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Time is getting short to prepare for the reporting requirements under the Affordable Care Act (ACA) because of the approaching deadlines, number of steps involved and possible obstacles. Most employers will need to meet the IRS’s reporting requirements and support that process by either upgrading their current software or buying new software licenses. One wrinkle is that many payroll software and other vendors that can help employers meet ACA requirements have reached or are approaching capacity.
The ACA requires employers with 50 or more full-time equivalent employees, as well as smaller employers that provide self-insured benefits, to complete reporting requirements to help the IRS enforce the individual and employer mandates. The IRS has created Forms 1094-C (for the IRS) and 1095-C (for employees) for employers to use in reporting. The forms are complicated, requiring information on a monthly basis for each full-time employee who is offered and accepts health benefits and his or her dependents. Employers must distribute Form 1095-C for 2015 to each full-time employee on or before Feb. 1, 2016.
What you should know
Many employers are mistakenly viewing Form 1095-C as being similar to Form W-2. The only similarity is that both must be distributed to employees by the same date. The payroll system generates information for Form W-2 and aggregates the data from each payroll cycle. But the data for Form 1095-C likely comes from several sources, including payroll, timekeeping and benefit systems. Employers must compile all that information to determine who is a full-time employee for each month and assign one or more of 18 codes to each employee for each month.
What you should do
To compile the data from the various systems and complete the forms, an employer must upgrade or buy new licenses from a current vendor or one of a handful of cloud-based vendors. At least one large vendor, a national payroll firm, has reached capacity and isn't taking new clients. Other vendors are nearing capacity, so employers that don’t have a vendor should secure one now.
Begin by identifying the type of vendor you need. There are two general types.
The first type can print and file Forms 1094-C and 1095-C based on an Excel file the employer (or a consultant) provides, with all the data entries including the assigned codes. With this type of vendor, the employer or consultant needs to determine full-time employee status, compile data and assign the codes required to complete the IRS forms.
The second type offers more-sophisticated software that compiles the data from various sources, determines full-time employees, assigns the proper codes using built-in logic, and prints and files the IRS forms. Some vendors establish automatic uploads of the data, while others require the employer to initiate each download of data periodically. Some of these software packages provide dashboards enabling employers to identify full-time employees throughout the year and determine the timing for offering health care benefits to each employee.
The software or process you use will be an important aspect of establishing the controls, processes and procedures to comply with the employer mandate. Your external auditor may scrutinize these controls as part of your 2015 financial statement audit. The lack of sufficient controls may cause a liability to be recorded on your financial statement for the full potential penalty under Code Section 4980H(a), which is $2,000 times the number of full-time employees, less the first 80 employees.
You may want to consider commissioning a gap analysis this summer to determine their level of compliance with the ACA employer shared-responsibility provisions. If you decide to do this, you’ll need to take the following actions:
Create a process to identify common law employees
Determine and document the process for identifying full-time employees
Calculate whether the company met the 70% threshold for each month in 2015
Determine and document whether the lowest-cost plan meets the minimum value requirement
Determine and document which affordability safe harbor applies
Create a process for determining data collection for completion of Forms 1094-C and 1095-C
Our experience shows that it takes eight to 12 weeks to implement the software. Feb. 1 is less than eight months away. That, plus the shortage of vendors, means that employers should act now to make sure they can fully and accurately comply with reporting deadlines.
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