ACA Employer Mandate: The Ultimate Guide

ACA Employer Mandate: The Ultimate Guide

Table of Contents Are you ready? WHO needs to comply? WHAT forms do you need to file to comply? WHEN do you need to file the forms? WHERE do you get the forms? WHY do you need to comply? HOW do you do all this??? 1 2 5 6 6 7 8

The ACA employer mandate is in effect are you ready? The Affordable Care Act s employer mandate aims to reduce the number of uninsured people in the U.S. by promoting employer-sponsored health coverage. (You may have heard the employer mandate also called Employer Shared Responsibility or ACA play or pay. ) When people talk about ACA compliance, they re typically referring to the new government requirement that a business provide its employees with affordable health coverage. But just offering health coverage doesn t make a business ACA compliant. Per Section 6056 of the Affordable Care Act, many employers must also file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage they offer. To determine whether businesses are in compliance with the ACA employer mandate, the IRS uses two new tax forms, 1094-C and 1095-C. We ve prepared a who, what, when, where, why and how guide to help you stay compliant. 1

WHO needs to comply? The ACA considers you an Applicable Large Employer (ALE) if your company has 50+ full-time (FT) employees. Compliance with the ACA employer mandate in 2015 is based on the size of your company in 2014. If your company had: 100+ FT Employees (in 2014) 50-99 FT Employees (in 2014) 1-49 FT Employees (in 2014) You are required to comply with the ACA employer mandate in the 2015 plan year. The ACA employer mandate applies to you in the 2015 plan year. You re not an ALE. You must offer health coverage to 100% of your FT employees (and their dependents up to age 26). Report this information to the IRS on the new tax forms, 1094-C and 1095-C, in 2016. However, companies that qualify for transition relief won t be subject to penalties for lack of compliance in 2015. We recommend you read through our guide, as penalties will be enforced for 50-99 ALEs in the 2016 plan year. You're not required to comply with the ACA employer mandate (so far). If you choose to provide health coverage to your employees, you may qualify for a tax incentive (through the SHOP Marketplace). 2

So, how many FT employees do you have, really? You ll need to determine whether your company had 50+ FT or full-time equivalent (FTE) employees during the 2014 calendar year. First, the easy part: A FT employee works an average of 30+ hours per week or 130 hours per calendar month. Now, the tricky part: Part-time (PT) employees hours are used to calculate whether the employer mandate applies to your company. 40 FT employees working 30 hours per week + 20 PT employees working 15 hours per week 50 FTEs. PT EMPLOYEE FT EMPLOYEE Special considerations: Teachers and other education employees are considered full-time employees, even if they don t work a traditional year-round schedule. However, seasonal employees, such as holiday retail workers, are not considered full-time employees. So, how many FTEs do you have? This healthcare.gov calculator can calculate it for you with just two numbers: https://www.healthcare.gov/shop-calculators-fte 3

Who qualifies for transition relief? Employers with 50-99 FT employees (including FTEs) in 2014, that meet the following three conditions, do not have to pay the Employer Shared Responsibility penalties under Section 4980H for any calendar month during 2015. Limited Workforce Size. An employer must employ on average between 50-99 FT employees (including FTEs) on business days during 2014. Maintenance of Workforce and Aggregate Hours of Service. From February 9th, 2014 to December 31st, 2014, an employer may not reduce the size of its workforce or its employees hours of service purely to qualify for the transition relief. Maintenance of Previously Offered Health Coverage. An employer must maintain and not materially reduce the health coverage offered as of February 9th, 2014, until the last day of the 2015 plan year. 4

WHAT kind of health insurance do you need to offer to comply? The employer mandate requires businesses to offer affordable insurance that provides minimum value. Affordable Insurance Employer coverage is considered affordable if their employees share of the annual premium for the lowest priced self-only (e.g. not family) plan is no greater than 9.5% of their annual household income. Minimum Value A health plan is considered to have minimum value if it s designed to pay at least 60% of the total cost of an employee s medical expenses. New regulations require employer plans to provide some hospital and physician benefits to be in compliance with minimum value standards. 5

