If you’re an employer with 50 or more full-time employees, understanding and complying with the Affordable Care Act (ACA) and its regulations is crucial to avoiding costly penalties and ensuring a smooth year-end reporting process.

As fall approaches, now is the best time to prepare your business for ACA compliance including determining your obligations, conducting a mid-year compliance check, preparing for year-end reporting, and engaging an expert in ACA compliance. This comprehensive guide will walk you through these important steps.

 

1. Understanding Your ACA Compliance Obligations

The first step in ACA compliance is to determine your status as an Applicable Large Employer (ALE) and to understand the requirements for Minimum Essential Coverage (MEC) and Affordability.

An Applicable Large Employer is a business or Aggregate Employer Group (which are two or more commonly owned, related, or affiliated employers) with an average of 50 or more full-time employees during the previous year. To calculate your ALE status, determine the number of full-time equivalents (FTEs) your business employs.

FTEs are calculated by adding up the total number of full-time employees (those who work an average of 30 hours per week or more) and the hours worked by part-time employees, divided by 120. This will give you the equivalent number of full-time employees. If your business is part of an Aggregate Employer Group, the combined workforce size must be considered.

Worker Classifications

The types of workers included in the above calculation can significantly impact ALE status, so it’s imperative to know the qualifications for each:

  • Full-time Employees: Works 30 hours a week or 130 hours a month.
  • Full-time Equivalent Employees: Calculated by dividing the total hours of service for part-time, variable-hour, and seasonal workers by 120.
  • Part-time Employees: Works less than 130 hours a month and are not required to be offered health coverage.
  • Seasonal Workers: Works on a seasonal basis, as defined by the U.S. Department of Labor. The IRS uses the Look-Back Measurement Method to determine this status.
  • Independent Contractors: Not considered employees and are excluded from ALE calculations.

Please note that some states have specific laws regarding worker classification, which can differ from federal guidelines. Incorrectly classifying workers can lead to penalties, legal issues, and pay equity problems.

Minimum Essential Coverage

If your business is an ALE, you’re required to offer affordable health insurance coverage to at least 95% of your full-time employees. This coverage must meet the requirements for Minimum Essential Coverage or MEC.

MEC is the baseline level of coverage that must be offered to employees. While MEC includes preventive services, it does not necessarily include the broader set of essential health benefits (EHBs) like emergency services, hospitalization, or maternity care. However, offering coverage that meets both MEC and affordability standards is crucial to avoid ACA penalties.

Affordability

The ACA sets strict guidelines on affordability to ensure employees can afford their health insurance coverage. According to the Affordable Care Act, the cost of your employee’s premium must not exceed a certain percentage of their income. For the 2024 tax year, the affordability threshold is 8.39% of an employee’s household income. Employers typically use one of three safe harbors (W-2 wages, rate of pay, or the federal poverty line) to determine affordability.

2. Mid-Year ACA Compliance Check

To ensure your business is on track for ACA compliance, conduct a mid-year compliance check. This can help you identify and correct errors before they lead to costly fines. Mid-year checks can also help verify the accuracy of the data you’re collecting.

Confirm the following information to ensure your compliance efforts are on track:

  • FTE Count: Regularly review your FTE count throughout the year to ensure that your classification as an ALE is accurate. This is especially important if your business has experienced significant growth or decline.
  • Check Your Coverage: Conduct a thorough review of your health plan offerings to ensure they meet MEC requirements and affordability standards. If your plan does not meet these requirements, you may need to make changes to avoid penalties.
  • Plan Types: Consider whether your current health plan offerings, such as traditional group plans, level-funded plans, or Individual Coverage Health Reimbursement Arrangements (ICHRA), meet the needs of your employees and comply with ACA requirements.
  • Data Collection and Validation: Accurate data collection and an internal audit are crucial for ACA compliance. Ensure that you have accurate information on all employees, including:
  • Employee Status: Full-time or part-time status, hours worked, and coverage offered. This data is crucial for accurately completing Forms 1094-C and 1095-C.
  • Coverage Information: Coverage offered to each employee and their dependents, including the start and end dates of coverage, the type of coverage provided, and whether the employee accepted or declined the coverage.
  • Affordability Calculations: Ensure your calculations are accurate and that you are using the correct safe harbor method (W-2 wages, rate of pay, or federal poverty line) for each employee.

3. Preparing for Year-End Reporting

Accurate and timely filing of Forms 1094-C and 1095-C with the IRS is mandatory. These forms provide detailed information about the health coverage offered to employees, ensuring compliance with the ACA.

  • Form Filing: Form 1094-C is an informational return that provides an overview of your business’s ACA compliance. Form 1095-C is a statement that provides information to employees about the health insurance coverage offered by their employer. To avoid errors or filing penalties, using a trusted partner or advisor that guarantees accurate reporting is essential.
  • Deadlines: The deadlines for filing Forms 1094-C and 1095-C are typically in late January or early February of the following year.
  • Penalties: Failure to file Forms 1094-C and 1095-C on time or accurately can result in significant penalties. The IRS can impose substantial fines for late or inaccurate filings. For example, in 2024, penalties for failing to file a correct information return or furnish a correct payee statement can be as high as $330 per form. If you have 100 employees and make a mistake on each form, that’s a potential penalty of $33,000.

4. Engage with an Expert

While it might seem manageable to track all this data and details internally, the complexity increases with each employee and plan variation. Having a system and/or partner that ensures nothing falls through the cracks can make a significant difference when it’s time to file.

If you choose to work with an ACA compliance expert, they can provide valuable guidance and support, help you navigate the complexities of the ACA, ensure accurate reporting, and avoid penalties. Professional administrators have the expertise and systems in place to reduce the risk of costly mistakes, offering a return on investment that’s hard to ignore.

Flyte HCM is a trusted ACA service provider that offers comprehensive ACA reporting solutions. Here’s how we can support you:

  • Data Integration: ACA compliance requires the integration of data from various sources, such as payroll, benefits administration, and employee records. We can help streamline this process, ensuring that all data is accurately collected and reported.
  • Reporting Support: Filing Forms 1094-C and 1095-C can be complex, especially for businesses with a large number of employees. We can assist with the preparation and filing of these forms, reducing the risk of errors and penalties.
  • Audit Assistance: If your business is audited by the IRS, we can provide guidance on how to respond to inquiries and minimize potential penalties.

Don’t wait until the end of the year to address compliance issues. Now is the time to stay proactive, stay compliant, and let Flyte HCM help you navigate the complexities of ACA reporting. Contact us to get started.