What HR Professionals Need to Know About Shared Responsibility Fees

What HR Professionals Need to Know About Shared Responsibility Fees

As an HR professional, ensuring that your organization remains compliant with the Affordable Care Act (ACA) is a crucial responsibility. One of the most significant components of ACA compliance is the Employer Shared Responsibility Payment or Shared Responsibility Fees. These fees are imposed on applicable large employers (ALEs) who fail to offer affordable and minimum essential health coverage to their employees. The consequences of not meeting ACA’s requirements can result in substantial penalties.

In this blog post, we’ll break down what these fees are, who is affected, and how HR professionals can avoid these penalties by leveraging solutions such as ACA-Track.

Understanding Shared Responsibility Fees

The Employer Shared Responsibility Payment is part of the ACA’s provisions for employers. Section 4980H of the Internal Revenue Code mandates that certain employers (ALEs) must either provide affordable, minimum value health insurance to their full-time employees and their dependents or face potential penalties if their employees receive subsidized coverage through the health insurance marketplace (or Exchange). These penalties are assessed by the IRS under two scenarios:

1. Failure to Offer Coverage: If an employer does not offer coverage to at least 95% of its full-time employees, they could face a penalty.

2. Offering Unaffordable or Insufficient Coverage: If the coverage offered does not meet the ACA’s standards for affordability and minimum value, the employer may also be penalized.

Who Is Affected by Shared Responsibility Fees?

The shared responsibility provisions apply to Applicable Large Employers (ALEs), which are generally employers with 50 or more full-time employees (including full-time equivalent employees). To determine if your organization is an ALE, it’s essential to assess your full-time and part-time employee count, as well as the total number of hours worked by part-time employees.

A full-time employee under ACA is someone who works at least 30 hours per week on average. A part-time employee’s hours are aggregated to determine whether they contribute to the ALE threshold through full-time equivalents (FTEs). For instance, 120 hours of service from a part-time employee per month equals one FTE.

Even if your company currently has fewer than 50 employees, if you are a self-insured employer, you may still be required to file forms with the IRS for ACA reporting, which could result in penalties if not handled properly.

The Penalties: How Much Can an Employer Be Charged?

The penalties for non-compliance under the ACA can be significant, and HR professionals must be aware of them:

1. Failure to Offer Minimum Essential Coverage: If you fail to offer coverage to at least 95% of full-time employees, the penalty is $2,000 per full-time employee (excluding the first 30 employees).

2. Unaffordable or Insufficient Coverage: If the coverage you offer does not meet ACA standards for affordability or minimum value, the penalty is $3,000 per employee who receives a premium tax credit through the marketplace (up to the same total penalty of $2,000 per full-time employee).

These penalties are calculated on a monthly basis and apply across the entire year, making it essential for HR professionals to stay on top of compliance to avoid these hefty fines.

How to Prevent Shared Responsibility Fees

1. Track Employee Hours and Eligibility
   One of the most important steps in preventing ACA penalties is accurate tracking of employee hours and eligibility for health coverage. ACA-Track provides a solution to monitor and report employee hours across all types of workers—full-time, part-time, variable-hour, and seasonal employees. ACA-Track ensures that all hours worked by your employees are accurately tracked, and eligibility for coverage is determined based on this data. The software even integrates with various HRIS and payroll systems, making data collection streamlined and error-free.

2. Use ACA-Track for Comprehensive Reporting
   ACA compliance includes reporting accurate information to the IRS using Forms 1094-C and 1095-C. ALEs must submit these forms annually, reporting data on the coverage offered to employees. ACA-Track simplifies this process by automatically generating and filing these forms with the IRS, ensuring that all required information, including full-time employee status, offer of coverage, and affordability, is reported accurately. Additionally, ACA-Track’s detailed audits help catch errors before submitting the reports, reducing the risk of mistakes that can lead to penalties.

3. Ensure Employees Are Offered Affordable and Minimum Value Coverage
   The ACA requires that the coverage offered to full-time employees be both affordable and provide minimum value. If your organization’s health plan doesn’t meet these requirements, it could trigger penalties. ACA-Track helps ensure that your plan remains compliant with ACA standards by monitoring employee eligibility thresholds, insurance status, and affordability.

4. Maintain Records for IRS Audits
   Employers must maintain detailed records of their ACA compliance data for several years in case of an IRS audit. ACA-Track stores all data in one secure location, making it easy to retrieve employee hours, eligibility, and insurance coverage history when needed. Additionally, ACA-Track is designed with SAS 70 and SSAE 16 certifications, ensuring that your data is kept safe and compliant with strict security standards.

5. Correct Reporting Errors Before IRS Submission
   If errors are found in your ACA filings, they need to be corrected promptly to avoid penalties. ACA-Track allows you to review and fix reporting errors before submission to the IRS, helping to prevent the costly fines associated with inaccurate or late reporting.

Conclusion

For HR professionals, managing ACA compliance can be a complex and daunting task, especially when it comes to avoiding Shared Responsibility Fees. With ACA-Track, you can simplify the process of tracking employee hours, monitoring eligibility, and ensuring accurate reporting. Whether you are offering coverage to part-time or variable-hour employees, or need assistance with the IRS filing process, ACA-Track offers a proven, user-friendly solution to meet your ACA compliance needs.

By leveraging the capabilities of ACA-Track, you can confidently navigate the ACA’s shared responsibility provisions and avoid costly penalties, ensuring that your organization stays compliant with all ACA requirements.

For more information on how ACA-Track can help with your ACA compliance needs, visit ACA-Track.