COBRA insurance requires employers with 20 or more employees to offer temporary continuation of group health coverage after certain qualifying events. Compliance is more than just extending coverage. It also involves strict timelines, required notices, accurate recordkeeping, and ongoing administration. Most notably:

• COBRA coverage is triggered by qualifying employment or life events
• Employers must meet specific notice and deadline requirements
• Coverage duration varies based on the event
• State continuation laws add complexity
• Missed deadlines can result in significant penalties

Outsourcing COBRA administration helps employers reduce risk, ensure compliance, and eliminate manual administrative burden.

Need help? PrimePay automates COBRA administration so you stay compliant without manual work.  Talk to a COBRA Compliance Specialist Today

The Hidden Complexity of COBRA

Regulatory compliance is one of those responsibilities that is never truly “done.” Employment laws change often. Benefits regulations shift all the time, and deadlines change. For employers, especially small and mid-sized businesses, staying current can feel like a full-time job. This added pressure comes on top of managing the business itself.

COBRA insurance is a prime example.

The rules are well established, but the execution is anything but simple.

Employers need to know:

• Who is eligible for COBRA
• What events trigger coverage
• How long the coverage lasts
• Which notices to send
• When to send those notices.

A missed deadline or incomplete notice can result in penalties that add up quickly.

The good news is that employers do not have to navigate COBRA compliance alone. Working with skilled vendors and compliance specialists can greatly cut down both risk and administrative burden. Employers still need a clear working knowledge of how COBRA health insurance works, even when outsourcing. They need to know their responsibilities are under the law.

For employers looking to simplify the process, PrimePay can automate COBRA administration so compliance happens consistently, without manual tracking or guesswork.

What is COBRA Insurance?

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law.  This law allows workers, spouses, and dependents the right to remain on an employer’s group health plan for a limited period following events such as job loss, reduced work hours, divorce, or death of the covered employee.

The coverage itself does not change; what changes is who pays for it and how long it lasts.

For employers, COBRA insurance is a must. It involves strict notice rules, specific timelines, and ongoing administrative tasks. Compliance is not a one-time task triggered by a termination. It starts when coverage begins and continues until the COBRA period ends.

How Does COBRA Insurance Work?

First, a qualifying event occurs. This is an event that leads an employee, spouse, or dependent to lose group health coverage. Once the event happens, COBRA eligibility is triggered.

Next, eligible individuals must be notified of their right to elect COBRA coverage. They have a set time to decide if they want to keep their coverage.

If COBRA is elected, coverage continues retroactively to the date group coverage would otherwise have ended. This is as long as the required premiums are paid. Individuals usually cover the full premium cost and a small admin fee.

The employer, or their COBRA administrator, is key in this process. Employers must track events, send notices, and manage deadlines. Also, they must ensure coverage is administered correctly. These responsibilities exist whether COBRA is handled internally or outsourced.

Not all employers must follow federal COBRA requirements, which leads to the next key question.

Which Employers Are Required to Offer COBRA?

Federal COBRA applies to employers that employed 20 or more employees on more than 50% of typical business days in the previous calendar year, and that sponsor a group health plan.

Both full-time and part-time employees are counted toward the threshold. Add up part-time hours to determine full-time equivalents. If an employer meets the size requirement, COBRA rules usually last for the next calendar year.

There are several important exceptions. Federal COBRA does not cover plans from: 

• The federal government
• State or local governments
• Churches and some church-related organizations

Many of these employers also face similar continuation rules under other laws.

Get a COBRA compliance check today

Who Is Eligible for COBRA Coverage? 

COBRA coverage is for qualified beneficiaries. This term includes more people than many employers think. Typically, it covers:

• Covered employees
• Spouses of covered employees
• Dependent children who were covered under the plan

Eligibility is not automatic simply because someone is enrolled in the plan. COBRA eligibility comes from a qualifying event that causes a loss of coverage. Each person affected by the event can choose COBRA coverage on their own.

An employee who terminates employment may be eligible for COBRA. Their spouse and dependents may qualify too, even if the employee doesn’t choose coverage. This distinction is critical for notice delivery and compliance.

COBRA Qualifying Events Explained

A qualifying event triggers a loss of coverage. It also allows you to choose COBRA health insurance. The type of event also determines how long COBRA coverage may last.

For employees, the most common qualifying events are:

• Voluntary or involuntary termination of employment, excluding termination for gross misconduct
• Reduction in work hours that results in loss of health coverage

Note that gross misconduct is often misunderstood. While COBRA does not apply if someone is fired or gross misconduct. However, the standard for this is high and not clearly defined in law. Employers who incorrectly classify a termination as gross misconduct risk significant penalties.

Meanwhile, for spouses and dependents, qualifying events may include:

• Death of the covered employee
• Divorce or legal separation
• The employee becoming entitled to Medicare
• A dependent child losing eligibility under the plan’s rules

How Long Does COBRA Coverage Last? 

The standard COBRA coverage period is 18 months. This applies to employees and their dependents after job loss or reduced hours. Coverage may last up to 36 months for spouses and dependents. This applies after events such as death, divorce, or loss of dependent status.

Additionally, certain circumstances can extend coverage beyond the standard period. If a qualified beneficiary is determined to be disabled by the Social Security Administration within the first 60 days of COBRA coverage, the coverage may be extended to 29 months.

Conversely, COBRA coverage can end early if:

• Premiums are not paid on time
• The employer stops offering group health coverage
• The individual becomes covered under another group health plan
• The individual becomes entitled to Medicare after electing COBRA

COBRA Notice Requirements for Employers

COBRA compliance hinges on timely, accurate communication. Notices help employees and their dependents learn about their rights, deadlines, and coverage options.

