The Cost of Noncompliance

If you have been in HR long enough you will have run into somebody that isn’t scared to bend the rules a bit and in a position that allows them the power to do just that. As an HR professional, it’s our job to help be the voice of caution and also be brave enough to give fact-based advice.

Although achieving and maintaining compliance requires time, money, and manpower, it is more effective to use resources in a preventive manner rather than rolling the dice to see if you get caught or not. How can HR help prevent noncompliance? Perform a risk assessment – Define your compliance universe and rank the impact of noncompliance as high, medium, or low. Leverage resources to concentrate efforts on each area accordingly. Educate – Train employees on compliance requirements. Encourage a culture of compliance – Foster an environment where identifying and mitigating potential noncompliance is appreciated rather than discouraged. Don’t become complacent – Compliance requirements and the impact of noncompliance can change at any time; be alert for and aware of new requirements.

Here is a breakdown of fines and penalties that are current as of 2018.

 

Affordable Care Act (ACA)

Imposes various requirements on employers and group health plans related to Health Care Reform, including rules regarding employer payment plans (arrangements under which an employer reimburses an employee for some or all of the premium expenses incurred for an individual health insurance policy, or uses its funds to directly pay the premium for an individual policy), dependent coverage to age 26, lifetime and annual limits, coverage of preventive services, limits on health FSA contributions, preexisting condition exclusions, and Summary of Benefits and Coverage (SBC) and Health Insurance Exchange (Marketplace) notice requirements

 

Penalties for Noncompliance: Penalties vary depending on the specific violation. In general, the Employee Retirement Income Security Act (ERISA) gives the U.S. Department of Labor authority to bring a civil action to correct violations of the law (including certain requirements relating to group health plans added by the ACA). Affected persons may also file a lawsuit. The IRS may impose a penalty tax for certain violations.

 

Penalties for Employer Payment Plans: These arrangements may be subject to a $100 per day excise tax per applicable employee (which is $36,500 per year, per employee) under the federal tax code (an exception exists for qualified small employer HRAs). Compliance requirements may vary depending on employer size, grandfathered plan status other factors.

 

Employee Polygraph Protection Act

Prohibits employers from using lie detector tests, either for pre-employment screening or during the course of employment, with certain exceptions

 

Penalties for Noncompliance: Civil money penalties may be assessed up to $20,521. Employers may also be liable to the employee/prospective employee for appropriate legal and equitable relief, including employment, reinstatement, promotion, and payment of lost wages and benefits. 

 

Equal Pay Act

Prohibits sex-based wage discrimination between men and women in the same establishment who perform jobs that require substantially equal skill, effort responsibility under similar working conditions

 

Penalties for Noncompliance: Employers may be liable for a salary increase, back pay (which includes unpaid minimum wages and unpaid overtime compensation), attorneys' fees and court costs. Liquidated damages (equal to the amount of back pay) may also be unless the employer can prove it acted in "good faith" and that it had reasonable grounds to believe its actions did not violate the law.  

 

Fair Labor Standards Act (FLSA)

Establishes minimum wage, overtime pay, recordkeeping, and child labor standards

Penalties for Noncompliance: Employers may be liable for back pay and an equal amount in liquidated damages for violations of the minimum wage and overtime pay requirements. Civil money penalties of up to $1,964 per violation may also be imposed for willful or repeated violations. Injunctions to restrain persons from violating the FLSA may be imposed.   

 

For child labor violations, employers are subject to a civil money penalty of up to $12,529 for each violation and $56,947 for each violation that causes the death or serious injury of a minor employee (which may be doubled for willful or repeated violations, up to $113,894). 

 

Immigration Reform & Control Act

Makes it unlawful for an employer to hire any person who is not legally authorized to work in the U.S. and requires employers to collect and document information regarding an employee's identity and employment eligibility on Form I-9; prohibits discrimination on the basis of national origin, citizenship, or immigration status for employers with 4 or more employees

Penalties for Noncompliance: Failure to comply with Form I-9 requirements may result in civil fines of $224 to $2,236 for each form. Hiring or continuing to employ a person knowing he or she is not authorized to work in the U.S. may result in civil fines of $559 to $4,473 per worker for a first offense.

