicles under a Cafeteria Plan can significantly reduce the tax burden.

Employer Benefits: Reducing Overhead with POP

The POP plan is a practical approach to managing overhead costs for employers. By embracing this plan, you can effectively shrink your taxable payroll. The result? Substantial savings, especially for many employers within the professional services sector. 

For example, let’s say small company Jerry’s Jungle Gyms offers a premium only plan. A possible scenario may look like the following:

• Each of the 20 employees chooses to contribute $3,000 pre-tax to their group health insurance through the POP. 
• The collective reduction in taxable income can lead to an estimated annual tax windfall of $4,590, which provides a tangible impact of nontaxable benefits on Jerry’s company balance sheet.
• Thus, Jerry’s offering of POP becomes a gesture of goodwill and a strategic move to retain talent and reduce costs.

How Employees Save Money with POP

Employees also find themselves in a favorable financial position using pre-tax dollars to pay for qualified medical expenses. By reducing their income taxes through pre-tax deductions, they witness a welcome boost in their take-home pay – a direct result of their lowered tax liabilities. 

Consider employee Susan, who earns an annual salary of $60,000. By participating in the POP and reducing her taxable income to $57,000, Susan could see her take-home pay rise by approximately $1,725. This example illustrates the tangible benefits of the premium-only plan, where saving money isn’t just a catchphrase but an actual outcome of strategic financial planning.

Tip: Focus on employees’ financial literacy. Because over 60% of people say improving financial literacy is their top educational priority, you’ll empower your employees to use your benefit offerings confidently and signal to top talent that you’re invested in their future.

Avoiding Common Pitfalls of POP Implementation

While the benefits of a POP are clear, it’s essential to note potential drawbacks.

Employers must be vigilant in complying with the intricacies of Section 125 plans, ensuring that their POP plan is secured by formal written documentation and adheres to the stringent nondiscrimination rules. 

The ‘use-it-or-lose-it’ rule is another aspect that demands attention, particularly with Flexible Spending Accounts (FSAs), a feature that employers can implement in their Cafeteria Plan. Employers must convey the importance of this rule to employees effectively and the constraints on altering Cafeteria Plan elections mid-year, which are only permissible during qualifying life events. 

Tip: HR must use clear and repeated communication regarding benefits and financial resources. PWC found that only 68% of employees report using the financial wellness services their employer provides, indicating that most benefit reminders only happen during administration season instead of throughout the year. 

The Role of a Third-Party Administrator in Managing a Cafeteria Plan

We’re not going to lie: Navigating benefits and employee questions can be time-consuming and confusing, which is why the expertise of a third-party administrator is invaluable. Many third-party administrators guide employers and help them:

• Create plan documents that comply with nondiscrimination rules and other regulations.
• Communicate the intricacies of the Cafeteria Plan to their employees.
• Educate participants on maximizing benefits. 
• Conduct regular compliance reviews to ensure the plan remains up-to-date with any changes in legislation or IRS guidelines. 

Furthermore, some third-party administrators and/or benefits advisors can offer valuable insights into optimizing the plan’s structure to better align with your company’s overall benefits strategy. They can recommend adjustments that enhance the plan’s effectiveness and employee satisfaction by analyzing participation data and employee feedback. This continuous improvement cycle ensures that the POP remains a valuable asset in your company’s benefits portfolio.

Eligibility and Participation Rules for POP

While companies of various structures – from S corporations to non-profits – can sponsor a Cafeteria Plan, not all individuals within these entities are eligible to reap the benefits. For instance, owners, shareholders, and their families may find themselves on the outside looking in when it comes to participation.

S corporation shareholders with over a 2% stake encounter unique restrictions under a Cafeteria Plan These individuals and their immediate family members are barred from participating—a rule extending to the intricate web of relationships, including spouses, children, and grandparents. This limitation underscores the need for S corporations to carefully consider the implications of their ownership structure on their ability to participate in a Cafeteria Plan.

Keep an eye on these eligibility nuances to maintain a fair and compliant plan with IRS regulations.