Who qualifies for safe harbor? Most employers won t have access to their employees household incomes, so the ACA provides three safe harbors based on information that employers do have. If an employer can satisfy any of these three safe harbors, the offer of coverage is considered affordable under the employer mandate. Safe Harbor Who should use it? How do i use it? What are the disadvantages? W2 Wages This safe harbor may be most useful to an employer with full-time employees who regularly work 40 hours per week and whose compensation is unlikely to decrease during the year. Refer to Box 1 of an employee s current year W2 form. If the employee s health coverage premium is not more than 9.5% of Box 1, your coverage is considered affordable under the employer mandate. Box 1 income does not include pre-tax contributions, which will reduce the maximum affordable amount. Also, this must be calculated monthly for every employee in your company. Rate of Pay This safe harbor may be most useful for employers with hourly employees and the need for a fast, failsafe calculation method. If the Rate of Pay safe harbor is met for your lowest-paid employee, then it will also be met for all other employees. Multiply an hourly employee s lowest pay rate during the calendar month by 130 hours. If the employee s health coverage premium is not more than 9.5% of this amount, your coverage is considered affordable under the employer mandate. You can only multiply the hourly pay rate by 130 hours per month, even if employees actually work more hours. Federal Poverty Line This safe harbor may be most useful for employers with seasonal employees and employers who use the look-back measurement period to determine if variable-hour or seasonal employees have full-time status. Take the FPL for a household of one in the current plan year ($11,770 in 2015), and divide it by 12. If your employees are not paying more than 9.5% of the FPL for their health coverage premiums, your coverage is considered affordable under the employer mandate. This method typically provides the lowest threshold allowed for monthly premiums. Other methods generally allow for a higher monthly premium. 6

WHAT forms do you need to file to comply? OK, you ve identified your company as an ALE. Let s look at your ACA employer reporting requirements. Form 1094-C which accounts for each of the following, per 2015 calendar month: Full-time employees Total headcount Whether Minimum Essential Coverage was offered Whether an applicable 4980H Safe Harbor was used 1095-C 1094-C Form 1095-C which accounts for each of the following, per 2015 calendar month: Proof of offer of coverage (with code) Employee s share of the lowest cost monthly premium Whether an applicable 4980H Safe Harbor was used A written statement to each covered employee, which includes: The employer s name, address and contact information The information for the employee on the return being filed 7

WHEN do you need to file forms 1094-C and 1095-C? To be in compliance with the ACA employer mandate: Your employees must receive their copies of form 1095-C by January 31st, 2016. The IRS must receive your forms 1094-C and 1095-C by February 28th, 2016 (March 31, 2016 if filed electronically). WHERE do you get forms 1094-C and 1095-C? You can get the ACA compliance forms directly from the IRS. Download 1094-C here and 1095-C here. 1095-C 1094-C 8

WHY do you need to file forms 1094-C and 1095-C? Forms 1094-C and 1095-C help the IRS enforce the ACA employer mandate. Even if you find the language of the Affordable Health Care act confusing, the message around the penalties is clear: comply with the ACA employer mandate, or pay steep fines. Offer your employees health coverage or Pay a penalty of $2,000 for every FT employee at your company (less the first 30). Offer affordable health coverage (an employee s contribution doesn t exceed 9.5% of their household income) that provides minimum value (the plan covers, on average, 60% of an employee s medical expenses) or Pay a penalty of $3,000 for every FT employee at your company (less the first 30). File forms 1094-C and 1095-C or Pay a penalty of $200 for each delinquent or incorrect return. Provide written informational statements to each of your employees or Pay a penalty of $200 for each missing statement. The penalties are already in effect for the 2015 plan year for companies with 100+ FT employees. For companies with 50-99 employees, penalties are effective for the plan year beginning on January 1st, 2016. 9

HOW do you do all this??? There s a light at the end of this tunnel. Short-term relief from reporting penalties is provided for ALEs that can show they ve made good faith efforts to comply with the information reporting requirements. We re here to help you with the ACA employer mandate. In addition to sending your employees their ACA statements, which we already do today, we re busy building two new features that automate this ACA administration work. With Zenefits Time & Attendance (now in private beta) and ACA Automation (launching well in advance of the 2016 tax filing deadline), you ll be able to automatically: Generate forms 1094-C and 1095-C pre-filled with all the information we store for you, so you can easily file in time for the deadline without spending your time on data entry. Keep your reporting history up-to-date, and relax as Zenefits tracks and stores all the required reporting data. (Payroll sync required.) Ensure hourly employee eligibility with Zenefits Time & Attendance (coming soon) as your watchdog. When employees work more than 30 hours/week, we ll invite them to enroll in your health insurance and then de-enroll them and administer COBRA if they drop below the hourly ACA threshold. 10

Ready to get started? Email support@zenefits.com. www.zenefits.com