Initial COBRA Notice

The initial COBRA notice must be provided within 90 days of the start of group health coverage. It informs employees and their spouses of their COBRA rights. It explains qualifying events and outlines who must notify whom. This notice usually goes out when coverage begins. Employers must document it properly and deliver it to the correct recipients.

Avoid notice mistakes with PrimePay

Qualifying Event Notice

When a qualifying event occurs, responsibility for notification depends on the event itself. Employers must inform the plan administrator about events like termination, reduced hours, or death within 30 days. Employees or beneficiaries must notify the plan about events like divorce or loss of dependent status, usually within 60 days.

COBRA Election Notice

The election notice is the most critical communication in the COBRA process. When the plan administrator is told about a qualifying event, they must send the election notice within:

• 14 days, or
• 44 days after the qualifying event if the employer is also the plan administrator

This notice explains coverage options, costs, deadlines, and what happens if you don’t choose coverage.

Stop worrying about deadlines — PrimePay automates it for you.

Ongoing Employer Communication Responsibilities

Employers need to do more than just send formal notices. They must: 

• Keep accurate records
• Respond to any coverage changes
• Manage premium payments
• Communicate regularly during the COBRA period

Poor recordkeeping is one of the most common sources of compliance risk.

COBRA Compliance Timeline

COBRA compliance is highly time-sensitive. Each step follows a defined sequence, and delays compound risk. The timeline starts with the qualifying event. Next, employers get notified. Then, election notices are delivered. After that, employees have their election period, followed by deadlines for premium payment. Employers have their own deadlines, and employees have separate, but equally strict, deadlines.

Missed deadlines often lead to COBRA compliance failures. This is common when administration is done manually or inconsistently. Timeline issues often lead employers to partner with a third party for COBRA management. 

“I counsel employers to really work with a COBRA administrator,” Tzvia Feiertag, member of the firm in the Employee Benefits/Executive Compensation practice at Epstein Becker & Green, P.C., told HR Dive. “There’s a lot of pitfalls in not meeting the deadline requirements. Working together with a COBRA administrator makes it easier for an employer to manage.”

State COBRA and Continuation Coverage Laws

Federal COBRA is only part of the picture. Many states have laws for continuation coverage. These laws often apply to employers with fewer than 20 employees. They can also extend coverage beyond what federal rules require. 

“You can almost think of it as two separate circles,” Christine Keller, an attorney with Groom Law Group in Washington, D.C., told the Society for Human Resource Management (SHRM). “There’s mini-COBRA and there’s federal COBRA, and they don’t really intersect. They all start as laws that are similar to [federal] COBRA, but then each state will have its own little twist.”

State laws vary in:

• Eligibility rules
• Coverage duration
• Notice requirements
• Premium limits

For employers with operations in multiple states, it adds complexity. This can lead to inconsistent compliance.

How to Ensure Ongoing COBRA Compliance

Effective COBRA compliance requires more than knowledge of the rules. It requires systems and processes that ensure deadlines are met consistently. Best practices include:

• Tracking qualifying events and deadlines centrally
• Maintaining detailed documentation
• Monitoring regulatory updates
• Preparing for audits
• Assigning clear internal responsibility

Many employers face competing tasks alongside core business priorities. That’s why outsourcing is often the best choice.

How Employers Simplify COBRA Insurance with PrimePay

COBRA compliance is mandatory, but managing it does not have to be burdensome. There’s a reason that more employers than ever outsource COBRA administration (79% versus 64% in 2015) even as the outsourcing of other benefits functions have declined. Employers outsource COBRA administration to lower risk, improve accuracy, and free internal teams from manual tracking.

PrimePay provides comprehensive COBRA administration designed to support compliance from start to finish. By automating timelines, notices, and documentation, PrimePay helps employers meet their obligations consistently and confidently.

PrimePay COBRA Administration Includes:

• Automated COBRA timelines and notifications
• All notices delivered on time
• Eligibility tracking and documentation
• Participant billing and payment management
• Reporting for audits and IRS compliance

Need help? Stop worrying about deadlines or noticing mistakes: PrimePay automates COBRA administration, so you stay compliant without manual work. Get a COBRA compliance check today.

Additional Resources for Employers

The DOL put together an informational guide titled “An Employer’s Guide to Group Health Continuation.” It includes information on COBRA notices and election procedures. You can review The DOL’s Guide to Group Health Continuation for Employers for additional information on the topics outlined above.

Additional guidance is also available through the DOL’s website on COBRA Continuation Coverage.

Request a COBRA Administration Quote from PrimePay today

Please read our disclaimer here.

FAQ About COBRA Insurance & Compliance

What happens if you miss a COBRA deadline?

Missed deadlines can result in excise taxes, statutory penalties, and potential litigation.

Who pays for COBRA coverage?

Qualified beneficiaries generally pay the full premium plus an administrative fee.

What’s the difference between COBRA and the ACA Marketplace?

COBRA continues employer group coverage, while Marketplace plans are individual policies.

Who provides COBRA administration?

Employers may administer COBRA internally or outsource to third-party administrators.

What are alternatives to COBRA health insurance?

Alternatives include Marketplace plans, spousal coverage, or Medicaid, depending on eligibility.

Is there a grace period for COBRA payments?

Yes. Initial and monthly payments have defined grace periods.

How can I extend my COBRA coverage beyond the initial period?