Maximize Pre-Tax Savings with a Cafeteria Plan

It’s clear that Cafeteria Plans offer a compelling blend of tax savings, employee satisfaction, and compliance considerations. Whether you’re an HR leader looking for new ways to retain top talent or a business owner weighing the benefits of implementing a Cafeteria Plan, the takeaway is undeniable: they help build a thriving, financially healthy work environment for everyone involved.

The post Section 125 Premium Only Plans (POP): What Employers Should Know appeared first on PrimePay.

But arguably one of the most important decisions you’ll make with regards to your employees is how you’re going to handle payroll.

More than 95.5 percent of employee’s wages are received through direct deposit. The remaining employees receive a paper check (2.85%), a payroll card (..60%), or are paid by other methods (.5%). 

While many small businesses still choose to use paper checks for their payroll, the cost of issuing a check — $2.01 to $4.00 per check — makes this an expensive payroll option.

But do you have to use paper checks? What are your recordkeeping requirements? And most importantly, what pay stub laws do you need to know about in your state?

In this article, we’ll cover the basics of state-by-state pay stub requirements.

What is a Pay Stub?

Pay stubs are documents that provide employees with a detailed breakdown of their earnings and deductions. They serve as accurate records of total hours worked and total wages earned, helping employees keep track of their income.

Pay stubs are also essential for employers to comply with various labor laws and regulations.

A pay stub includes key information such as gross earnings, also known as gross wages or gross pay, which represent the total amount an employee earns before withholdings and deductions. 

It also shows the number of hours worked during a specific pay period and the hourly rate. Deductions, which are subtracted from the gross earnings, can include federal and state income taxes, Social Security and Medicare taxes, healthcare and retirement contributions, and any other voluntary deductions authorized by the employee.

Taxes withheld, including federal income tax and state income tax (if applicable), are listed on the pay stub, along with any other mandatory deductions such as unemployment insurance or workers’ compensation. The net income, the amount left after deducting taxes and other deductions, is the final figure displayed on the pay stub, representing the employee’s take-home pay.

In conclusion, pay stubs play a crucial role in providing employees with a comprehensive breakdown of their earnings and deductions. They serve as proof of income and ensure compliance with labor laws. It is important for employers to accurately generate pay stubs that reflect an employee’s wages, deductions, and net income.

Do I Have to Provide a Pay Stub?

Besides paychecks, small businesses need to know the requirements for pay stubs. According to the Fair Labor Standards Act (FLSA), employers are not required to provide employees with pay stubs. However, the FLSA does require that employers keep accurate payroll records, including of the number of hours worked and employee wages, as well as employee information such as name and social security number, address, and hourly rate of pay. 

State law gets more complicated. Each state has its own pay stub requirements that employers must follow. Employers that have staff in more than one state must follow the requirements of the state where each employee resides and works. Employees that work in multiple states might be subject to further regulations, depending on which states are involved.

Quick Tip: Be sure to stay in the know about any state-by-state minimum wage updates.

No matter what your situation, ensure you’re complying with state regulations before choosing how to go about paying your employees. According to IRIS FMP, these are the requirements by each state for the delivery of employee pay information.

All states fall into one of these categories for pay stub requirements: 

• No requirement states
• Access states
• Access/print states
• Opt-out
• Opt-in

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States That Do Not Require Pay Stubs

The following states do not require employers to provide a statement that details an employee’s pay information, though it’s a good practice to issue employee’s pay stubs regularly and aligned with your pay period. Because there’s no required format, an employer may deliver a pay statement electronically if the employer elects to provide pay stubs to employees.

• Alabama
• Arkansas
• Florida
• Georgia
• Louisiana
• Mississippi
• Ohio
• South Dakota
• Tennessee

In states without a pay stub requirement, it’s up to the employer to decide what information to provide on the statement.

States Requiring Access Pay Stubs

The following states require employers to furnish or provide a statement with details of an employee’s pay information. There’s no requirement for the pay statement to be in writing or issued as paper pay stubs. A reasonable interpretation of this law suggests that an employer can comply with the pay stub requirements in these states by furnishing an electronic pay stub. Employees must be able to access the electronic pay stubs.

