Why Do Companies Outsource FMLA Administration?

FMLA Administration Outsourcing

Many small companies struggle to find the time and resources required to properly train staff on FMLA administration, and employers who deny eligible employees leave or violate FMLA requirements could face hefty fines and legal repercussions.

As a result, HR representatives will sometimes grant too much leave to employees out of fear that an eligible employee’s leave request might accidentally be denied. While this practice might spare companies from finding themselves in serious legal trouble, it can also lead to staffing issues and decreased productivity.

The Family and Medical Leave Act (FMLA) is a federal law that allows eligible employees to take unpaid leave for a variety of personal circumstances.

Due to the numerous regulations and complexities of the FMLA, administering FMLA leave can be a daunting task for many HR departments. In an effort to make FMLA administration more accurate and efficient, many employers have opted to outsource their leave programs to outside vendors.

How Does FMLA Outsourcing Work?

FMLA Administration Outsourcing

When leave programs are outsourced, the process of handling all of a company’s FMLA-related workload is transferred to an outside FMLA administration vendor. FMLA administration vendors stay current on evolving regulations and changes to the federal law as well as individual state laws which may affect an employee’s eligibility and leave rights. This greatly increases the likelihood that leave will be administered properly and in compliance with all applicable rules and regulations. In addition, lifting the responsibility off of in-house HR departments can significantly reduce workloads, giving staff more time to devote to other necessary projects and tasks.

What Are the Disadvantages of FMLA Administration Outsourcing?

FMLA Administration Outsourcing

While FMLA outsourcing can make FMLA administration more accurate and efficient, there are a few drawbacks to consider. HR departments may need an initial adjustment period while they re-shuffle their workload and delegate new tasks.

Employees might be displeased with needing to contact an outside resource rather than their company’s HR department to make leave requests. In addition, decisions regarding leave requests may not happen as quickly as they do when employees are able to speak directly to an HR representative, even if the vendor is complying with FMLA deadlines. Any additional delay can cause frustration as employees attempt to plan for their personal circumstances.

Is FMLA Outsourcing Right for Your Company?

FMLA Administration Outsourcing

It is important to consider several factors in order to determine which FMLA administration option is best for your organization.

Examine how efficiently your company’s HR department currently handles FMLA administration. Are they able to keep track of FMLA regulations and stay up to date on changes to FMLA requirements? Are leave requests being over-granted due to a lack of understanding of FMLA regulations and employee eligibility requirements?

In addition, assess your HR department’s current workload to determine whether FMLA administration is making it difficult to delegate or complete other tasks.

ERISA: A Timeline for Compliance

Final Rule Updates SBC Requirement

When you offer retirement and health benefits to your employees, you need to make sure you’re providing the right documents to stay in compliance with the Employee Retirement Income Security Act of 1974 (ERISA).

ERISA requires that you provide several types of documents to the Department of Labor (DOL) and plan participants. Noncompliance can result in fines, so make sure you’re providing the right documents at the right times.

Here’s a quick overview of the documents you need to stay in compliance:

Plan Document  The plan document contains a description of the terms and conditions for the operation and administration of the plan. It must be provided within 30 days of a written request.

Summary Plan Description (SPD)  The SPD contains plan information, including the benefits, rights and obligations of the covered participant. It should be written in a style and format that can be easily understood by the average plan participant. The SPD should be provided within 90 days of the participant being covered by the plan or the beneficiary receiving benefits, or within 30 days of a written request.

Summary of Material Modification (SMM) The SMM describes material changes to a plan and any changes in the information required in the SPD. An updated SPD satisfies the SMM requirement. The SMM or updated SPD must be distributed to participants and pension plan beneficiaries no later than 210 days after the end of the plan year in which the changes were made, or within 30 days of a written request.

Form 5500  The Form 5500 satisfies various annual reporting obligations that plan administrators must meet under ERISA and the Internal Revenue Code. Form 5500 may be filed electronically on the DOL website. This form is generally due by the last day of the seventh calendar month after the plan year ends, or within 30 days of a written request. See www.dol.gov/ebsa/pdf/rdguide.pdf for details. Some plans are exempt from this requirement.

