1. Has my company developed an effective system of collecting and monitoring employee actual hours worked (what the ACA law refers to as Hours of Service)?
Calculating employee hours of service under the Affordable Care Act (ACA) will require employers to account for all work and leave time for each employee. Most employers have become accustomed to monitoring hours of non-exempt employees—those employees who are entitled to a minimum wage and overtime under the Fair Labor Standards Act (FLSA). Employers will now, however, have to take special notice of hours worked by exempt and non-exempt employees. These new regulations could place employers under an incredible administrative burden if they are not prepared to meet these requirements with the right tracking solution. It’s very important for employers to understand that hours of service are used to determine and employer’s compliance with the ACA law.
The ACA requires hours of service for every employee are used in calculating the employer’s workforce size. Employers that fall under the ACA must track all hours of service for all employees.
For the purposes of ACA compliance hours of service are:
- hours for which an employee is paid, or entitled to payment, for the performance of duties for the employer
- hours for which an employee is paid or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence
Hours of service are used to determine if an individual employee has worked enough hours to be considered full-time. One key provision of this law requires employers to maintain a record of the hours actually worked and if no record is maintained the employers must assume eight hours for each applicable day under this scenario. This area of the law is somewhat complicated and requires some advanced knowledge and understanding on the part of the employer.
2. What are the reporting requirements and are we prepared to produce the necessary IRS reports?
The Affordable Care Act added section 6056 to the Internal Revenue Code. It requires Applicable Large Employers (ALE’s) to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage the employer offered. The definition of an ALE is an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year. Employers (regardless of their number of employees) that sponsor self-insured group health plans also are required to report information under section 6055 about the health coverage they provide.
The information reporting requirements under section 6056 are first effective for coverage offered (or not offered) in 2015. An ALE member must file information returns with the IRS and furnish statements to employees beginning in 2016, to report information about its offers of health coverage to its full-time employees for calendar year 2015.
There is relief built into the regulations for employers that submit incorrect or incomplete forms. Some employers may be under the false impression that relief is available for those that do not submit reports for 2016. The relief is only for those who demonstrate a good faith effort to comply. This relief generally allows additional time to develop appropriate procedures for collection of data and compliance with the new reporting requirements.
The regulations provide that, as a general method, each ALE member may satisfy the requirement to file a section 6056 return by filing a Form 1094-C (transmittal) and, for each full-time employee, a Form 1095-C (employee statement), or other forms the IRS may designate. An ALE member that maintains a self-insured plan also uses a Form 1095-C to satisfy the reporting requirements under section 6055.
3. When does the employer shared responsibility provision of the ACA take effect?
The requirements of this law became effective January 1, 2014, however, full enforcement of the law was delayed until January 1, 2015. An additional delay of enforcement was added for employers between 50 to 99 FTE or FTE equivalents. For these employers, the enforcement of the law will not begin until they reach a plan year with an effective date of 1/1/16 or later. Transitional relief is also available for employers with 100 or more FTE’s or FTE equivalent employees. This includes employers who provide coverage that is affordable and meets minimum value to at least 70 percent of full time employees in 2015 and at least 95 percent in 2016 and beyond. Employers who employ fewer than 50 FTE’s and FTE equivalents in the prior calendar year are also not subject to the employer shared responsibility provisions.
4. What will we do in the event of an IRS audit three years from now?
All employers who fall under the ACA Compliance umbrella will need to be prepared to have a system in place that will produce the appropriate audit reports on an ongoing basis. The burden of responsibility will fall on the employer to prove an offer of coverage should not have been offered to an individual variable hour employee. It is likely these types of audits will continue occur many months or even years after the fact. Consequently, employers will need to maintain comprehensive records related to employee hours worked and substantiate their rationales for offers or non-offers of coverage.
5. What are the penalties for being out of compliance?
Without question, this is probably the most frequently asked question regarding ACA compliance. Unfortunately, it’s is still the most commonly misunderstood question as well – likely because different penalties apply depending on the specific area of non-compliance. On February 10, 2014, the Internal Revenue Services (IRS) and the Department of the Treasury issued a final rule implementing the employer-shared responsibility requirements under section 4980H of the Internal Revenue Code. Let’s take a high level look at the penalties for not offering minimum essential coverage:
- If an applicable large employer (ALE) does not offer minimum essential coverage to all of its full-time employees and their dependents (unless the employer qualifies for the 2015 dependent coverage transition relief clause) the employer is subject to a monthly penalty if any full-time employee receives subsidized coverage through an exchange.
- The penalty for not offering coverage is calculated by multiplying the total number of full-time employees they employed that month by 1/12 of $2000. In this scenario only full-time employees are counted, not full-time equivalents.
- One final component of the rule provides for transition relief. This allows an employer to meet the requirement of offering minimum essential coverage by making and offer of coverage to 70 percent of its full-time employees and their dependents in 2015 and 95 percent of its full-time employees and their dependents (or, if greater, to five employees) in 2016 and beyond.