USA employment benefits compliance checker

1. Mandatory Employee Benefits

Social Security & Medicare (FICA)

• Employers must withhold Social Security (6.2%) and Medicare (1.45%) taxes from employee wages and match these contributions.

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Unemployment Insurance (UI)

• State-managed but federally mandated; employers contribute through payroll taxes.

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Workers' Compensation Insurance

• Required in most states; covers employees injured at work.

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Family and Medical Leave Act (FMLA)

• Companies with 50+ employees within a 75-mile radius must provide eligible employees with up to 12 weeks of unpaid leave annually.

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Health Insurance (Affordable Care Act - ACA)

• Companies with 50+ full-time equivalent employees must offer affordable health insurance or face penalties.

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2. Commonly Offered (Voluntary) Employee Benefits

• Health insurance (medical, dental, vision) - in compliance with the ACA (see section 1)
• Retirement plans (401(k), 403(b), pensions)
  
  • Voluntary for both employees and employers
  • Most SME’s do not offer this as tax wise, it becomes very complex and time consuming, with many businesses seeing low uptake.
  • A 403(b) plan (tax-sheltered annuity plan or TSA) is a retirement plan offered by public schools and certain charities. It's similar to a 401(k) plan maintained by a for-profit entity.
  • Some states, such as California, Illinois and Oregon are beginning to mandate it at a state level, with others having plans in the works.
• Life insurance
• Disability insurance (short-term and long-term)

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• Paid time off (vacation, sick leave, holidays)
  
  • Not federally mandated but individual states may impose certain laws. The below states DO NOT have any PTO laws. If you’re employing employees in any state NOT listed below, check their individual PTO laws.
    
    • Alaska, Florida, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Mississippi, Missouri, Montana, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Texas, Utah, Washington, D.C., West Virginia, Wisconsin, Wyoming
  • Average PTO is 11 days after 1 year of employment
  • Sick leave is not federally mandated, besides the use of the FMLA. However, 78% of US workers have a work sick policy, allowing paid sick leave. By state, employers in Massachusetts are required to provide employees with one hour of paid sick time for every 30 hours they work and employees in New York are eligible for 40 hours of paid sick leave per year.

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• Employee assistance programs (EAP)

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• Flexible spending accounts (FSAs)
  
  • They are limited to $3,300 per year per employer. If you’re married, your spouse can put up to $3,300 in an FSA with their employer too.
  • You can use funds in your FSA to pay for certain medical and dental expenses for you, your spouse if you’re married, and your dependents.
  • You can spend FSA funds to pay deductibles and copayments, but not for insurance premiums.
  • You can spend FSA funds on prescription medications, as well as over-the-counter medicines with a doctor's prescription. Reimbursements for insulin are allowed without a prescription.
  • FSAs may also be used to cover costs of medical equipment like crutches, supplies like bandages, and diagnostic devices like blood sugar test kits.
  • Get a list of generally permitted medical and dental expenses from the IRS.
  • You can’t use a Flexible Spending Account with a Marketplace plan.
  • Instead, a similar product, called a Health Savings Account (HSA), allows you to set aside money on a pre-tax basis to pay some health expenses if you have a “high deductible” Marketplace health insurance plan. Learn more about Health Savings Accounts.

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• Health savings accounts (HSAs)
  
  • A Health Savings Account (HSA) in the US is a tax-advantaged savings account that can be used to pay for qualified medical expenses. It's available to individuals enrolled in a high-deductible health plan (HDHP). HSAs offer a triple tax advantage: contributions are made with pre-tax dollars, the account grows tax-free, and withdrawals for medical expenses are tax-free.

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• Wellness programs

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3. Key Laws & Regulations Governing Employee Benefits

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ERISA (Employee Retirement Income Security Act)

• Governs voluntary retirement and health benefit plans for employees in private industries to provide protection for individuals
• Federally mandated
• Requires detailed reporting, fiduciary responsibilities, disclosure of plan details, and participant rights.
• Form 5500 to be completed. Instructions and more can be found here

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ACA (Affordable Care Act)

• Mandates minimum coverage requirements for health plans.
• Requires reporting via IRS Forms 1094-C and 1095-C. More information can be found here

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COBRA (Consolidated Omnibus Budget Reconciliation Act)

• Requires employers to offer the continuation of group health coverage for former employees (18 months typically) who leave under certain circumstances such as voluntary or involuntary job loss, reduction in the hours worked, transition between jobs, death, divorce, and other life events.
• Find out more here

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HIPAA (Health Insurance Portability and Accountability Act)

• In short, it ensures portability of health insurance and protects personal health information.
• The HIPAA Privacy Rule establishes national standards for protecting individually identifiable health information (PHI) held or transmitted by covered entities and their business associates. It applies to health plans, healthcare providers, and clearinghouses that electronically transmit health information for specific transactions. The Rule protects PHI related to an individual’s health, healthcare, or payment for healthcare, and requires covered entities to implement safeguards and obtain business associate agreements.

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ADA (Americans with Disabilities Act)

• The Americans with Disabilities Act (ADA) protects people with disabilities from discrimination.
• Requires reasonable accommodation for disabled employees, potentially impacting benefits and leave policies.

