Automatic Enrollment

Health care reform amends the Fair Labor Standards Act (FLSA) to require certain large employers to 1) automatically enroll new full-time employees in one of the employer’s health benefit plans (subject to any waiting period authorized by law), and 2) continue the enrollment of current employees.

The automatic enrollment requirement applies to employers that 1) are subject to the FLSA, 2) have more than 200 full-time employees, and 3) have one or more health benefit plans.

Employers must provide “adequate notice” to employees, and employees must be given an opportunity to opt out of coverage. It is expected that the U.S. Department of Labor (DOL) will provide more information on the required notice in future regulations.

The DOL is also expected to provide additional guidance as to the definition of “full-time employee” (which may or may not be tied to the definition for purposes of the employer mandate), how payment for coverage will be handled and which health plan employees must be enrolled in.

Health care reform does not specify an effective date for the automatic enrollment requirement.

Employer Action Required

In Technical Release No. 2012-01, the DOL stated that it must coordinate the development of automatic enrollment regulations with rules under development related to other PPACA-related provisions, such as the 90-day waiting period and the employer shared responsibility rules. In light of this, the DOL states “that its automatic enrollment guidance will not be ready to take effect by 2014.” The announcement also confirms that employers are not required to implement automatic enrollment until after guidance is issued.

Penalties for Noncompliance

It is expected the DOL will clarify the penalties for noncompliance upon issuance of the automatic enrollment regulations.

Frequently Asked Questions

Q1. What employers are subject to the FLSA and thus must comply with the automatic enrollment requirement?
A. Employers may be familiar with whether they are subject to the FLSA based on the FLSA’s definition of employer under both the DOL’s minimum wage and maximum hour provisions. The definition of an employer under the FSLA under these provisions is generally limited to entities that are engaged in interstate commerce and have a gross annual volume of sales that is not less than $500,000. However, for purposes of the automatic enrollment rules, the definition of employer under the FLSA is more broadly written, and includes “any person acting directly or indirectly in the interest of an employer in relation to an employee.” Seeing as this is such a broad definition, if an employer within this definition has more than 200 full-time employees and at least one health benefit plan, then it will be subject to the automatic enrollment rule.

Q2. Will an employee be able to opt out of the automatic enrollment provision?
A. Presumably yes, as the statute states: “Any automatic enrollment program shall include adequate notice and the opportunity for an employee to opt out of any coverage the individual or employee were automatically enrolled in.” Industry experts are waiting on additional guidance, such as: What must be disclosed in the notice? When and how must the notice be provided? How much time does the employee have to opt out? Will there be length and font size requirements for the notice? Will employees’ family members have to opt out also? More guidance on these issues would be welcome.

Additional Resources

Citations

  • 29 U.S.C. § 201
  • FLSA § 18A, as added by PPACA, Pub. L. No. 111-148, § 1511 (2010)
  • DOL Tech. Rel. 2012-01