Employee Benefits & Tax Issues to Consider in Providing On-Site Care to Employees
An on-site clinic can provide significant cost savings and increase employee productivity, but there are a number of compliance challenges and risks you should make sure you have addressed and regularly update as part of operating your on-site clinic, particularly when the services go beyond first-aid. Some of the more significant employee benefits and tax items to consider include:
Employee Benefits Laws May Apply If Clinic Goes Beyond First-Aid
If your clinic provides healthcare services beyond first-aid care, additional compliance steps may be needed to address employee benefits laws, including:
- ERISA Group Health Plan: If the on-site health clinic services go beyond basic first-aid or the clinic provides services to individuals other than current employees (such as dependents or former employees), your clinic will likely be regulated as a group health plan under the Employee Retirement Income Security Act of 1974 (“ERISA”). As a result, you may want to treat your clinic as a component of your group health plan in order to streamline compliance and ensure that any wellness incentives relating to your clinic do not violate the Americans with Disabilities Act (“ADA”).
- COBRA: There is no clear exception for on-site medical clinics from the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”), unless the services are limited to first-aid provided during working hours. Offering COBRA raises several practical issues including, for example, whether to charge a separate premium and how to calculate it. In addition, there could be safety or morale concerns in allowing former employees access to the on-site health clinic for visits.
- HIPAA: On-site health clinics generally qualify as “excepted benefits” under HIPAA and, as such, are exempt from the HIPAA portability requirements (and many other group health plan mandates) and privacy and security requirements as a covered group health plan (unless the clinic is made a component of your group health plan as mentioned above). Please note, however, that HIPAA privacy and security requirements potentially could apply to the clinic as either a covered provider or business associate of a covered entity.
Tax Compliance Is Required For Clinics
- Health Savings Account (“HSA”) Ineligibility: Employees eligible to use your clinic on a subsidized basis may become ineligible to contribute to an HSA (their spouse may also lose HSA eligibility).
- W-2 Reporting of Employer Health Coverage: Generally, if your clinic is subject to COBRA, it is likely the value of your clinic must be included in the W-2 reporting for the aggregate cost of employer-sponsored health coverage.
- Tax Deductibility: Some healthcare services (e.g., services provided to non-employees or non-tax dependents, cosmetic services, vitamins, etc…) provided by your clinic may not satisfy Sections 105 or 106 of the Code, which generally exclude employer-provided health benefits from being taxed to the employee and ensure deductibility by the employer. If your clinic provides these non-excludable healthcare services, you must report them on Form W-2 as taxable. You will also need to determine whether the benefits are deductible as a reasonable business expense or as another permissible tax deduction.
Taking the above steps to ensure your on-site health clinic's compliance with benefits and tax laws can not only save you money, but also help avoid problems for your employees and administrative headaches for your staff.
This alert is part of a series on the various compliance steps that employers need to consider in adopting or maintaining an on-site health clinic. For additional alerts, please visit our website.
Nelson Mullins Executive Compensation and Employee Benefits attorneys are ready to assist with your compensation and benefits related matters in a cost-effective and responsive manner. Please contact one of our Executive Compensation and Employee Benefits partners or the Nelson Mullins attorney with whom you work.
This Comp & Benefits Brief is a periodical publication of Nelson Mullins Riley & Scarborough LLP and should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general information purposes only, and you are urged to consult a lawyer concerning your own situation and any specific legal questions you may have. ©2016 Nelson Mullins Riley & Scarborough LLP. All Rights Reserved.
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