Note: While most states have adopted this interpretation, some state agencies may require additional features like the capability to print electronic statements. 

• Alaska
• Arizona
• Idaho
• Illinois
• Indiana
• Kansas
• Kentucky
• Maryland
• Michigan
• Missouri
• Montana
• Nebraska
• Nevada
• New Hampshire
• New Jersey
• New York
• North Dakota
• Oklahoma
• Pennsylvania
• Rhode Island
• South Carolina
• Utah
• Virginia
• West Virginia
• Wisconsin
• Wyoming

States Requiring Access or Print Pay Stub Options

These states require employers to provide a written or printed pay statement that details the employee’s pay information. The pay statements are not required to be delivered with the check or in another medium. 

A reasonable interpretation of the law says an employer in these states can furnish an electronic paycheck stub that employees can print, thereby complying with the pay stub requirements. Furthermore, employers must ensure their employees have access to electronic pay stubs and the capability of printing electronic statements.

Note: Most state agencies have adopted this interpretation. However, some state agencies may vary. Those agencies have offered an interpretation that might include additional requirements — such as an employee’s consent to receive the pay stub electronically. These states include:

• California
• Colorado
• Connecticut
• Iowa
• Maine
• Massachusetts
• New Mexico
• North Carolina
• Texas
• Vermont
• Washington

States Requiring Opt-Out Options

Some states require employers to provide employees with the ability to opt out of any paperless pay program it offers. This generally applies to cases where the employer rolls out a system to furnish electronic pay stubs. The following states are opt-out states, meaning, an employee that opts out of electronic delivery would begin receiving their paper paycheck stub once again. 

• Delaware
• Minnesota
• Oregon

States Requiring Opt-In Options

Currently, Hawaii is the only opt-in state that requires employee consent before an employer implements an electronic paperless pay system. Employers in Hawaii must provide a written or printed pay statement with details of the employee’s pay information unless the employee agrees to receive their pay statement electronically.

Check with each state’s taxing authority to make sure you follow their rules and follow up each year to ensure you have the latest requirements. You can find a list of every state’s online tax agency at the Federation of Tax Administrators.  

Get in Touch

While there’s no federal law that requires pay stubs, there are state laws you must follow and ensure you meet all of the pay stub requirements. Failure to comply with your state regulations can add up to stiff fines — and that’s an expense your small business doesn’t need. Fortunately, PrimePay is here to help make payday a breeze. 

With PrimePay’s payroll software and payroll service solutions, you can easily adhere to state payroll requirements. PrimePay helps you run payroll accurately and on time, and it ensures compliance with all payroll-, human resources-, and tax-related laws and regulations. 

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As a refresher, HSAs allow individuals to contribute money (up to a maximum amount set annually by the IRS) to be spent tax-free on qualified medical expenses. Unlike health flexible spending accounts (health FSAs) and health reimbursement arrangements (HRAs), HSAs are owned by the participant; this means that funds roll over indefinitely and the account is portable.

Eligibility Rules

While the decision to contribute to an HSA may sound like a no-brainer, there are strict eligibility rules that employers and participants must keep in mind to avoid making excess contributions. It is important to note that HSA eligibility is determined on a monthly basis and the rules relate to whether an account holder is eligible to contribute to the account, not whether they can receive tax-free distributions; if there are accumulated funds in an HSA, the account holder always has access to those funds and is able to receive tax-free distributions for qualified expenses.

In general, an individual is eligible to contribute to an HSA if they are covered under a qualifying high-deductible health plan (QHDHP) with no impermissible coverage, cannot be claimed as a tax dependent on another taxpayer’s federal income tax return, and are not entitled to Medicare. A QHDHP must meet certain minimum deductible and maximum out-of-pocket limits.