Summary Annual Report (SAR)  This report is a narrative report of the Form 5500 and includes a statement of the participant’s right to receive the annual report. Plans that are exempt from annual 5500 filing, as well as large and unfunded health plans, may be exempt from the SAR requirement. The SAR must be provided to participants and pension plan beneficiaries no later than 210 days after the plan year ends or two months after the Form 5500 due date.

Logistics of COBRA Outsourcing

COBRA Administration Outsourcing

After you have decided to outsource COBRA administration and have chosen a TPA, you will enter into a contract with them. As mentioned above, it is extremely important to review the indemnification process and make sure that your company is protected from the TPA’s mistakes. After all, this is probably one of the main reasons you are outsourcing COBRA administration—to cut down on the financial risk resulting from any mistakes.

Although many TPAs are similarly priced, there are often two choices for how you can pay fees. Typically, you will either pay a flat fee per qualifying event or a monthly fee per eligible employee. Companies with low turnover will likely prefer the fee per qualifying event, whereas you might choose the monthly fee per eligible employee if you have high turnover or want to predict your COBRA administration-related spending more closely.

When outsourcing COBRA administration, you will also need to designate someone to serve as a liaison between your company and the TPA. This person will ensure that all qualifying events are communicated to the TPA, will field any complaints about the TPA from COBRA-qualified employees, and will address any other concerns or communication regarding COBRA administration.

The Consolidated Omnibus Budget Reconciliation Act (COBRA) is a federal law that provides for the temporary extension of employer-sponsored group health coverage for employees and their family members (qualified beneficiaries) in certain situations. COBRA coverage is available when qualifying events occur, such as termination of employment or divorce.

Due to the complexities of the law and potentially serious consequences for mistakes or violations, many employers outsource COBRA administration to a third-party administrator (TPA).

Medicare Supplement Plans How to Purchase

Medicare Supplement Plans

Medicare supplement plans are sold by private insurance companies, and you will usually pay a monthly premium. Insurance companies selling Medicare supplement plans do not need to adhere to the same requirements as standard Medicare policies. This means that the cost of Medicare supplement plans can vary due to a number of factors, including the plan’s service area, your age when you enrolled in Medicare or your age when you enroll in a Medicare supplement plan. Because premiums and out-of-pocket costs can vary, it is a good idea to have your broker help you shop around. He or she can ensure you find the best rate and policy to suit your needs.

If you are getting close to your 65th birthday, you are likely preparing to enroll in Medicare. Enrolling in Medicare and figuring out how to decrease your out-of-pocket health care expenses can be daunting, but a Medicare supplement plan can do just that—save you money and provide peace of mind.

Original Medicare, which consists of Medicare Part A and Part B, typically does not cover all of an individual’s health care costs. In order to fill the gap, many individuals purchase a Medicare supplement plan. Medicare supplement plans, also known as Medigap policies, are policies that can be purchased to cover expenses that Medicare does not pay.

The most common supplemental plans provide coverage for the out-of-pocket expenses that are not paid by Medicare, such as copays, deductibles, coinsurance, as well as some services that may not be covered by Medicare, such as international travel emergencies. Plans vary, so look for a plan that provides the coverage you need.

Considerations When Choosing a COBRA Administrator

COBRA Administration Outsourcing

If you do choose to outsource COBRA administration to a TPA, you will want to consider a few qualities as you choose a TPA.

Compliance expertise.

COBRA compliance depends on the prompt implementation of federal guidelines and regulations that stipulate what needs to be done and when it must be completed. Check that your TPA is well-respected for its expertise, follows written procedures and includes independent monitoring to ensure full compliance with COBRA regulations.

Technological advancement.

Generally, you will want to find an organization that is well-equipped with technology to handle on-time electronic delivery of all the required notices and letters. A good technological system will streamline the COBRA compliance process and provide proof that all deadlines were met. In addition, the system should be secure and encrypted to protect the privacy of information.