Extensions may apply in cases of disability or secondary qualifying events.

The post COBRA Compliance for Employers: Requirements, Notices, and Coverage Rules (Updated Guide) appeared first on PrimePay.

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.

So when it comes to retaining employees and watching your bottom line, considering cost-of-living adjustments is a smart way to ensure the company and its people get the most out of the 2026 increases. 

Below, we provide background on COLA, how the adjustments are calculated, and any changes to the 2026 thresholds.

What is a COLA?

COLA, or Cost-of-Living Adjustments, are increases designed to help wages, salaries, or benefits keep pace with inflation. They’re most commonly associated with Social Security, but you’ll also see them in union agreements, pensions, and even some private-sector pay structures.

The idea behind COLA is simple: as the cost of goods and services rises—things like housing, food, and healthcare—people need their income to stretch just as far. These adjustments are usually tied to measures like the Consumer Price Index (CPI), which tracks changes in the cost of everyday essentials.

For example, if inflation bumps the cost of living by 3%, a 3% COLA ensures folks can still afford what they need. It’s especially important for retirees or anyone on a fixed income who can’t easily adjust their earnings to match inflation.

How Are Cost-of-Living Adjustments Calculated?

COLA aren’t one-size-fits-all; instead, they can be calculated using different methods depending on the audience and purpose. 

Here’s a breakdown of the most common approaches:

Consumer Price Index (CPI)

This is one of the most widely used tools for calculating COLA, especially in the private sector. The Bureau of Labor Statistics (BLS) determines the CPI based on a basket of goods and services that the average household uses, such as housing, groceries, transportation, and healthcare. They track the average prices of these items and calculate changes monthly and annually.

What’s helpful for businesses and HR teams is that CPI data isn’t just national—it’s broken down by region (South, West, Midwest, and Northeast). 

Worth Noting: The regional breakdown can be critical if your organization operates in multiple locations, giving you a more precise picture of cost-of-living changes in each area. Due to its comprehensiveness and accuracy, many consider the CPI the gold standard for cost-of-living calculations.

Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)

The Social Security Administration (SSA) relies on the CPI-W for its annual adjustments to Social Security and Supplemental Security Income (SSI) benefits. Like the CPI, the CPI-W measures changes in the prices of goods and services, but it focuses on a narrower audience: urban wage earners and clerical workers.

Worth Noting: The methodology is identical to the CPI, but the data set focuses on costs experienced by this targeted group. This calculation reflects the spending patterns of a specific subset of workers, which can be especially relevant for organizations with a similar workforce demographic. 

Consumer Price Index for All Urban Consumers (CPI-U)

Think of the CPI-U as the big-picture version of the CPI-W. It measures price changes for the same goods and services but casts a wider net, including retirees, self-employed professionals, temporary workers, and technical employees. The CPI-U represents about 93% of the total U.S. population, making it the broadest measure of cost-of-living changes.

Worth Noting: For organizations with diverse workforces, the CPI-U may be the most relevant index to consider when planning salary adjustments or budgeting for benefits. Its broader demographic coverage means it captures a more inclusive snapshot of how inflation impacts employees.

2026 COLA Adjustments and Thresholds

Over 72.5 million Americans’ Social Security and Supplemental Security Income benefits will increase by 2.8% in 2026. 

There are also other adjustments to benefits, including the following:

Health Savings Accounts (HSAs)

The contribution limits for HSAs for 2026 were announced earlier this year. The annual contribution limit for individual coverage is increasing by $100, to $4,400. The annual contribution limit for family coverage is increasing by $200, to $8,750. The catch-up contribution limit for those aged 55 and older will remain $1,000.

Health Flexible Spending Accounts (FSAs)

For 2026, the dollar limit on employee salary reduction contributions to FSAs is $3,400 (up from last year’s cost of $3,300). Additionally, 2026 health FSAs may permit a maximum rollover of up to $680 into the following plan year (up from $660).

Qualified Transportation Fringe Benefits

The monthly limit for transit/parking benefits is increasing to $340 in 2026 (up from $325). 

Qualified Small Employer Health Reimbursement Accounts (QSEHRAs)

For 2026, the maximum amount of payments and reimbursements under a QSEHRA can’t exceed $6,450 for individual coverage and $13,100 for family coverage.

Small Business Health Care Tax Credit

For 2026, the average annual wage level at which the tax credit begins to phase out for eligible small employers is $34,100.

Dependent Care Assistance Program (DCAP)

Parents and caregivers rejoice! The DCAP limit has increased to $7,500/$3,750 for calendar year 2026.

Leverage Technology for Financial Decisions

Want to ensure you’re making the right decisions for your organization and people, especially with COLA adjustments and other economic changes?

Look to your HR software. Specifically, it’s important to use a platform (if you aren’t already) that has forecasting features that allow you to reflect on the past and help predict the future to navigate any financial or human resource changes.

Suzanne Fohl, CFO of PrimePay, explains how she uses forecasting: “I can see Budget vs. Actual in real time. I can use our timeline model to model different scenarios, different headcounts, and different planning methodologies as our business continues to evolve.”

Make the Right Decisions For Your Company

It’s important to accurately apply annual cost-of-living increases for employee benefit amounts and determine any other impact these adjustments may have on your business. You can use these adjustments to your advantage, too, since companies often use COLAs to:

• Ensure competitive salaries to attract good employees.
• Help employees relocate to an area with a higher cost of living.
• Increase retirement benefits and other benefits. 

And if you have too much on your plate, or are having trouble navigating compliance issues, consider partnering with a solutions provider or specialist to get the guidance you need and help ensure you’re prepared for next year. 