Employers who unlawfully discriminate may be ordered to stop the prohibited practice and take corrective steps, including hiring or reinstating the individual discriminated against (with or without back pay), and may also be ordered to pay civil money penalties of $461 to $3,695 per individual for a first offense.  

 

Occupational Safety and Health Act (OSH Act)

Requires employers to provide their employees with working conditions that are free of known dangers and created the Occupational Safety and Health Administration (OSHA), which sets and enforces protective workplace safety and health standards

Penalties for Noncompliance: Penalties are based upon the nature of the violation—De minimis violations have no direct or immediate relationship to safety and health and no penalty is required.

A violation other than a serious violation, which has a direct relationship to job safety and health but probably would not cause death or serious physical harm, carries a discretionary penalty of up to $12,934 for each violation.  

A penalty of up to $12,934 for each violation must be proposed in the case of a serious violation, where there is a substantial probability that death or serious physical harm could result and the employer or should have known, of the hazard. 

An employer who commits a willful violation may be assessed a civil penalty of not more than $129,336 but not less than $9,239 for each violation.  

Repeat violations can bring fines of up to $129,336 for each such violation.  

Failure to correct a prior violation may bring a civil penalty of up to $12,934 for each day the violation continues beyond the prescribed abatement date. 

Uniformed Services Employment & Reemployment Rights Act (USERRA)

Prohibits employment discrimination against a person on the basis of past military service, current military obligations, or intent to serve

 

Penalties for Noncompliance: Employers may be liable for lost wages and benefits, as well as reasonable attorney fees and expert witness fees where an individual pursues and prevails on a court claim. Liquidated damages may also be awarded for willful violations.

 

EMPLOYERS WITH 15 OR MORE EMPLOYEES

Title VII of the Civil Rights Act (Title VII)

Prohibits employment discrimination based on race, color, religion, sex (including sexual orientation and gender identity) or national origin

 

Penalties for Noncompliance: The remedies available for employment discrimination under the ADA, GINA, PDA, and Title VII, whether caused by intentional acts or by practices that have a discriminatory effect, may include:

 

Front pay or back pay, Hiring, promotion, or reinstatement, Reasonable accommodation, or Other actions that will make an individual "whole" (in the condition he or she would have been but for the discrimination).

Remedies also may include payment of attorneys' fees, expert witness fees, and court costs. Compensatory and punitive damages may be awarded in cases involving intentional discrimination. There are limits on the amount of compensatory and punitive damages a person can recover. These limits vary depending on the size of the employer:

 

For employers with 15-100 employees, the limit is $50,000.

For employers with 101-200 employees, the limit is $100,000.

For employers with 201-500 employees, the limit is $200,000.

For employers with more than 500 employees, the limit is $300,000.

The employer also may be required to take corrective or preventive actions to cure the source of the identified discrimination and minimize the chance of its recurrence, as well as discontinue the specific discriminatory practices involved in the case.

 

EMPLOYERS WITH 20 OR MORE EMPLOYEES

Age Discrimination in Employment Act (ADEA)

Prohibits employment discrimination against persons 40 years of age or older

 

Penalties for Noncompliance: Employers may be liable for a number of penalties, including front pay or back pay; hiring, promotion, or reinstatement; and other actions that will make an individual "whole" (in the condition he or she would have been but for the discrimination), as well as attorneys' and expert witness fees and court costs. Liquidated damages equal to the amount of back pay awarded the victim may be awarded for willful violations.

 

Consolidated Omnibus Budget Reconciliation Act (COBRA)

Provides workers and their families who lose their health benefits (including legally married same-sex spouses who are otherwise eligible for coverage under the plan) the right to choose to continue group health benefits provided by their group health plan for limited periods of time due to certain events such as voluntary or involuntary job loss, reduction in the hours worked, death, divorce, and other life events

 

Penalties for Noncompliance: Employers may be liable for a tax penalty of $100 per qualified beneficiary (up to $200 per family) for each day of noncompliance For unintentional violations that are due to reasonable cause and not willful neglect, the maximum tax penalty is the lesser of 10% of the amount paid or incurred by the employer during the preceding tax year for group health plans or $500,000.