Minimum Deductible and Maximum Out-of-Pocket Expenses for QHDHPs

The 2020 QHDHP minimum deductible and maximum out-of-pocket limits are:

While determining whether a plan qualifies as a QHDHP may be easy, it may be more difficult to determine whether an employee is enrolled in impermissible coverage or has their HSA eligibility disrupted by Medicare entitlement. In general, it’s the account holder’s responsibility to determine whether they are eligible to contribute to an HSA.

Let’s break down a few common types of impermissible coverage.

General Purpose FSA/HRA

The most common disruptor of HSA eligibility is impermissible coverage in the form of a general-purpose health FSA or HRA. An otherwise HSA eligible individual will be ineligible to make HSA contributions for any month that they are enrolled in, or covered under, a general-purpose health FSA or HRA that pays first-dollar coverage.

This issue can arise when an employer sponsors multiple pre-tax benefits, including an HSA, health FSA, or HRA, but it is more common when an employee is covered under a spousal employer’s general-purpose health FSA or HRA which permit reimbursement for §213(d) expenses incurred by the employee, their spouse and dependents.

When an employer does sponsor multiple accounts, an employer can design their health FSA or HRA as either a post-deductible or limited purpose benefit to maximum tax savings and avoid HSA disruption. A post-deductible benefit will not reimburse expenses until after the minimum QHDHP deductible is met. A limited purpose benefit would only reimburse preventive care, dental or vision expenses.

VA Benefits

HSA eligibility may also be disrupted if an individual receives medical benefits from the Department of Veterans Affairs (VA). In general, an individual is ineligible to contribute to an HSA for any month that they have received VA medical benefits (other than allowable preventive care, dental or vision coverage) at any time during the previous three months, unless such care was in connection with a service-connected disability (i.e., a disability incurred or aggravated in the line of duty in the active military, naval or air service).

For example, if an employee receives VA benefits in January (for medical care not related to a service-connected disability), they would be ineligible to make HSA contributions for the months of January, February, March, and April. Assuming that the individual does not receive any VA medical benefits in the months of February, March, and April, they would then be able to resume making HSA contributions in May.

Note that this rule does not apply to TRICARE. Any individual receiving benefits under TRICARE is not eligible to contribute to an HSA (even if they are also enrolled in a QHDHP), because TRICARE does not meet the minimum annual deductible requirements.

Medicare

Medicare entitled individuals (i.e., eligible for and enrolled in Medicare) are ineligible to contribute to an HSA. While this rule may seem easy, the biggest hurdle in determining HSA disruption due to Medicare eligibility arises from retroactive Medicare entitlement. Medicare entitlement can be delayed when an employee works past age 65 or has a spouse that is still working (so they continue to be enrolled in an employer’s group health plan).

When they do sign up for Medicare coverage, that coverage will be retroactive six months prior to the month in which they applied for benefits (but no earlier than their first month of eligibility). Although they may not initially enroll until later in their initial enrollment period or during a special enrollment period, they will be ineligible to make HSA contributions for all months that they become retroactively entitled to Medicare benefits. Because of this, HSA account holders planning to enroll in Medicare must be careful to adjust their HSA contributions to account for the retroactive enrollment.

PrimePay Can Help Guide You Through HSAs

These rules do not encompass all of the eligibility requirements for HSA individuals and other plan designs or benefits may impact HSA eligibility. PrimePay is here to help answer all your questions about HSAs including HSA eligibility for employees.

Schedule a call today

Please read our disclaimer here.

The post How to Know If Your Employee Is HSA Eligible appeared first on PrimePay.

But before we dive into the details, let’s cover what health reimbursement arrangements (HRA) are.

What are HRAs?

Defined by the Centers for Medicare and Medicaid Services (CMS), “health reimbursement arrangements (HRAs) are a type of account-based health plan that employers can use to reimburse employees for their medical care expenses.”

An HRA is a type of account-based group health plan funded solely by employer contributions. No salary reduction contributions or other contributions by employees are permitted. These plans often reimburse deductibles, copays, coinsurance, and prescription out-of-pocket costs.

Now, it’s important to note that there are currently six different plan types for HRAs, two of which were introduced on Jan. 1, 2020.

What are the six HRA plan types?