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4. Required Forms & Reporting

IRS Forms 1094-C and 1095-C (ACA Reporting)

• Used to report offers of health coverage and enrollment in health coverage for your employees.
• Due to employees by January 31 each year; filing with IRS by February 28 (paper) or March 31 (electronic).
• You can get an automatic 30-day extension of time to file by completing Form 8809, Application for Extension of Time To File Information Returns. The form may be submitted on paper, or through the FIRE System either as a fill-in form or an electronic file.

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Form W-2 Reporting

• Every employer engaged in a trade or business who pays remuneration, including noncash payments of $600 or more for the year (all amounts if any income, social security, or Medicare tax was withheld) for services performed by an employee must file a Form W-2 for each employee.
• Include cost of group health insurance coverage (Box 12, code DD).

4.1 Other Forms & Reporting

Annual Form 5500

• Required for ERISA covered retirement and welfare benefit plans if you offer a retirement plan
• Due 7 months after the end of the plan year, with a possible 2.5 month extension.
• For calendar year plans, the deadline is normally 31st July the following year
• Form 5500-SF can be filled out for a small benefits plan, typically fewer than 100 employees. Find out more here.
• Many more forms need to be completed if your business offers a retirement plan, see the following section (4.1).

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IRS Form 8955-SSA

• Once again, most businesses will not have to complete this form. If you do not manage/offer a retirement plan, this will not apply to you.
• This form is used by retirement plan administrators to report info about participants who’ve left the company but still have money in the retirement plan and haven’t taken it out yet.
• It’s required for all ERISA-covered plans that have deferred vested participants
• It’s tied to Form 5500 but filed separately

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IRS Form 5300

• Only typically required for large businesses with custom or complex retirement plans
• It’s a way of checking with the IRS that the custom or complex plan in question is properly set up (following necessary rules) to remain tax advantaged (checking its tax-qualified status with the IRS).

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IRS Form 1099-R

• Typically not the role of the employer to create or distribute. The payer is responsible for issuing this, typically the bank or retirement plan admin. If you’re a larger business and manage the payouts of these yourself, you will need to create and distribute form 1099-R accordingly. Find out more here.
• This is a tax form used to report distributions (payouts) from a retirement-type account. Think Pensions, 401(K), IRA’s, Annuities and Insurance contracts.

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IRS Form 5330

• This is not a form you want to be filling out. It’s used to self-report a breaking of the rules around your retirement plan and, in turn, to pay excise taxes on it.
• The IRS will not tell you about an error, this is something you should self identify, fill out the form, report and pay the fine for.
• If your business does not manage your retirement plan yourself (which most SME’s will not), you’ll likely be working with a TPA (Third-Party Administrator) or provider. They should plan compliance for you. However your business is still legally responsible. Thus if a mistake is made, you’ll still need to pay any fines, typically the TPA or provider will complete the form for you and require your signature.
• Examples of a retirement plan management rule break are: Late contributions to 401(K), prohibited transactions, excess contributions, minimum funding failures, disallowed deductions.

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DOL Form M-1

• Form M-1 is an annual filing required by the Department of Labor (DOL) for certain Multiple Employer Welfare Arrangements (MEWAs) or those claiming exemption from MEWA rules.
• A MEWA is a health or welfare benefit plan that provides coverage (like medical, dental, disability, etc.) to employees of more than one employer, not including union plans.
• Examples of businesses using a MEWA:
  
  • A statewide restaurant association offering health plans to all the businesses  in their network
  • A network of hair salons or gyms, each independently owned, but grouped under a shared benefits plan
  • A franchise group (e.g. McDonald’s franchisees) who want one health plan across their locations
• Find out more here.

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5. Key Deadlines & Timelines

• January 31: Distribute ACA Form 1095-C to employees.
• February 28: Paper filing ACA Forms 1094-C and 1095-C to IRS.
• March 1: Form M-1 filing due (Or within 30 days of beginning operations)
• March 31: Electronic filing ACA Forms 1094-C and 1095-C.
• July 31: Form 5500 filing (without extension).
• October 15: Form 5500 filing deadline if an extension is requested.

*Note that these dates have been pulled from official USA GOV sites, please check the GOV site each year to ensure dates remain the same (they typically do not change).

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6. Best Practices for US Compliance

• Regularly review and update plan documents.
• Maintain accurate records of benefit elections, waivers, and notifications. Record keeping is required.
• Provide clear and timely disclosures to employees.
• Conduct regular compliance audits.
• Train HR staff on benefit rules and regulations for the USA, nominating one “master” of the country’s benefit compliance regulations.
• Potentially hire/outsource to have compliance managed/checked to avoid fines in your first year
• Check the IRS Department of Labour GOV sites frequently to stay on top of any changes
• Carefully consider the implications of offering a retirement plan before doing so, as doing so introduces complexities, costs and the opportunity for multiple fine risks. It is not legally mandated that companies offer a retirement plan, however larger businesses tend to, whereas SME’s do not.

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7. Common Pitfalls to Avoid

• Misclassifying employees (full-time, part-time, contractors).
• Failing to meet reporting deadlines.
• Non-compliance with COBRA continuation requirements.
• Overlooking ERISA fiduciary responsibilities.
• Mishandling protected health information under HIPAA.

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We always recommended checking official government websites relating to the country of which you’re doing business in, as laws and regulations may have changed since this guide was published. Happl does not take any responsibility for failed compliance based on the above information.

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