What’s Your Risk in a Health Care Audit?
One benefit of GGRA membership is individual casework, which means we’ll work with you on regulatory and compliance issues. We lend support and advocate on your behalf with different government agencies, including the Planning Department, the Office of Labor Standards Enforcement (OLSE), and the Treasurer’s Office. While assisting a restaurant member in a recent Health Care Security Ordinance (HCSO) audit meeting with an OLSE compliance officer, we were able to gain some critical insight into sticking points that are getting restaurants in trouble.
Audits are complaint driven. City agencies don’t have the staff or resources to check the practices of the more than 60,000 San Francisco employers, so they are alerted to problems by employees. Disgruntled former or current employees are a risk to your business, as their complaint, no matter the validity, triggers an audit. While audits usually go back three years, it may go back as far as four, since that is the record keeping requirement for each employee. When a complaint is made, OLSE calls both past and current employees going back the entire period of the audit.
You must provide quarterly notice of health care expenditures. In the eyes of OLSE, quarterly notices are extremely important. If you do not provide balance information to your employees in the form of quarterly notices*, OLSE will treat it as if you provided no balance information whatsoever. Please note that employers are supposed to make the quarterly expenditures to a third party for health care expenses (insurance payments don’t have to be shown quarterly) within 30 days of a quarter close and must notify employees of this expenditure within 15 days of making the expenditure.
What’s included in the notice matters. *The HCSO ordinance requires employers to provide notice to employees of health care expenditures quarterly that include (A) the name, address, email address, and telephone number of any third party to whom the expenditure was made; (B) the date and amount of the expenditure; (C) a summary of how the benefit may be used, including types of health care services available; (D) restrictions on the use of this benefit, including maximum dollar value of benefits or account balances; and (E) the date on which any portion of this benefit will be revoked. Missing any of this information can result in OLSE determining your notice is invalid.
Proof of notices received is tantamount. It’s critical to keep record of notices provided to employees. The burden of proof is always on the employer; therefore, when a complaint is filed by an employee, OLSE probes past and current employees on whether they remember receiving a notice. Unfortunately, there’s not much incentive for employees to remember receiving notices because without proof, the employee will get the funds in question as a part of the settlement. Some recommendations you may consider include either stapling notices to paystubs or having employees sign-off quarterly for their received notice.
Employee use of health care funds doesn’t trump the need to prove providing notice. Even if employees used health care funds during the audit period being examined, without proof of quarterly statements, OLSE will likely not count those payments as valid. This means that even if someone used some or all of their available funds, if you cannot prove you provided them with quarterly notice, OLSE can decide that those expenditures don’t count at all.
Health care waivers must be signed annually. While you may have employees waive their health care benefit, if it has been over a year, that waiver is not valid if audited. OLSE will require that you pay the amount owed for those employees for any time after the year the waiver was valid.
Don’t forget separation notices for employees that leave. Separating employees must receive a notice of their final health care monies within three business days of separation. The notice must include (1) how much money they have, (2) how it can be used, and (3) if it’s revocable, the date of revocation. The money needs to be available for 90 days. However, if you haven’t made the final payment, it must be made within 30 days of the quarter close. The separation notice must include when the payment will be made and must be available to the former employee for at least 90 days from the contribution date. If part is revocable, that summary must be provided within fifteen days of the post-separation notice.
Lack of compliance is costly. An inability to prove quarterly notices can cost as much as the full anticipated accrual of calculated health care expenditures over the entire audit period. Additionally, you may have to pay penalties up to one-and-one-half times the total expenditures in question, plus simple annual interest of up to ten (10) percent from the date the payment should have been made (not to exceed $1,000 for each employee for each week that such expenditures are not made). The unmet spend is paid to affected employees (past and present), while the penalties go to the City.
When employees file a complaint on HCSO, the City probes whether there were violations of paid sick leave and minimum wage. Complying with minimum wage is straightforward. With paid sick leave, it’s important to ensure that you’ve been accruing the sick leave accurately, providing notice on paystubs (since July 1, 2015), and that you provided quarterly notice prior to that time. Please note, you are not your employee’s doctor. Exercise restraint in judging the validity of their sick leave request, as withholding sick leave can trigger penalties.
The OLSE co-presents a monthly webinar with the City Option that provides an overview of the HCSO with a Q & A section. Sign up here. Additionally, more information about the San Francisco Health Care Security Ordinance can be found here. Finally, GGRA is always here to answer questions. You can reach us here.