Customer service competence.

Assessing the TPA’s level of customer service is also important. Having a good TPA can protect your company from having to deal with disgruntled ex-employees. Also, good customer service from your TPA will reduce the incidence of employee complaints about how COBRA is being handled.

Legal accountability.

Another important consideration is the indemnification protections provided in the contract. Although a TPA will never be able to take on all legal risk of COBRA administration, it should stipulate in the contract that the TPA takes financial responsibility for its own mistakes. Of course, if you fail to notify them when an employee is terminated or reports another qualifying event, you will be responsible for the COBRA noncompliance, but a good TPA will relieve you of at least some of the risks associated with COBRA.

Medicare Supplement Plans When to Enroll

Medicare Supplement Plans

The ideal time to purchase a Medicare supplement plan is during your Medigap open enrollment period. This is the six-month period beginning on the first day of the month that you turn age 65 or older and enroll in Medicare Part B. During this period, you will not be denied coverage for any pre-existing health conditions. In other words, you can purchase a Medicare supplement plan of your choice for the same premium that a healthy person without pre-existing conditions would pay. If you do not enroll in a Medicare supplement plan during your Medigap open enrollment period, you will not be guaranteed coverage, and you may potentially be denied coverage or charged a higher premium due to your medical history or pre-existing health conditions.

Reasons to Outsource COBRA Administration

COBRA Administration Outsourcing

COBRA’s complex rules and requirements, mandatory notices and multiple deadlines can be difficult to follow and administer, whether you are a large company and have many qualifying events to keep track of, or you are a small organization that rarely has to deal with COBRA.

Here’s why many companies outsource COBRA administration and why you might consider finding a TPA to handle your COBRA obligations:

It’s complicated.

COBRA typically applies to employers with 20 or more employees, although how that number of employees is defined can be complicated if you have fluctuations of employee numbers throughout the year or numerous part-time employees.

If your company is subject to COBRA, understanding and keeping track of the various requirements can be difficult. You will need to correctly administer things like required notices, election and payment deadlines, late and partial payments, different coverage periods, changes to plan options, address changes and terminations of coverage.

It can be costly.

     Both the Internal Revenue Service (IRS) and U.S. Department of Labor (DOL) oversee COBRA-related laws. Both the IRS and DOL can levy fines and taxes, including fines of $110 per day just for the failure to properly issue COBRA notices and requested documents. The risk of missing a deadline for a notice or disclosure is high, especially if you don’t deal with COBRA frequently. In addition, you run the risk of individuals suing you for COBRA mistakes. Employers that do not administer COBRA coverage correctly can also be held responsible for paying individual health claims for qualified beneficiaries.

     It’s time-consuming. The knowledge and expertise needed to properly administer COBRA requires extensive training. Combined with the time expended by internal HR employees to actually administer COBRA, the amount of training necessary is often disproportionate to the number of qualifying events. COBRA administration can be stressful and time-consuming, and dealing with COBRA in-house is often an inefficient use of HR’s time and resources.

     On the other hand, if your company experiences high employee turnover or numerous qualifying events, you could be overwhelmed by the amount of work required by COBRA, taking away valuable time from other essential duties.

     Due to the complexity of COBRA, the high risk of fines, taxes and lawsuits, and the inefficient use of HR’s time and effort, COBRA administration is a prime candidate for outsourcing.

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All posts in Human Resource

Why Do Companies Outsource FMLA Administration?

How Does FMLA Outsourcing Work?

What Are the Disadvantages of FMLA Administration Outsourcing?

Is FMLA Outsourcing Right for Your Company?

ERISA: A Timeline for Compliance

Logistics of COBRA Outsourcing

Medicare Supplement Plans How to Purchase

Considerations When Choosing a COBRA Administrator

Medicare Supplement Plans When to Enroll

Reasons to Outsource COBRA Administration

COVID-19 Return to Work Information Center

Families First Coronavirus Response Act (FFCRA)

Payroll Protection Program & SBA Economic Injury Disaster Loans