Except for in very small companies, payroll, human resources and employee benefits are generally handled by separate offices. However, compliance with the Affordable Care Act (ACA) and the need to file certain forms may make it necessary for the three functions to cross over, to some degree.
“Regardless of which department is ultimately tasked with the responsibility for completing the forms, it is clear that they will have to work together because each department will probably control the system housing some of the data that must be reported,” states the IRS in its publication SSA/IRS Reporter.
ACA Employer Requirements
Under the ACA, applicable large employers must offer their full-time employees and their dependents minimum essential coverage that is affordable and provides minimum value.
An applicable large employer is defined as one having 50 or more full-time and full-time equivalent employees. The IRS states in Notice 2013-45, “Employers will use information about the number of employees they employ and their hours of service during 2014 to determine whether they employ enough employees to be an applicable large employer for 2015.”
For 2015, health coverage is considered affordable if the amount of the premium paid by the employee doesn’t exceed 9.56% of an employee’s household income.
Of course, employers don’t often know an employee’s actual household income. For that reason, there are safe harbors in place including one that deems that coverage is affordable if it’s equal to or less than 9.5% of the employee’s wages (listed on Form W-2, Box 1). Under the ACA, a health plan meets the minimum value requirements if it covers 60% of the cost of benefits expected to be incurred. Otherwise penalties may be incurred.
Potential Penalties Under ACA Rules
There are two types of penalties that applicable large employers are liable for if they don’t comply with the coverage requirements.
1. If an applicable large employer doesn’t offer coverage, or offers coverage to less than 95% (reduced to 70% for 2015) of its full-time employees and their dependents and at least one employee receives a premium tax credit, then the employer is subject to the Employer Shared Responsibility payment. This is calculated by multiplying the number of full-time employees by $2,000, with an exclusion for the first 30 full-time employees (increased to 80 for 2015).
2. If an applicable large employer offers coverage to 95% or more (reduced to 70% for 2015) of its full-time employees and their dependents, but there are full-time employees that receive a premium tax credit because the offered coverage was not affordable or did not provide minimum value, then the employer will be subject to a second type of Employer Shared Responsibility payment. In this case, the payment will be $3,000 per employee that received the premium tax credit.
It is important to note that both of the penalties are calculated on a monthly basis.
Fortunately, there are two kinds of transition relief. Following are the transition rules that apply for 2015.
For applicable large employers with 100 or more full-time employees, the relief is in the form of a lower percentage of full-time employees who must be offered coverage or a larger exclusion of full-time employees subject to the $2,000 penalty. For applicable large employers with 50 to 99 full-time employees, no Employer Shared Responsibility payment will be due even if the coverage requirements are not met. However, these employers are still subject to the ACA reporting requirements.
Since ACA penalties are calculated monthly, applicable large employers must be able to track their full-time employees for each month as well as their corresponding health coverage status. This is critical in 2015 because various indicator codes will be used on the forms to claim the applicable transition relief.
The Information Employers Need for Forms 1094/1095
An applicable large employer will generally file two ACA forms:
1. Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, will work like a Form W-2 with copies going both to the IRS and full-time employees. To complete Form 1095-C, employers must report the following information, for each full-time employee, broken down by month:
- Information about the offer of coverage to each employee,
- Whether the employee was enrolled in the plan,
- The employee’s share of the lowest-cost self-only minimum value coverage, and
- Whether the affordability safe harbor or other transition relief applies.
2. Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, will function like a Form W-3. To complete an authoritative transmittal on Form 1094-C, employers must report:
- Whether coverage was offered to 95% (70% for 2015) of the organization’s full-time employees,
- The total number of 1095-C forms the organization issued,
- The number of full-time employees and total number of employees by month,
- If applicable, information about members of the aggregated employer group, and
- Whether the organization qualifies for transition relief.
For calendar year 2015, the forms are due by February 29, 2016 (or March 31, 2016 if filing electronically).
An applicable large employer that has different divisions may file a 1094-C for each entity, but one must be marked as an authoritative transmittal and provide data on all the Forms 1095-C filed by the employer.
A Joint Effort for ACA Compliance
The IRS stresses that a company’s payroll, HR and benefits departments will have to work together to assemble the large amount of data needed to file Forms 1094-C and 1095-C.
For example, the payroll department will have the information on W-2 wages or rate of pay needed to determine the affordability of the offered coverage if the employer relies on one of the available affordability safe harbors. HR or Benefits will likely have the data on the lowest-cost self-only minimum value coverage that was offered by the employer.
The HR department may have the data to determine whether a newly hired full-time employee was in a waiting period before an offer of coverage was made, while a time and attendance system may be used to determine whether an employee who has shifting schedules qualified as a full-time employee throughout the reporting period.
Your payroll and tax advisers may be able to assist you in compiling the information and may offer services to compile and file the forms. Contact them early to help ensure you have the correct information to meet the filing deadline.
What about Self-Insured Plans?
For employers that are self-insured, additional data elements must be provided on Forms 1094-C and 1095-C and they may be especially difficult to track. Self-insured applicable large employers must report the names and Social Security numbers of all the individuals covered by the employee’s choice to enroll in employer-provided health coverage (employee, spouse and/or dependents). If a Social Security number is not available for a covered individual, the applicable large employer may report the individual’s birth date instead. This is information that the employer may not have and will need to get from the employee or a third-party administrator prior to completing Form 1095-C.[/box]