The post Cost-of-Living Increases: What to Expect in 2026 appeared first on PrimePay.

One of those upcoming adjustments for 2026 is the out-of-pocket maximums and projected employer mandate penalties under the Affordable Care Act (ACA).

A Quick Review of the ACA

The Affordable Care Act (also referred to as Obamacare) is a healthcare reform law enacted in 2010 that makes health insurance coverage affordable and available to more people, expands Medicaid, and seeks to lower the cost of healthcare by supporting innovative medical care delivery methods.

The ACA mandates certain employer-sponsored coverage responsibilities and benefits that depend on the structure and size — i.e., the number of full-time employees and full-time equivalents — of the business.

If you have 50 or more full-time employees or full-time equivalents, your business is considered an Applicable Large Employer (ALE).

Two provisions of the ACA apply only to ALEs:

• Employer shared responsibility provisions. This provision means you must offer minimum essential health care coverage to your full-time employees and their dependents or make an employer shared responsibility payment to the Internal Revenue Service (IRS) — also referred to as the “employer mandate penalty” — if you fail to provide coverage.
• Employer information reporting for offers of minimum essential coverage. This provision means you also have to send annual reports to the IRS about the health care coverage you offered if any — and send a statement to employees with the same information that you provided to the IRS.

Note: Non-ALEs that sponsor self-insured group medical plans must also report offers of minimum essential employee coverage.

ACA Out-of-Pocket Maximums for 2026

In 2026, the ACA out-of-pocket maximum for employers with sponsored group health plans can impose on enrolled employees will be $10,600 for individual coverage (up from $9,200 from 2025) and $21,200 for family coverage (up from $18,400 from last year). The 2026 out-of-pocket maximum (OOPM) reflects a 10.3% increase compared to the 2025 limits.

This annual OOPM limit applies to most non-grandfathered group health plans, whether they’re fully insured or self-funded (administrative services only). However, it doesn’t apply to grandfathered plans, Transitional Relief plans, or retiree-only plans.

The OOPM includes costs like copayments, deductibles, and coinsurance for medical and pharmacy benefits.

It’s worth noting that high-deductible health plans (HDHPs) paired with health savings accounts (HSAs) follow different limits for OOPM, deductibles, and contributions.

The Different Types of ACA Penalties

Under the Affordable Care Act (ACA), there are different types of penalties that can be imposed on employers who fail to meet certain requirements regarding health insurance coverage for their employees. These penalties, often referred to as the “A” and “B” penalties, are designed to ensure that employees have access to affordable and adequate health coverage.

Understanding these penalties is important for employers to avoid potential financial liabilities and comply with the ACA provisions. In the following sections, we will dive into the details of each type of penalty and how they are calculated.

Understanding 4980H 2026 ACA Penalties

In 2026, under section 4980H of the Affordable Care Act (ACA), employers are subject to penalties for not offering affordable and comprehensive health insurance coverage to their full-time employees. There are two penalty provisions under this section: 4980H(a) and 4980H(b).

The 4980H(a) penalty is applicable to large employers with 50 or more full-time employees (including full-time equivalent employees) who do not offer minimum essential coverage to at least 95% of their full-time employees and dependents. If an employer fails to meet this requirement, they may be subject to an annual penalty.

Understanding these penalties is crucial for employers to ensure compliance with the ACA and to avoid substantial financial consequences.

What is the 2026 ACA Penalty 4980H(a) Amount?

The 2026 ACA penalty for 4980H(a) amount is $3,340. The 2026 ACA penalty for 4980H(a) is an important consideration for businesses that do not offer health insurance coverage to their full-time employees. This penalty is also known as the “hammer penalty” and is calculated based on the number of full-time employees a company has.

Example: In 2026, John’s Pizza Parlor has 75 full-time employees and doesn’t offer Minimum Essential Coverage (MEC) to its employees. The penalty is triggered when at least one full-time employee obtains a Premium Tax Credit through the marketplace.

For each full-time employee, John’s Pizza Parlor would be subject to a penalty of $3,340.

In the case of John’s Pizza Parlor, if 10 full-time employees obtain Premium Tax Credits, the penalty amount for the business would be roughly $33,400.

Note: It’s critical to consult with a professional to ensure the calculations for your unique situation are correct.

It’s important for businesses to be aware of the ACA penalty 4980H(a) amount and the potential impact on their organization. By offering health insurance coverage to their full-time employees, businesses can avoid these penalties while ensuring their employees have essential coverage.

What is the 2026 ACA Penalty 4980H(b) Amount?

The 2026 ACA penalty 4980H(b) is $5,010. The 2026 ACA penalty 4980H(b) amount is assessed on a per-violation basis when an employer offers unaffordable or non-Minimum Value coverage to their employees, and an employee receives a Premium Tax Credit (PTC) from a state or federal health exchange.

For each employee who receives a PTC, the penalty is roughly $418 per month or $5,010 annualized. This penalty is designed to incentivize employers to offer affordable and comprehensive health insurance coverage to their employees.

Example: ABC Company will have 100 full-time employees in 2026. Out of these employees, 20 obtain PTCs from a health exchange because the coverage offered by ABC Company is either unaffordable or does not meet the Minimum Value requirements.

In this case, ABC Company would be subject to a penalty of $5,010 per employee who receives a PTC. Therefore, the total penalty for ABC Company would be $100,200 ($5,010 multiplied by 20 employees).

