Getting Prepared for a Department of Labor ACA Compliance Audit – Best Practices

The Department of Labor is stepping up its enforcement activities when it comes to the Affordable Care Act. Now that businesses have had since 2010 to anticipate and adjust to requirements, and they’ve had a year to work out teething problems since the employer mandate became effective in 2015, the Administration is serious about ensuring that employers fulfill their responsibilities under the Act.

Penalties for failure to comply with the ACA’s requirements are severe and potentially devastating to small businesses, with fines amounting to as high as $250 for missing returns or documents per incident, up to $3 million.

While the topic is extremely broad, here are some of the subjects you need to be prepared to discuss and show documentation to prove compliance when the audit takes place.


Plan communication requirements

  • Have a complete summary plan description on file.
  • Show proof that you have adequately communicated your employees’ right to extend benefits to qualified adult children up to age 26.
  • Show proof that you have communicated women’s health care rights under the Affordable Care Act.
  • Provide copies of employee enrollment applications.
  • Provide copies of documents describing both worker and employer responsibilities regarding payment of premiums.


Best practices

  • Appoint a health care czar internally – an experienced manager with a strong background or interest in HR and benefits management to be your company’s subject matter expert (SME) regarding health plan administration and requirements.
  • Appoint an experienced administrator or manager with responsibility for tracking audit requirements and compliance status. This could be the same person as the SME mentioned above, or it could be a staffer who reports to him or her within your human resources office. Either way, ensure that there is specific accountability for ACA compliance requirements, and that the persons responsible know what their jobs are regarding ACA compliance.
  • Consult official IRS and Department of Labor sources, beginning with IRS Publication 5196 – Understanding Employer Requirements of the Health Care Law.
  • Have a solid handle on the IRS criteria for full-time employees, and know exactly who they are at all times. You don’t want to be blindsided when the auditors look at actual hours worked and tell you that a long-time worker whom you thought was part-time is actually a full-time worker.
  • Have employees sign for all key health care plan documents, or email them with return receipts requested. You may duplicate the effort by mailing certified letters to employees’ addresses.
  • Provide this individual with adequate time, resources and staff to accomplish his or her tasks. Ensure he or she receives the cross departmental cooperation needed to ensure your company is prepared for the audit. Audit yourself. Don’t wait for an audit notice from the Department of Labor to get the ball rolling. Have a practice audit internally, and ensure managers follow up and correct deficiencies. Do this regularly, using a quality checklist, and you will have little to fear from the Department of Labor inspectors. Here is the official Department of Labor Self-Audit Checklist pertaining to ACA and the health care components of the Employee Retirement Income Security Act (ERISA).
  • Invest in the education your staff needs to be effective in your compliance effort, ahead of time. This may mean sending staff to in-service training, webinars, seminars and workshops with other HR professionals or vendors.
  • Outsource your compliance effort to specialists and outside vendors, where appropriate, but ensure those vendors are doing their jobs. After all, if the vendor drops the ball, you are still responsible for any fines and penalties.
  • Notify your benefits broker or agent as soon as you receive notice that you are slated for an audit. Many times, these brokers or their home offices have resources, tips and tools to help you manage your compliance effort.
  • Cooperate fully with Department of Labor officials during the audit. Don’t attempt to ‘stonewall.’ Stay in their good graces, and you will often find you can correct small deficiencies on the spot rather than be charged with violations and fines.

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