The six different plan types for HRAs are structured as follows:

1. An HRA integrated with a group health plan.
2. Limited-Purpose HRA: Dental, vision and preventative care expenses only.
3. Retirement HRA.
4. Qualified Small Employer HRA (QSEHRA).
5. Individual Coverage HRA (ICHRA).
6. Excepted Benefit HRA (EBHRA).

Let’s review each one to help you decide which works best for your organization.

1. An HRA integrated with a group health plan.

To put this type of HRA into perspective, let’s say an employer chooses a high deductible health plan (HDHP) with a $2,000 deductible for a single employee, which results in a lower premium.  The employer realizes that covering medical expenses out of pocket is a very high burden for the employee, and they decide to open an HRA to help reimburse deductible expenses. To keep the employer’s exposure to a minimum, the employee will be responsible to pay the first $500 of the deductible with the employer covering the remaining $1,500.

For an employer to offer this type of HRA, the HRA must be paired with a group health plan to satisfy the requirements of health care reform. Employers that do not sponsor a group health plan are not eligible to sponsor this type of HRA.

2. Limited-Purpose HRA.

A Limited-Purpose HRA may only reimburse vision, dental and preventative care expenses.

An employer can offer this type of HRA in conjunction with a group HDHP. This type of HRA is also compatible with a Health Savings Account (HSA).  If you currently offer an HSA to your employees, this type of HRA might be right for you.

3. Retirement HRA.

A retirement HRA reimburses medical expenses incurred after retirement. This type of HRA is only available to employees once they have retired.

4. QSEHRA

A Qualified Small Employer Health Reimbursement Arrangement (QSEHRA) is a tax-deductible benefit that allows more flexibility for employers who may not be able to afford traditional group health coverage; Similar to integrated HRAs, it’s owned and funded by the employer.

According to the U.S. Centers for Medicare & Medicaid Services, “Certain small employers—generally those with less than 50 employees that don’t offer a group health plan—can contribute to their employees’ health care costs through a Qualified Small Employer Health Reimbursement Arrangement (QSEHRA).”

Below are some additional details:

• Employers are only eligible to sponsor a QSEHRA if they do not sponsor any other form of group health plan (including dental, vision, and health flexible spending accounts) and employees must be enrolled in some form of minimum essential coverage (MEC) to be eligible for reimbursements.
• Employers must provide the benefit on the same terms to all eligible employees; maximum reimbursement amounts may vary only based on age or family size.
• QSEHRA is limited in 2021 to $5,300 for single only and $10,700 for family coverage.

5. ICHRA

According to the U.S. Centers for Medicare & Medicaid Services, an individual coverage Health Reimbursement Arrangement (ICHRA) “is an alternative to traditional group health plan coverage to reimburse medical expenses, like monthly premiums and out-of-pocket costs like copayments and deductibles.”

ICHRAs are more flexible than QSEHRAs with no limit on the reimbursement amount or company size.

Common qualifying expenses can include individual insurance premiums, copays, deductible payments, coinsurance, doctor’s office visits, exams, lab work, hospital visits, and prescription drugs.

Employers of any size may offer an ICHRA including applicable large employers (ALEs) who are subject to the employer mandate. This is different than QSEHRAs, which may also reimburse individual medical premiums, but are limited to non-ALEs who do not offer any other form of group health plans (including dental, vision, and health flexible spending accounts). In fact, a large employer can satisfy both sections of the employer mandate (i.e., the offer of coverage and affordable/minimum value requirements, subject to special rules and calculations) by offering a standalone ICHRA to their full-time employees or offering an ICHRA alongside a traditional group health plan (to different classes of employees).

Below are some additional details:

• ICHRAs can be used to reimburse premiums for individual health insurance by employees not offered coverage under an employer group health plan.
  • This is useful if an employer offers a group health plan but has an employee class carved out from eligibility under their plan, like part-time or seasonal employees.
• Eligible employees must be enrolled in either individual medical coverage or Medicare.