It’s important for employers to ensure that their health insurance coverage meets the affordability and Minimum Value standards set by the ACA to avoid being subject to these penalties. Employers can consult with healthcare experts or insurance providers to navigate the complex regulations and ensure compliance with the ACA requirements.

Get the Right Guidance

It’s critical that you apply correct yearly adjustments for employee benefits and determine any other impact these adjustments may have on your business. Partnering with an HR solutions provider can help you get the guidance you need.

Please read our disclaimer here.

The post 2026 ACA Penalties: Out-of-Pocket Maximums and Employer Mandates (With Examples) 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.

The Internal Revenue Service (IRS) released the annual cost-of-living adjustments affecting the maximum contribution limits for several pre-tax benefits, including health FSAs, transit/parking accounts, and HSAs. 

FSA Contributions Limits: 2026

The IRS confirmed that for plan years beginning on or after Jan. 1, 2026, the contribution limit for health FSAs will increase another $100 to $3,400. For those plans that allow a rollover of unused funds, the maximum rollover amount will increase to $680 for 2026.

Additionally, the monthly contribution and reimbursement limit for transit and parking FSAs will increase to $340 per account in 2026.

Employees must use FSA funds within a plan year. Remember that health FSAs have a “use-or-lose” rule, meaning that any funds left unused at the end of the year are forfeited to the employer.

Employees should always know their contributions and benefits. When you equip your people with a self-service portal, they can easily access their specific benefit information without any back-and-forth with HR. 

Two Exceptions to the FSA Rule

Two exceptions to the use-or-lose rule permitted by the IRS are rollover and grace period. HR teams must communicate company policies to employees well in advance so people can plan accordingly.

1. Rollover: If funds are not used by the end of the year, up to $680 can be rolled over from the 2026 plan year into the next plan year. 
2. Grace Period: An employer can adopt a grace period for their health FSA. As explained by the IRS, “A grace period is a period of up to two months and 15 days immediately following the end of a plan year during which a participant may use amounts remaining from the previous plan year (including amounts remaining in a health FSA) to pay expenses incurred for certain qualified benefits during that two-month and 15-day period.” 

A health FSA may incorporate either of these features; however, a plan may not have a rollover and grace period. 

Plans may also include run-out periods that provide participants additional time to submit claims incurred during the plan year (typically 90 days). This can be in addition to either a rollover or grace period.

How Can PrimePay Help?

PrimePay provides pre-tax benefits administration of, 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.

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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.

In this guide, you’ll learn what HR compliance is, why it matters, and how to stay aligned with key labor laws and regulations. Plus, get a practical checklist to help you evaluate your current compliance status and reduce risk.

What is HR Compliance?

HR compliance is the ongoing process of ensuring your company’s policies, procedures, and practices align with federal, state, and local labor laws.

From wage and hour regulations to workplace safety and anti-discrimination rules, staying compliant is essential to operating legally and fostering a fair, accountable work environment.

Now, let’s focus on the next step: building a proactive HR compliance strategy that protects your business and supports your team. Implementing a strategy and understanding the laws will minimize the risk of penalties for non-compliance.

Types of HR Compliance

There are several compliance areas you should understand to ensure you are adhering to a variety of rules. Below are a few areas of HR compliance that you should be aware of.

• Statutory adherence: Observing the employment laws that set the baseline for your workplace—things like minimum-wage rules, payroll-tax obligations at both state and federal levels, equal-opportunity mandates, required insurance coverages, and other legislative directives.
• Regulatory alignment: Meeting the standards and guidelines issued by government bodies and oversight agencies (e.g., the Department of Labor or the Federal Trade Commission).
• Contractual obligations: Honoring the terms laid out in any legally binding agreements with employees, independent contractors, vendors, or clients. If you have union-represented staff or work under a collective bargaining agreement, you must also comply with its provisions on pay, nondiscrimination, benefits, and worker protections.

HR Compliance Laws and Regulations

Understanding HR compliance laws and regulations is essential for building a fair, legally sound workplace.

The following table outlines the critical employment laws that guide employee rights, employer responsibilities, and workplace protections in 2025 and beyond.

Common HR Compliance Issues

Whether you’re just starting out as a small business owner, a seasoned entrepreneur or an HR leader, it’s critical to be aware of common compliance issues. Making sure an employer complies with regulations is critical to being proactive in avoiding penalties and lawsuits.

1. Discrimination and Harassment

Title VII of the Civil Rights Act bans discrimination in all phases of employment by employers based on race, religion, color, sex, national origin, or age discrimination. (This applies to employers with 15 or more employees.)  Title VII also prohibits employment decisions based on stereotypes and assumptions about abilities, traits, or the performance of individuals of certain racial groups.

Title VII prohibits harassment of employees. As an employer, you are required to take appropriate steps to prevent this and your employees should know the proper procedures for reporting such issues.

Bottom line: Your company should provide adequate training and strong written communication regarding these practices.

2. Wage and Hourly Compliance

The U.S. Department of Labor’s (DOL) wage and hour division establishes protections for workers as it relates to the rate of pay, minimum wage, overtime, breaks, and more under the Fair Labor Standards Act (FLSA). And it may be easier than you think to violate this. The simple mistake of misclassifying employees violates the FLSA and could end up pretty costly. Other common FLSA ‘no-no’s’ include not providing compensation for all employee hours worked, which includes short breaks, on-call time, and time spent working off the clock.

Aside from minimum wage, overtime, and hours worked, the FLSA outlines regulations around recordkeeping and child labor. 

In short, your business must accurately classify employees, display an official poster outlining the requirements of the FLSA, focus on the health and well-being of youth workers, and more.

