Payroll Briefs

How to Remain ACA-Compliant Throughout the Year

September 8, 2021

U.S. employers with at least 50 full-time equivalent (FTE) employees are required to comply with the Affordable Care Act (ACA) by filing their employees’ health insurance information annually with the Internal Revenue Service (IRS). This information includes the year’s payroll and benefits data broken down by month, and there are also events that must be reported as they occur. To remain compliant with the ACA in 2021 and avoid expensive penalties, employers should stay on top of the following activities throughout the year for a successful year-end filing process.  

Ongoing Tasks

To start, employers must keep a running record of each employee’s hours of service, which are hours an employee is available to work along with paid hours on the job. Some examples of hours of service include:

  • Vacation
  • Holidays
  • Sick time
  • Jury duty
  • Military deployment
  • Layoff
  • Leaves of absence

Monthly Tasks

Employers must disclose which employees are considered full-time by the ACA each month, as these individuals are eligible for health insurance. To determine eligibility for coverage, employers either use the monthly measurement method or the look-back method.

  • Monthly Measurement Method – Employers report an employee’s hours of service for each month in a calendar year. Any month with at least 130 service hours constitutes a month in which the employee should be considered as full-time and therefore eligible for coverage.
  • Look-Back Method – Employers determine an employee’s full-time status in the future based on an employee’s previous hours of service during a test period (the measurement period).

In addition, employers must review the list of employees who have become eligible for health insurance that month – this may include new hires or employees who have recently become eligible. Disregarding this may result in being penalized with an Employer Shared Responsibility letter from the IRS.

Employers should also confirm their health insurance plans meet the ACA’s affordability standards by reporting each employee’s self-only coverage costs. Employers with low-wage workers should be wary of affordability safe harbors. Fines are assigned each month for offering non-compliant health insurance coverage, so it’s important to keep a record of calculations and final determinations.

Year-End Tasks

The end of the year is a busy time for employers, as there is much reporting and filing to do. To start, they must create a Form 1095-C (Employer-Provided Health Insurance Offer and Coverage) for every FTE employee showing if they were offered health insurance, the cost and what quality. The monthly tracking will come in handy here, as the form requires monthly breakdowns. Even if an employer provides free coverage for employees or they select a pay strategy (accepting a fee for not offering health coverage or offering non-compliant coverage), this form is a must for every employer impacted by the ACA.

After the 1095-C forms are generated, they must be filed with the IRS using Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns). Employers with at least 250 1095-C submissions are required to file electronically. 

Streamlined ACA Reporting Compliance

If keeping up with the ever-changing requirements of the ACA has complicated how you manage your workforce, you’re not alone. With all of the other tasks you and your HR team have to handle, it’s easy for a single employee’s insurance eligibility to fall through the cracks, which could result in steep penalties. For that reason alone, you should consider the benefits of streamlining your reporting efforts with ACA-compliant automation, including:

  • Managing your payroll health care coverage deductions before tax
  • Tracking the average hours of service worked for each employee
  • Calculating your FTE employee headcount month after month
  • Alerting you of employees eligible for ACA benefits
  • Creating Forms 1095-C and 1094-C for regulatory filings and distribution to employees

Fortunately, DM Payroll Solutions offers all of these benefits within our ACA compliance reporting solution. Since the ACA’s regulations can be confusing and demanding, it’s important to air on the side of caution and partner with a payroll provider familiar with the rules. To learn more about how DM Payroll Solutions’ ACA reporting automation can manage and streamline your ACA compliance efforts, contact us today.