6. EBHRA

An excepted benefit HRA (EBHRA), provides a sizeable employer-funded account while allowing employees to enroll in their choice of primary health coverage, if any. In fact, employees eligible for the EBHRA may choose not to enroll in any other form of coverage, and to participate in the EBHRA as a completely standalone benefit. For 2021, the maximum reimbursement amount is $1,800.

According to the U.S. Centers for Medicare & Medicaid Services, “this type of HRA isn’t allowed to reimburse premiums for individual coverage, traditional group health plans (other than COBRA or other continuation coverage), or Medicare.”

Employers of any size may offer an EBHRA, including applicable large employers (ALEs) who are subject to the employer mandate. Unlike ICHRAs, the employer must also offer all EBHRA-eligible employees a traditional group health plan in addition to the EBHRA; therefore, an ALE would not be able to satisfy the employer mandate solely by offering an EBHRA.

Conclusion.

When deciding which type of HRA to offer your employees, it’s important to speak with a professional to determine which plan is best for your organization. As an additional resource, the U.S. Centers for Medicare & Medicaid Services put together a comprehensive chart to assist with decision-making when it comes to exploring coverage options. Click here to view the chart.

This article also includes excerpts from our blogs “HRAs: The Good, the Basics & the Savings”. Click the below links to read more scenarios and advantages of each plan type, as well as additional employer information.

• HRAs: The Good, the Basics & the Savings

How PrimePay can help.

PrimePay can administer pre-tax benefits for your company, including HRAs, HSAs, and FSAs. When you choose PrimePay’s pre-tax benefit plan administration, you receive a dedicated service team, access to our support portal, automated claims processing, and a PrimePay debit card and mobile app.

Schedule a call today

Please read our disclaimer here.

The post Health Reimbursement Arrangements (HRA): Which One Should I Offer? appeared first on PrimePay.

The following is a list (not comprehensive) of common compliance issues regarding HRAs. PrimePay is in a position to help with all of them; learn more about that at the bottom of this post.

Compliance Issue 1 – ERISA

HRAs are employee welfare benefit plans subject to ERISA. While many of ERISA’s requirements can be addressed up front in the creation of the plan, Plan Sponsors also must comply with ERISA’s Claims Procedures and Appeals Rules as well as the Record Retention rules.

Compliance Issue 2 – SBC Distribution

Also as ERISA plans, HRAs are subject to the ACA’s Summary of Benefits and Coverage (SBC) requirement. SBCs describing the benefits provided by the HRA must be provided to all plan participants.

Compliance Issue 3 – PCORI Fees

All HRA Plan Sponsors must file IRS Form 720 and pay the new PCORI Tax each year on or before July 31st. These fees apply to policy and plan years ending after October 1, 2012 and before October 1, 2019 (i.e., for seven full policy or plan years). For calendar-year plans, the fees would apply for calendar plan years 2012 through 2018.

Compliance Issue 4 – HIPAA

Health Insurance Portability and Accountability (HIPAA) and the related Health Information Technology for Economic and Clinical Health (HITECH) rules impose numerous requirements to protect health information used in the administration of HRA plans. PrimePay incorporates the HIPAA / HITECH rules into our operations and communications with clients and plan participants.

Compliance Issue 5 – COBRA

For certain plans, a special exception may apply where the employer is not required to offer COBRA coverage or can limit the duration of COBRA coverage to the plan year in which the qualifying event occurs. HRAs will rarely qualify for the special exception. So, in general, employers with HRAs are required to offer COBRA coverage to qualified beneficiaries who would otherwise lose their HRA coverage due to a qualifying event, even if the HRA includes a spend-down feature.

Further, employers with HRAs generally must offer COBRA continuation coverage beyond the current plan year for the maximum coverage period applicable under COBRA. If an employee elects COBRA coverage for his or her HRA, the employee is required to have access to their unused balance as well as any additional accruals provided to similarly situated employees, less any year-to-date reimbursements. COBRA compliance for HRAs (and FSAs) can be complicated.

Although employers may be comfortable applying COBRA’s rules to their group health insurance plans, the same COBRA rules may be difficult to apply to HRAs

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