3. Employee Classification

It is pertinent that you know the difference between independent contractors, full-time and part-time employees. Familiarize yourself with the classifications and stay in accordance with the U.S. Department of Labor’s guidelines as well as the IRS.

As mentioned above, misclassifying employees can be a costly mistake. When workers are misclassified, they can be denied important services and protections like minimum wage, sick leave, and unemployment insurance. This not only hurts the employee but also results in less tax revenue for the government and less money for employee programs. 

Reclassifying workers and paying their taxes can help avoid penalties and protect both workers and the economy. Save a copy of this IRS fact sheet on understanding employee versus contractor designation to help avoid this mistake.

By enforcing these clear job definitions, you will not only be in compliance with the law, but each employee should better understand what they are accountable for. 

4. Workplace Safety

Providing employees with a safe work environment is critical. The Occupational Safety and Health Act (OSH Act), enforced by the Occupational Safety and Health Administration (OSHA), requires businesses to provide employers with a work environment free from recognized hazards. 

The top 10 OSHA-cited standards include the following:

1. Fall Protection, construction
2. Respiratory Protection, general industry
3. Ladders, construction
4. Hazard Communication, general industry
5. Scaffolding, construction
6. Fall Protection Training, construction
7. Control of Hazardous Energy (lockout/tagout), general industry
8. Eye and Face Protection, construction
9. Powered Industrial Trucks, general industry
10. Machinery and Machine Guarding, general industry

Employers in specified low-risk industries are exempt, however, it’s best to verify the risk level of your industry as outlined by OSHA.

5. Employee Leave

Employees are entitled to certain types of leave, such as sick leave, vacation time, and parental leave. Employers must comply with federal and state laws, such as The Family and Medical Leave Act (FMLA), regarding leave and provide appropriate time off to employees who qualify. The FMLA also allows eligible employees to take up to 12 weeks of unpaid leave for certain reasons.

Examples of FMLA violations include:

• Refusing to authorize FMLA leave for an eligible employee,
• Discouraging an employee from using FMLA leave,
• Manipulating an employee’s work hours to avoid responsibilities under the FMLA,
• Using an employee’s request for or use of FMLA leave as a negative factor in employment actions, such as hiring, promotions, or disciplinary actions, or,
• Counting FMLA leave under “no-fault” attendance policies.

6. Equal Pay and Pay Equity

The Equal Pay Act (EPA) amended the FLSA to prohibit wage discrimination between workers doing the same job with the same qualifications and experience who should receive the same pay, regardless of their gender, race, or other characteristics. 

Pay equity is about ensuring that pay differences are based on legitimate factors such as job responsibilities and experience, as opposed to based on sex, race, religion, etc. Employers must comply with laws regarding equal pay and pay equity to avoid legal consequences.

7. DEI

In order to properly align with Diversity, Equity, and Inclusion (DEI), employers must strive to create a workplace that is diverse and inclusive, where employees feel valued and respected regardless of their race, ethnicity, gender, religion, or other characteristics. This can be achieved through policies and practices that promote diversity and equity, such as inclusive hiring practices, training programs, and employee resource groups.

Many companies make the following mistakes:

• Not focusing on the right data. Look past the number, and get into all the insights!
• Focusing on one aspect. People are complex!
• Failing to lead from the top down. DEI is a company-wide effort!
• Recognizing DEI through brand, not actions. Ever hear ‘actions speak louder than words’?

All in all, ask the right questions to your employees to understand their honest feedback on how to improve your company’s DEI efforts.

8. Data Privacy

The Equal Employment Opportunity Commission’s privacy program establishes practices for employers who must take measures to protect their employees’ personal information and ensure that it is collected and stored securely. This includes information such as social security numbers, bank account information, and healthcare medical records. Employers must also comply with laws such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) to avoid legal consequences.

Installing software that shields against cyber attacks, implementing training, and additional security measures can help your business avoid a data breach.

How to Manage HR Compliance

Now that we’ve covered what HR compliance is, and what the top HR compliance issues are, it’s time to get into the fun part – managing HR compliance.

Below are a few ways you can navigate through HR compliance challenges with confidence.

Develop A Compliance Program

A compliance program lays out all the necessary steps, policies, and procedures within your business to adhere to federal, state, and local laws, rules, and regulations. The program should include a code of ethics and conduct, a process for reporting and investigating violations, and guidelines for managing risks.

Provide Training And Education

Getting your employees on board and educated on HR compliance can make managing compliance much easier. When employees understand their legal responsibilities and know what the legal requirements are, it’s easier to adhere to them. You should consider providing training on topics such as workplace safety, anti-discrimination laws, harassment, and data privacy. More topics may be necessary according to your unique business case or industry.

Create Clear Policies And Procedures

Clear policies and procedures can help prevent violations and ensure that employees understand what is expected of them. You should consider creating policies on topics such as equal pay, employee leave, and harassment. More policies and procedures may be necessary according to your unique business case or industry. And of course, what good are policies and procedures if they’re difficult to access? Make sure your policies and procedures are outlined in a place that’s easily accessible by your organization, like an employee handbook.

Update Policies As Laws Change

Let’s face it, laws change. And they can change pretty frequently. You should consider regularly reviewing policies and updating them as laws change. It’s important to stay up-to-date with changes in federal laws, state, and even local regulations to ensure compliance. Here are a few ways to make keeping up with law changes easier:

• Use technology and tools for compliance management: There are plenty of HR software systems on the market to help manage employee data, track compliance training, and ensure that policies are being followed. 
• Conduct Audits: Regular compliance audits can help identify areas of non-compliance and prevent violations. Audits should be conducted by a qualified HR professional or outside consultant.

