What are the penalties if our company has failed to comply with the COBRA law?

Employer Penalties for COBRA Non-Compliance

Employers who fail to comply with COBRA regulations may face significant financial penalties, IRS excise taxes, and potential legal action. Below is a breakdown of possible penalties and fines associated with COBRA violations.

IRS Excise Tax Penalty

Employers may be fined $100 per day for each qualified beneficiary affected by the non-compliance, or $200 per day per family. This penalty applies for each day the employer fails to offer or administer COBRA coverage properly.

Minimum Penalty Upon Audit

If non-compliance is identified during an IRS audit and has not been corrected, the employer faces a minimum penalty of $2,500 per beneficiary or the daily excise tax listed above, whichever is less.

Penalties for Significant Violations

For violations deemed “more than trivial” by the IRS, penalties can escalate up to $15,000 per violation.

Annual Cap on Penalties

The total fines imposed on an employer cannot exceed $500,000 annually or 10% of the total health care costs from the previous year, whichever is less.

Legal Action by Employees

Employees and beneficiaries who were not offered COBRA continuation coverage have the right to sue for medical expenses that should have been covered. Courts may also require employers to pay the plaintiff’s attorney fees if the employee wins the case.

Correction Period

If a COBRA violation is corrected within 30 days and is proven to be unintentional, penalties may be reduced.