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Avoid the Costs of COBRA Noncompliance

With IRS penalties running as high as $200 per day, per violation, it pays for employers to know their COBRA requirements. This is even more true with recent changes to the law now in effect.

Below, I’ve provided a quick overview of recent changes and a solution to help ease the COBRA compliance burden on your organization.

The 100% premium subsidy

On March 11, 2021, the American Rescue Plan Act (ARPA) was signed into law. Among the provisions in this sweeping relief package was a shift in responsibility for payment of COBRA premiums for a period beginning April 1, 2021, and ending Sept. 30, 2021.

During this six-month period, the employer, insurer or multiemployer plan is responsible for subsidizing 100% of the COBRA costs of individuals who become eligible for COBRA due to involuntary termination or a reduction in hours.

However, for employers that are required to pay the subsidy, the cost is offset by a refundable payroll credit against their quarterly Medicare tax liability. That means the employer can claim a refund if the amount paid exceeds taxes due.

Naturally, this will mean changes to the content of notices employers are required to provide to potentially COBRA-eligible individuals. Don’t forget! New notices must:

  • be sent no later than 60 days after April 1, 2021 (May 31)
  • include information on the premium subsidy, including the period for which it will be available
  • explain the option to enroll in different coverage (if the employer chooses to make that option available)

Employers in need of guidance can consult the model notices on the Department of Labor website — a helpful resource.

Easing the compliance burden

Remember, the costs of noncompliance with COBRA can be steep. Employers risk a non-deductible IRS excise tax penalty equal to $100 per day, per violation. This increases to $200 if more than one family member is affected. In addition, the Employee Retirement Income Security Act provides penalties of up to $110 per day for failure to give required notice.

But employers can breathe a sigh of relief by ensuring they have the right HR software at their disposal. As an example, consider Paycom’s COBRA Administration tool, with which:

  • qualifying events trigger the required actions to help you remain compliant
  • the sending of correspondence and collection of premiums are automated
  • COBRA reporting becomes easier than ever

Schedule a demo to learn what this tool — and others in Paycom’s single software — can do for your organization. In the meantime, I hope you will continue following our blog for compliance-related updates.