ACA Compliance Reporting Complexities
The New Challenge for Business Owners
The Affordable Care Act (ACA) has brought significant challenges for all sized businesses. The Employer Mandate clearly states that “employers must offer health insurance that is affordable and provides minimum value to their full-time employees and their children up to age 26 or be subject to penalties”.
The calculation of the FTE is a complex equation and takes into payroll reporting hours as well as employee classification, as can be seen below.
Businesses with 50 or more full-time or full-time equivalent employees (FTE) in 2016, have to offer Minimum Essential Health Coverage (MEC) that is affordable to full time employees and dependents. Failure to do so subjects the company to fines and penalties
Plans in the Health Insurance Marketplace are offered in 4 categories, known as the Metal Plans. They are Bronze, Silver, Gold & Platinum. These categories are based on how the plan splits the cost of insurance. The Bronze Plan has the lowest premium. It also has the highest deductible and the largest out of pocket expense. Conversely, the Platinum Plan has the highest premium, with the lowest deductible and lowest out of pocket expense. Premium tax credits, based on annual income will also affect the overall cost of insurance.
Hours Worked v/s Hours of Service
The Affordable Care Act’s Employer Mandate defines a full-time employee as an individual that performs an average of 30 hours of service per week or more than 130 hours of service a month. A look back period is allowed to determine liability.
Full-time equivalent is a composite figure calculated by adding all the hours worked by non full-time employees and dividing that figure by 120. This figure is then added to the total full-time employee count to determine if the employer is subject to ACA Health Care Reform and provide mandatory health benefits.
A clear distinction needs to be made between “hours worked” and “hours of service”. Hours worked are the actual hours an employee expends performing his or her responsibilities as an employee. Hours of service are the other non-working hours, including working through lunch breaks, performing company errands, sick pay, vacation pay, leave of absence, maternity leave, disability leave, military service leave etc. If an employer does not have a comprehensive method in place to track these hours, they run the risk of under-reporting the number of full-time employees.
The IRS requires employers to file month to month data, detailing hours worked by employees, employee’s access to employer funded health care, and employee contributions to the same health plan. These reporting requirements are extremely complex. Failure to file the reports, or filing incomplete or inaccurate forms could result in reporting penalties. Employers are projecting increases by 6 to 8 percent in their overall administrative costs for compliance expenses.
The following are the IRS reporting requirements:
Section 6056 Reporting is the required reporting of information to the IRS relating to offers of health insurance coverage by applicable large employers (ALE) that are subject to the Employer Shared Responsibility Provisions (Employer Mandate often referred to as “Pay or play”).
The 1095-C form is a statement disclosing information about the offer of coverage, and must be furnished to full-time employees by January 31, 2016. This document must be provided to each employee, just like a W2, and the employee will need to retain for use when filing their individual 2015 taxes. Those enrolled in COBRA will also receive a 1095-C.
The 1094-C form is the IRS’ cover sheet for their copies of the 1095-C forms and must be submitted either paper format by February 28, 2016 or electronic format by March 31, 2016.
Under Code Section 6055, employers that sponsor self-insured plans that provide minimum essential coverage must report to the IRS information about the health coverage actually provided to enrollees (including enrollees who do not work full time), even if they are not subject to the employer shared responsibility provisions or the information reporting requirements for ALEs under Code Section 6056.
Non-ALEs should use Form 1095-B, Health Coverage, and the transmittal Form 1094-B, Transmittal of Health Coverage Information Returns, to meet the information reporting requirements.
ALEs should file using Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, and Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns. A self-insured ALE must complete Part III of Form 1095-C for each employee who enrolls in the self-insured coverage or who enrolls a family member in such coverage, regardless of whether the employee is a full-time employee.
These reports are both time consuming and extremely complex. Failure to file the reports, or filing incomplete or inaccurate forms could result in reporting penalties. Employers are projecting increases by 6 to 8 percent in their administrative cost for compliance expenses.
Employee / Worker Classification
The IRS has long held the opinion that most Independent Contractors are in essence Common Law employees, and not Independent Contractors. The IRS and DOL has implemented an economic realities text and narrowed the definitions of an Independent Contractor to Six Factors.
- The extent to which the work performed is an integral part of the employer’s businesses
- The worker’s opportunity for profit or loss depending on his or her managerial skill
- The extent of the relative investments of the employer and the worker.
- Whether the work performed requires special skills and initiative
- The permanency of the relationship
- The degree of control exercised or retained by the employer.
Each factor is examined in relation to one another and no single factor is determinative. This results in the outcome being qualitative and subjective, presenting an extremely onerous burden of proof for the company to challenge and overcome.
Workers hired through staffing agencies may also be considered Common Law employees, even though the staffing agency may have those employees on their payroll. The same Six Factor rule listed above is used to determine whether the worker is the staffing agency’s employee or the client company’s employee. It may be quite likely that even though the workers are on the Staffing Agency’s payroll, they are the client company’s Common Law employees. This may trigger the over 50 employee threshold, requiring the employer to comply with the ACA Employer Mandate and offer health insurance to their employees.
What Does All This Mean To You, The Employer?
Businesses did not go into business to become HR Specialists or ACA & FLSA Report generating specialists. The core function of a business should focus on revenue generating activities for the company. However, the sheer complexity of the law poses often conflicting compliance and reporting challenges for virtually every business. As discussed above, a company can be compliant with DOL laws, yet be non-compliant with the ACA.
The complex reporting requirements of the ACA, and now the FLSA, is expected to cost businesses an additional 8% – 10% in overhead and administrative costs. The reality is that 1 in 8 businesses will inadvertently file inaccurate reports, and be subject to IRS and DOL audits and penalties.
As such, companies can very easily find themselves non-compliant. If an employee of such a company obtains health coverage from the market place, and receives an exchange subsidy, the company can be fined $2,000 per year for each employee in excess of 30 full time employees.
The PEO acts as a buffer with IRS for enforcement of the ACA. With over 10,000 employees under the co-employer arrangement, the PEO has the expertise to ensure compliance with HR and IRS rules and regulations.
With the shared risks and liabilities under the co-employer agreement, the PEO assumes the burden of ACA non compliance fines and penalties.