Resolving HR Compliance Issues

Despite your best efforts, compliance issues may still arise. Here are some ways to address and resolve compliance issues:

• Document Issues – Ensure all documentation related to compliance issues is accurate and complete.
• Communicate With Parties – Establish clear communication with all parties involved in compliance issues, including the complainant, accused, and witnesses.
• Maintain Confidentiality – Maintain confidentiality throughout the compliance process to protect the privacy of those involved.
• When To Bring in Legal Counsel – Consider consulting with legal counsel if you are unsure about how to proceed with a compliance issue or if a violation may result in legal action.

HR Compliance Checklist: Assessing Your Risk and Readiness

Make sure you are on track with your human resource and bonus performance review compliance with our free PDF checklist.

• Anti-discrimination and harassment policies: Develop and implement policies that prohibit discrimination and harassment based on protected characteristics such as race, gender, age, and disability.
• Wage and hour compliance: Become an expert in the minimum wage and ensure that all employees are paid correctly, overtime pay is calculated accurately, and all required records are maintained.
• Employee classification: Make sure to properly classify your employees as either exempt or non-exempt under the Fair Labor Standards Act (FLSA) and state law.
• Workplace safety: Establish and maintain a safe work environment and ensure compliance with Occupational Safety and Health Administration (OSHA) regulations.
• Employee leave policies: Ensure that all employees have access to legally required leave such as the Family and Medical Leave Act (FMLA) and ensure that policies comply with state and federal leave laws.
• Equal pay and pay equity: Review and analyze compensation practices to ensure compliance with federal and state equal pay laws and ensure pay equity.
• Data privacy: Develop and implement policies that protect employee data privacy and comply with state and federal data privacy laws.
• Recordkeeping: Maintain accurate and complete records for all employees, including personnel files, payroll records, and other employment-related documents.
• Benefits administration compliance: Ensure that employee benefits are administered in compliance with all applicable laws, including the Employee Retirement Income Security Act (ERISA).
• Legal Counsel: Gain access to resources to help you avoid fines and lawsuits while managing the evolving HR and employment requirements. 

Bonus Checklist: HR Compliance During Employee Performance Reviews

Performance reviews are an important aspect of employee development and growth in any organization. They provide an opportunity for employees to receive feedback on their work and set goals for the future. However, without proper preparation, performance reviews can become an unproductive and frustrating experience for both employees and managers. 

The following quick checklist of best practices will keep you compliant when conducting performance reviews:

• Establish a cadence: Ensure performance reviews are conducted for all employees on a regular basis.
• Communication is key: Clearly communicate job expectations and responsibilities to all employees including the measured performance standards.
• Create a system: Put systems into place for measuring performance based on job-related functions and criteria that were illustrated in the employee’s job description.
• Review and refresh: Review and update job descriptions at least once a year.
• Document: Keep an accurate log and detail the records regarding performance to support personnel decisions.
• Be clear: Make certain that performance reviews are based on specific job-related criteria.
• Be honest: Provide honest, factual, and complete notes.
• Focus on OKRs: Compare performance against job descriptions and goals.
• Offer ongoing feedback: Don’t save feedback for review time, give feedback regularly!
• Be fair: Ensure the review process for measuring performance is equal amongst all employees.

The post HR Compliance Best Practices and Checklist for 2025 appeared first on PrimePay.

That’s where state programs step in. Unlike FMLA, several states have implemented their own paid family leave (PFL) policies, ensuring employees receive partial wage replacement during their time off. 

Navigating the differences between state and federal leave can be challenging for HR and finance leaders. Policies vary in terms of eligibility, duration, and benefits offered. Understanding which states have paid family leave programs—and how they work—is critical to staying compliant and supporting your workforce effectively.

State vs. Federal Leave

When it comes to paid family leave, it’s essential to understand the difference between state and federal policies. FMLA has existed since 1993 and offers eligible employees up to 12 weeks of unpaid leave for family or medical reasons.

While FMLA is a significant protection, it’s unpaid, leaving many employees unable to take advantage of it.

While federal protections offer consistency, state-level programs often provide more robust, employee-friendly options. 

In 2025, these state programs are more important than ever. According to the National Partnership for Women & Families, “state-level paid family leave programs improve access to leave for low-income workers, who are least likely to have access to paid time off.”

Unfortunately, not all states have their own programs to support residents. However, those like California, New York, and New Jersey have already set a standard, and new states are joining the list to provide broader access to paid leave. 

Paid Family Leave vs. Paid Family and Medical Leave

State laws and opt-in programs can offer Paid Family Leave and Paid Family and Medical Leave. 

While the terms “Paid Family Leave” (PFL) and “Paid Family and Medical Leave” (PFML) are sometimes used interchangeably, they’re not the same. The distinction lies in the scope of coverage.

Paid Family Leave typically focuses on family-related events, such as:

• Bonding with a newborn, adopted, or foster child
• Caring for a seriously ill family member
• Supporting a family member during active military duty

Paid Family and Medical Leave expands that coverage to include the employee’s own medical needs. This could mean taking time off to recover from a major surgery, undergo treatment for a chronic condition, or manage other personal health issues.

For example, Washington State’s PFML program combines both family and medical leave under one umbrella, offering up to 12 weeks of leave for qualifying events (or 16 weeks if both types of leave are used). Contrast that with New York, which provides Paid Family Leave but does not cover an employee’s personal medical leave under the same program.

