Accurate Affordable Care Act reporting will require payroll, HR, and benefits to work together
While employers should already be tracking the data necessary to determine their status under the Affordable Care Act and complete the new ACA reporting forms, they may not have determined whether the payroll, human resources, or benefits department will be responsible for the filings. Regardless of which department is ultimately tasked with the responsibility for completing the forms, it is clear that they will have to work together because each department will probably control the system housing some of the data that must be reported.
Basic ACA requirements
The ACA requires an applicable large employer (ALE) to offer its full-time employees and their dependents minimum essential coverage that is affordable and provides minimum value. An ALE is defined as an employer that has a combination of 50 or more full-time and full-time equivalent employees. Companies with a common owner or that are otherwise related under certain rules of section 414 of the Internal Revenue Code are generally combined and treated as a single employer for determining ALE status. See Payroll Masters article “Holding Companies and Determining the ACA Employer Mandate”. For 2015, health coverage is considered affordable if the amount of the premium paid by the employee is no more than 9.56% of an employee’s household income. However, because employers often do not know an employee’s actual household income, there are safe harbors in place including one that deems coverage affordable if it is equal to or less than 9.5% of the employee’s Form W-2, Box 1 wages. Under the ACA, a health plan that covers 60% of the cost of benefits expected to be incurred meets minimum value requirements.
There are two types of penalties for employers that don’t provide the required coverage under the ACA. If an ALE does not offer coverage, or offers coverage to less than 95% (reduced to 70% for 2015) of its full time employees and their dependents and at least one employee receives a premium tax credit, then the ALE is subject to an Employer Shared Responsibility payment. The ESR payment is calculated by multiplying the number of full-time employees by $2,000, with an exclusion for the first 30 full-time employees (increased to 80 for 2015).
If an ALE offers coverage to 95% or more (reduced to 70% for 2015) of its full-time employees and their dependents, but there are full-time employees that receive a premium tax credit because the offered coverage was not affordable or did not provide minimum value, then the ALE will be subject to a second type of ESR payment. In this case the payment will be $3,000 per employee that received the premium tax credit.
Importantly, both of the penalties are calculated on a monthly basis. For 2015 there are two types of transition relief for ALEs. For ALEs with 100 or more full-time employees, the relief is in the form of a lower percentage of full-time employees who must be offered coverage or a larger exclusion of full-time employees subject to the $2,000 penalty. For ALEs with 50 to 99 full-time employees, no ESR payment will be due even if the coverage requirements are not met. However, these employers are still subject to the ACA reporting requirements. Because ACA penalties are calculated on a monthly basis, ALEs must be able to track their full-time employees for each month as well as corresponding health coverage status. This is even more important in 2015 because of the various indicator codes that will be used on the forms to claim the applicable transition relief.
Data required to complete ACA reporting
ALEs will generally file two ACA forms that follow a procedure similar to that for filing Forms W-2 and W-3. Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, will function much like the Form W-2 with copies going both to the IRS and full-time employees. Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, will function like a Form W-3. For ALEs that have different divisions, each may file a 1094-C for each entity, but one must be marked as an authoritative transmittal and provide data on all the Forms 1095-C filed by the ALE.
IRS Publication 5196, Getting Ready for Monthly Tracking, provides an overview of the data that will be required to complete the ACA reporting forms.
To complete Form 1095-C, ALEs must report the following information, for each full-time employee, broken down by month: 1) information about the offer of coverage to each employee, 2) whether the employee was enrolled in the plan, 3) the employee’s share of the lowest-cost self-only mini mum value coverage, and 4) whether the affordability safe harbor or other transition relief applies.
To complete an authoritative transmittal on Form 1094-C, ALEs must report: 1) whether coverage was offered to 95% (70% for 2015) of the organization’s full-time employees, 2) the total number of Forms 1095-C that the organization issued, 3) the number of full-time employees and total number of employees by month, 4) if applicable, information about members of the aggregated ALE group, and 5) whether the organization qualifies for transition relief.
Payroll, HR, Benefits must work together
Payroll will have the necessary information concerning the W-2 wages or rate of pay needed to determine the affordability of the offered coverage if the employer relies on one of those affordability safe harbors. However, that is only part of the reporting equation. HR or Benefits will likely have the data on the lowest-cost self-only minimum value coverage that was offered by the employer. Beyond this basic calculation, there are other data elements that one department or the other must be able to provide. For instance, HR may have the data to determine whether a newly hired full-time employee was in a waiting period before an offer of coverage was made, while a time and attendance system may be used to determine whether an employee who has shifting schedules qualified as a full-time employee throughout the reporting period. For employers that are self-insured, additional data elements must be provided in Part III of Form 1095-C, some of which may be especially difficult to track. Self-Insured ALEs must report the name and SSN of all the individuals covered by the employee’s choice to enroll in employer-provided health coverage (employee, spouse and/or dependents). If an SSN is not available for a covered individual, the ALE may report the individual’s birthdate instead. This is information that the ALE may not have and will need to get from the employee or a third-party administrator prior to completing Form 1095-C. Either payroll or HR may be asked to solicit this information.
If you are a Payroll Masters client and subject to ALE reporting requirements please call Paul Hicks, Vice President of Development, 707-307-6112. Payroll Masters has an Online ACA Reporting Platform.
Sources: SAA/IRS Reporter
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