 

Under ERISA, civil money penalties up to $110 per day may be assessed for failure to comply with the COBRA notice requirements. Affected persons may also file a lawsuit.

 

EMPLOYERS WITH 50 OR MORE EMPLOYEES

Family and Medical Leave Act (FMLA)

Entitles eligible employees (including those in legal same-sex marriages) to take unpaid, job-protected leave for specified family and medical reasons with continuation of group health insurance coverage under the same terms and conditions as if the employee had not taken leave

 

Penalties for Noncompliance: Employers may be liable to affected employees for—

 

Lost wages, salary, benefits or other compensation

Actual monetary losses sustained by the employee as a direct result of the violation (such as the cost of providing care), up to a sum equal to 12 weeks of wages or salary for the employee (26 weeks in the case of military caregiver leave)

Interest on the above amounts calculated at the prevailing rate

Liquidated damages

Appropriate equitable relief, including employment, reinstatement, or promotion

Attorneys' fees, expert witness fees court costs

ACA "Pay or Play" (Employer Shared Responsibility) & Information Reporting

Requires applicable large employers (ALEs)—generally those with at least 50 full-time employees, including full-time equivalent employees—to offer affordable health insurance that provides a minimum level of coverage to full-time employees (and their dependents) or pay a penalty tax if any full-time employee is certified to receive a premium tax credit for purchasing individual coverage on a Health Insurance Exchange (Marketplace). ALEs also have information reporting responsibilities regarding the coverage offered (or not offered) to employees.

Penalty for Employers Not Offering Coverage: An ALE that does not offer coverage or offers coverage to fewer than 95% of its full-time employees (and their dependents) during the calendar year owes a penalty equal to the number of full-time employees employed for the year (minus up to 30) multiplied by $2,320, as long as at least one full-time employee receives a premium tax credit. For an ALE that offers coverage for some months but not others during the calendar year, the penalty is computed separately for each month for which coverage was not offered. The amount of the penalty for the month equals the number of full-time employees employed for the month (minus up to 30) multiplied by 1/12 of $2,320.

for Employers Offering Coverage That is Not Affordable or Does Not Provide Minimum Value: For an ALE that offers coverage to at least 95% of its full-time employees (and their dependents but has one or more full-time employees who receive a premium tax credit, the penalty is computed separately for each month. The amount of the penalty for the month equals the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,480. The penalty is the lesser of the amount calculated or the amount that would be owed if the employer did not offer coverage.

Information Reporting Penalties: General reporting penalty provisions for failure to file correct information returns and employee statements may apply—ranging from $50-$260 per return, with a maximum penalty of over $3 million per year (adjusted for inflation)—with certain exceptions if the failure is due to reasonable cause and not willful neglect. Lower penalties are applicable to employers with gross receipts of $5,000,000 or less.

 

Self-insured employers providing minimum essential health coverage (regardless of size) are subject to a separate set of information reporting requirements; however, the penalties for noncompliance are the same.

 

EMPLOYERS WITH 100 OR MORE EMPLOYEES

Worker Adjustment & Retraining Notification Act (WARN)

Requires employers to provide notification to affected workers 60 calendar days in advance of qualified plant closings and mass layoffs, and notice to state dislocated worker units so that they can promptly offer dislocated worker assistance

Penalties for Noncompliance: Affected employees may bring individual or class action lawsuits against an employer believed to be in violation of the law (reasonable attorneys' fees may be awarded to the prevailing party). An employer who violates the WARN provisions is liable to each affected employee for an amount equal to back pay and benefits for the period of the violation, up to 60 days. This may be reduced by the period of any notice that was given, and any voluntary payments that the employer made to the employee.

An employer who fails to provide the required notice to the unit of local government is subject to a civil penalty not to exceed $500 for each day of violation. The employer may avoid this penalty by satisfying the liability to each employee within three weeks after the closing or layoff.