Do Small Businesses Have to Worry About COBRA?
Many small businesses might think that they are not covered by COBRA. COBRA requires employers with 20 or more employees to offer a continuation of health benefits after a “qualifying event.”
The most common qualifying event is termination including layoff, resignation, or discharge. So if you only employ five people and lay one employee off, it looks like you don’t have to worry about offering continuation of benefits and the extensive, complicated paperwork that goes along with the process.
Sorry, in most states even the smallest employers are required to offer COBRA coverage.
Understanding COBRA if you're a small business
Every state, with the exception of Alabama and Delaware, has enacted some type of legislation that extends COBRA coverage beyond federal requirements. These commonly expand the scope to all employers, regardless of size, or add types of plans to the list of those that need to be offered.
Within the past week I have been gathering information for COBRA administration for two of the smallest employers. At the first company, after the layoff of two employees, the employer wanted to offer the coverage, whether or not the law required it to do so. Applicable state law extended coverage to all employees. The notifications are being prepared.
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At a startup, the company was not enthusiastic about offering COBRA to an individual who was terminated for poor performance and it figured it was exempt because the company has fewer than 10 people on payroll. Once again state legislation extended COBRA eligibility to all employees regardless of the size of the employer.
When you are making difficult decisions about staff cuts, it’s a good idea to understand COBRA requirements before the layoff conversation. The easiest way to find out if your state requires COBRA for small employers is to contact your state's Department of Labor. Double-check, even if your broker or provider tells you not to worry about COBRA.
In the above situations, one employer was told by a provider that they did not have to offer COBRA. It takes a lot less time to find out the correct information than to respond to a complaint made by a former employee who contacts the Department of Labor.
Help for small businesses and COBRA
COBRA administration with its long list of deadlines and required notices can be a nightmare. Employers of all sizes will avoid headaches by outsourcing the process.
Payroll providers, brokers, or knowledgeable consultants can all help with this administrative burden. Even though former employees pay the premium, plus an additional 2% fee, sloppy administration can result in significant employer costs.
RELATED: The Most Frequently Asked Questions About Unemployment Benefits in California
