If your company or commonly owned group of companies has close to or more than 50 employees, you may need assistance in compliance under the terms of the Affordable Care Act (ACA). We work with a wide variety of clients in relation to strategy and compliance with the complex and constantly changing terms of the ACA.
Most of our work with clients falls into the following categories:
- Common ownership (control group) analysis: The ACA stipulates that employees of commonly owned companies be considered working under the same employer. It is important to determine whether companies can be separated or considered one under the ACA.
- Initial assessment: Many employers don’t know whether the terms of the ACA apply to their company. Our in-depth initial assessment gives employers a snapshot of their liability or critical documentation of their lack of liability.
- Compliance: If the terms of the ACA apply to your company or group of companies, there are various responsibilities your organization will have. We have the tools and resources to both develop and implement your company’s compliance plan.
If you’re not sure where to start, we hope this list of frequently asked questions will help provide direction.
The following document is produced to address some of the questions employers may have relative to the ACA. These questions and answers are general in nature and should not be construed as legal advice specific to employers. Because of the complexity of the ACA as well as the various agencies involved in enforcement, we recommend a detailed consultation with insurance, tax and compliance specialists before making decisions relative to the ACA.
IMPORTANT NOTE for multiple-business owners only: Before you begin any assessment, you must first consider your businesses in terms of common ownership. If you own multiple businesses, it is important to understand which entities are included in the common ownership control group. Once this first step is completed, you now know what your employer group size is in terms of employees.
1. How do you calculate employer size?
With a few exceptions, employees who are working in the control group are counted toward employer size. The employer size calculation includes the following:
- Full-Time Employees: Those who work at least 30 hours per week (130 hours per month).
- Full-Time Equivalents (FTE): Calculated by taking the hours of those who don’t work 130 hours in a given month (with a maximum of 120) divided by 120.
- Exemptions: Business owners and the immediate family members of the owners are excluded from the counts. In addition, military veterans who are covered by certain government health care programs can also be excluded from the counts.
The employer size calculation is done on a monthly basis and is the average of all 12 months: Full-Time Employees + Full-Time Equivalents – Exemptions = ACA Employer Size.
2. What is the key employer size number for applicability of the ACA?
The ACA has the potential to impact business of all sizes. However, most of the biggest impacts come in the form of the ACA’s shared responsibility provisions, which only apply to businesses that are applicable large employers (ALEs), employers that average over 50 employees and FTEs.
3. My business is growing and changing. How do I know when the shared responsibility provisions begin to impact my business?
The ALE designation is based on the previous year’s employment data. For example, an employer that measured over 50 in the calendar year of 2015 is an ALE for tax year 2016. Note: There was a transition relief rule for 2015 that allowed employers to utilize any six month period in 2014 to determine applicability in 2015. Going forward, however, employers must use all 12 months of the previous calendar year to determine ALE status for the subsequent year.
4. What are the shared responsibility provisions of the ACA?
There are two primary components of the shared responsibility provisions of the ACA: Insurance coverage and employer reporting. If your business control group was measured as an ALE in calendar year 2015, you must comply with the following in 2016:
- Insurance coverage: As an ALE you are required to offer compliant health care coverage to all eligible employees or face a fine or penalty.
- Compliant coverage: This is coverage that is both affordable (employee portion of least expensive, single-only coverage cannot exceed 9.66% of the employee’s gross income) and of minimum value (bronze-level coverage). If an employer offers compliant coverage, they will receive no fines or penalties under the shared responsibility provisions of the law.
- No coverage: An ALE that offers no coverage will be fined $2,160 per eligible employee (less the first 30) per year. This non-tax deductible fine (also known as the Part A penalty) is assessed on a monthly basis but paid annually. This penalty is assessed if at least one eligible employee goes to the state or federal exchange and receives a tax subsidy.
- Non-compliant coverage: If an employer offers coverage that is either not affordable and/or not of minimum value, they will receive a fine of $3,240 for each employee that goes to the state or federal exchange and receives a tax subsidy. This non-tax deductible penalty (also known as the Part B penalty) is also assessed on a monthly basis and paid annually. The Part B penalty cannot exceed what would have been the Part A penalty if the employer had never offered coverage at all. More information on this topic can be found in our blog.
Employer reporting requirements: As an ALE you are also required to comply with the ACA reporting requirements, which includes forms 1094 and 1095. Employers who measured over 50 employees in 2015 are required to submit 1094 and 1095 forms to certain employees and the IRS in early 2017.
5. Does every employee that works for the organization receive a 1095-C document?
No. Only employees that are designated as full-time during the reporting year receive a 1095-C form. The ACA defines a full-time employee as one that works at least 30 hours per week or one that is reasonably expected to work 30 hours a week. That does not mean that any employee who works 30 hours for at least one week should receive a 1095-C. The ACA has various specifications that can be used in different ways to track and monitor employees in this regard.
6. Should I track and monitor progress throughout the year?
If your organization is at or near the 50-employee threshold, HKP recommends you prioritize organization of the following:
- If you are under but near the 50-employee threshold: Track the number of employees and FTEs that you have each month as outlined in the employer size worksheet.
- If you are over the 50–employee threshold: Track the number of employees who work at least 130 hours per month or are reasonably expected to average at least 130 hours per month. Track the number of employees who do not work at least 130 hours per month and can be considered part-time. Designate and track the number of employees that are hired that you cannot designate as part-time or full-time. All of this information will be helpful in filling out the 1095-Cs at the end of the year.
7. How does my organization prepare and submit the 1094 and 1095 documents?
The ACA forms require a combination of employee demographic, employment and insurance coverage information. The forms are coded according to IRS guidelines. Many employers have these forms populated and submitted through their payroll system or payroll carrier. Others produce them internally. Still others pay a third party to produce and submit the documents. Our iSolved workforce management platform has full ACA compliance capabilities.
8. What are the potential impacts of the ACA if I am not an ALE?
If you quantitatively document that you are under the 50-employee threshold in terms of employer size for the previous year, there are several other impacts to consider:
- Self-funded coverage: If you sponsor a health plan that is self-funded, you have some reporting requirements under the ACA.
- Owner health care coverage: If you are an owner and currently purchase your health insurance through the company or reimburse yourself for premiums, you may be impacted. (More information on this topic can be found in our blog.)
- Employee-assisted coverage: If you currently pay for or reimburse health insurance premiums for your employees on a pre-taxed basis, you are not in compliance with the market reform provisions of the ACA.
- Ongoing monitoring: If you are near the threshold of 50 employees, it is a good idea to continue to track and monitor your employer size in terms of possible need to comply in the future.