Why does this distinction matter? 

From an HR and financial perspective, understanding these nuances can help employers prepare for the costs and administrative requirements associated with leave programs. For employees, knowing what’s covered ensures they can plan effectively for time away from work without financial stress.

As states continue to evolve their programs, the line between PFL and PFML may blur, but for now, it’s a key detail worth noting when reviewing policies and compliance requirements.

States Offering Paid Family Leave

As of 2025, several states and territories have implemented Paid Family Leave programs. This ensures employees have access to wage replacement during critical life events. Below are key details for each state.

California

California has been a leader in paid family leave since 2004. The state provides up to eight weeks of partial wage replacement to eligible employees through the Paid Family Leave program. Funded by employee payroll contributions, this program covers bonding with a new child, caring for a seriously ill family member, and military exigency. Benefits replace approximately 60-70% of wages, depending on income.

Colorado

Colorado’s Family and Medical Leave Insurance (FAMLI) program launched in 2024. Employees can take up to 12 weeks of paid family or medical leave, with wage replacement of up to 90% for lower earners. Like Oregon, this program is funded through shared contributions.

Connecticut

Connecticut began offering paid family leave in 2022 under the Paid Leave Authority. Employees can take up to 12 weeks of leave at a wage replacement rate of up to 95%, capped at 60 times the minimum wage. Events covered include child bonding, caregiving for family members, and personal medical needs.

Delaware

Effective in 2025, Delaware’s Paid Leave law offers up to 12 weeks of paid family leave for bonding with a child, caregiving for family members, or military-related needs. The program will be funded by payroll contributions, specifically on wage replacement and caps varying by income.

Washington, D.C.

The District of Columbia offers one of the most robust programs, providing up to 12 weeks of paid family leave, 12 weeks of medical leave, and two weeks for prenatal care. Benefits replace up to 90% of wages for lower-income workers and are funded by employer payroll taxes.

Maine

Maine’s paid family leave program will take effect in 2025. Employees can receive up to 12 weeks of paid leave, covering family caregiving, child bonding, and personal medical issues. The program will be funded through shared payroll contributions, with wage replacement percentages to be finalized.

Maryland

Maryland’s Family and Medical Leave Insurance (FAMLI) program, effective in 2025, will provide up to 12 weeks of paid leave for eligible events, including caregiving, bonding, and personal medical needs. Wage replacement will range from 50-90% based on income, funded by joint contributions from employers and employees.

Massachusetts

Massachusetts’ PFML program offers up to 12 weeks of paid family leave and 20 weeks of paid medical leave for personal health conditions. Benefits replace up to 80% of wages for lower-income workers, with a cap for higher earners. The program is funded through contributions shared between employees and employers.

Minnesota

Minnesota’s Paid Family and Medical Leave program begins in 2025, offering up to 12 weeks of family leave, 12 weeks of medical leave, or 20 weeks combined. Wage replacement rates range from 55-90%, capped at $1,256 per week. Funding is through shared contributions split between employers and employees.

New Hampshire

New Hampshire offers a voluntary Paid Family and Medical Leave Insurance program, providing up to six weeks of leave with 60% wage replacement. While employers aren’t required to participate, employees in non-participating companies can opt-in directly through the state’s private insurance partner.

New Jersey

New Jersey provides 12 weeks of paid family leave under its Family Leave Insurance program. Funded by employee contributions, it offers a benefit of up to 85% of the employee’s average weekly wage, capped at a maximum amount. Eligible events include child bonding and caregiving for a seriously ill family member.

New York

New York’s Paid Family Leave program offers up to 12 weeks of leave with wage replacement at 67% of the employee’s average weekly wage, capped at a statewide average. The program, also employee-funded, supports bonding with a new child, caring for a family member with a serious health condition, or helping during a family member’s active military duty.

Oregon

Oregon’s Paid Leave Oregon program is relatively new. It provides up to 12 weeks of paid leave, with an additional two weeks for pregnancy-related medical issues. The program replaces up to 100% of wages for low-income workers, with a sliding scale for higher earners. Funding comes from a combined employee and employer contribution model.

Rhode Island

Rhode Island’s Temporary Caregiver Insurance (TCI) program provides six weeks of leave for caregiving and bonding purposes. Benefits replace approximately 60% of wages and are funded by employee payroll contributions. While the duration is shorter than in other states, Rhode Island remains a pioneer in paid leave policies.

Vermont

Vermont is launching its first paid family leave program in 2025. Employees will be eligible for up to six weeks of wage replacement, with benefits covering caregiving and bonding events. Funded by payroll contributions, the program aims to expand coverage and duration in subsequent years.

Washington

Washington State’s Paid Family and Medical Leave (PFML) program combines family and medical leave benefits. Employees can access up to 12 weeks of paid leave, with an additional four weeks for pregnancy complications. Wage replacement is up to 90% of weekly earnings, funded by both employer and employee contributions.

Know the Laws to Stay Compliant

Understanding FMLA and state family leave programming is essential for employers and HR leaders to stay compliant while supporting their workforce. Even small businesses must comply with certain FMLA requirements and should ensure they fully understand them.

Each state has unique laws, contribution requirements, and benefit structures, making it crucial to stay updated on regulations where your organization operates or your employees live. 

Non-compliance can lead to penalties, legal issues, and employee dissatisfaction. Partnering with experts, using compliance and payroll tools, and maintaining open communication with employees can help you navigate these laws seamlessly. By staying informed, you can foster a supportive workplace while meeting your legal obligations.

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