Employers of all sizes need to review the impact of the Affordable Care Act, also known as Obamacare, on their responsibilities as to notifying employees, providing medical benefits, reporting payroll/benefits information to the IRS, and reviewing both Marketplace and IRS notices for possible ACA penalties.
This PayDay will provide all employers with a basic overview of the Affordable Care Act, to include both required and recommended action steps employers should take regarding the ACA.
Purpose of the ACA
The express purpose of the Affordable Care Act is to provide insurance to all Americans in an affordable manner. A key driver in meeting this objective is a system of penalties/fines which can be imposed on both individuals and employers.
Here are the basics:
Individuals – Virtually everybody is required to obtain health insurance or pay a penalty for not doing so (termed the individual mandate). The amount of the individual penalty has increased dramatically from its inception in 2014 to the thousands of dollars for families without coverage in 2016. Individuals can obtain their coverage through brokers, government exchanges/marketplace, or through their employers. A key component of the ACA is that individuals at lower income levels may be able to obtain cost subsidies or insurance at discounted premiums from government exchanges.
Employers – Employers which average 50 or more “full time equivalent employees” are deemed “large employers” and are required to offer coverage to their employees or potentially pay penalties. The ACA is essentially telling large employers that they are required to offer affordable, minimum essential value insurance coverage, or to instead potentially pay fines/penalties to the IRS. An employer’s payment of penalties in lieu of offering group insurance to employees helps finance the cost subsidies which the government exchanges provide to lower income individuals who procure medical insurance on a government exchange.
Employer Action Step #1 – Are You A Large Employer?
The ACA’s intent is to mandate large employers to either offer group health insurance or help finance America’s health care costs by paying penalties to the IRS. The ACA relieves smaller employers from the requirement to provide insurance coverage or pay penalties.
A large employer is one which employs 50 or more full time equivalents (so called FTEs) based on monthly averages of FTE’s during a calendar year.
Your FTE count is figured as follows (must be calculated every month):
- Add up all of your employees who work at least 30 hours per week; plus
- Add the total hours of all remaining part time employees and divide those total part time monthly hours by 120 hours per month
*Special Note – Employers who are affiliated with one another due to common ownership or a management company services group, are generally required to be counted as a single employer for FTE “large employer” purposes. One of our AccuPay ACA experts can help you determine if you have a controlled group of employers (IRC Section 414).
Counting your FTEs every month is required to determine whether you are a large employer for ACA purposes. AccuPay’s staff includes two Certified Healthcare Reform Specialists who can help you count FTEs and determine if you are a large employer.
Less Than 50 FTEs – Small Employer
Small employers are not required to offer health benefits to employees and are not subject to IRS fines/penalties.
Small employers should take the following action steps regarding ACA:
- Provide every new employee with a Department of Labor (DOL) notice which explains whether you offer insurance or not, and also informs new employees about government exchanges. AccuPay’s website has copies of “model DOL ACA notices” which you can download and use for your new employees;
- If you do offer medical insurance/benefits to your employees, the coverages must meet various ACA requirements. Your insurance broker/benefits consultant will make sure your plan meets ACA standards; and
- Small employers may receive letters/notices from the government marketplace which provides information about employees who have obtained cost subsidies on their marketplace insurance. Small employers may wish to appeal any marketplace notices they feel are incorrect.
If you count your full time equivalent employees each month and your annual average monthly FTE counts average 50 or more you are deemed to be a “large employer” for the succeeding/next year.
Responsibilities of a “large employer” are all of the following:
- Provide DOL notices to your new hires;
- Maintain detailed records of hours worked for each of your employees so that you can make FTE counts every month and very importantly identify your full time employees every month (for ACA employer reporting to the IRS and to your employees); and
- Make sure that you carefully evaluate your “pay or play” ACA strategy – the costs and business values of offering group insurance compared to estimated non-tax deductible IRS penalties for not offering insurance;
AccuPay can help you calculate your “pay or play” costs, net of tax benefits, in conjunction with your benefits consultant (who needs to thoroughly understand ACA law);
- If you decide to “play” and offer group coverage (most employers do), you need to make sure that your coverage meets ACA standards (your benefits consultant will know this);
As a large employer, you are required to report month-to-month annual information for all of your full time employees (generally those who work 30 or more hours per week). Your employee ACA information is reported on IRS 1095-C form and is due January 31st of each year.
- This information is detailed, complex, and requires information as to hours worked and medical benefit offers made (or not made) to every employee for every month of the calendar year.
AccuPay prepared and mailed thousands of IRS 1095-C forms for year 2015 for our large employer clients. Both of our payroll software platforms (PayChoice by Sage and SaaShr by Kronos) will produce annual employee 1095-C forms.
- As a large employer you are also required to file an annual Form 1094-C with the IRS by February 29th (March 31st if filing electronically as AccuPay does). The 1094-C form calculates an employer’s number of full time employees each month for the reporting year.
Make sure your payroll company, benefits broker, etc. knows how to accurately prepare your employee 1095-C and IRS 1094-C forms. IRS penalties for errors and omissions are onerous.
AccuPay assisted about 100 employers with ACA reporting (both employee 1095-C and employer 1094-C) services for the inaugural reporting year of 2015. Accurate ACA reporting requires knowledge of the Affordable Care Act laws, coupled with systems/procedures which integrate payroll and benefits information onto the ACA forms.
Now is the time to make sure you are complying with ACA law as to both benefits offered and employee hours/information tracking.
AccuPay’s team has ACA law and systems consultants who are certified in ACA and can help you comply with ACA requirements in the most cost effective manner. Call us at (317) 885-7600 with your ACA questions and/or to schedule an ACA analysis review meeting.
This blog and our PayDay newsletters are a communication of payroll news, legal updates and tax considerations intended to inform clients and colleagues of AccuPay about current payroll issues and planning techniques. You should consult with your CPA or tax advisor before implementing any ideas, comments or planning techniques.