ACA 360IS YOUR ACA VENDOR ACTUALLY MANAGING COMPLIANCE? QUESTIONS EMPLOYERS SHOULD ASK
IS YOUR ACA VENDOR ACTUALLY MANAGING COMPLIANCE? QUESTIONS EMPLOYERS SHOULD ASK
IS YOUR ACA VENDOR ACTUALLY MANAGING COMPLIANCE? QUESTIONS EMPLOYERS SHOULD ASK
When an employer says, “Our payroll company handles ACA,” that can mean several different things.
It may mean the payroll company prepares Forms 1095-C after the year ends. It may mean software generates reporting codes using information already stored in the payroll system. Or it may mean someone is actively reviewing employee hours, eligibility, coverage offers, affordability, and measurement periods throughout the year.
Those are very different levels of service.
An applicable large employer, or ALE, must identify its ACA full-time employees and complete the required ACA reporting. To reduce potential exposure under the employer shared responsibility provisions, an ALE also needs to understand when qualifying coverage should be offered to its full-time employees and their dependents.
Employers do not need to understand every technical ACA rule. They should, however, understand what their vendor is actually doing on their behalf.
HOW OFTEN IS OUR EMPLOYEE INFORMATION REVIEWED?
ACA compliance is affected by employee activity throughout the year. A vendor cannot identify changes as they happen if employee information is only reviewed when Forms 1095-C are being prepared.
Ask how often the vendor receives and reviews payroll, demographic, eligibility, and coverage information.
Does the vendor review this information throughout the year? Or does the process begin after the reporting year has already ended?
That distinction matters because annual reporting records what happened during the year. Preparing the forms cannot go back and create a timely coverage offer for an employee who should have received one months earlier.
WHO IS MONITORING EMPLOYEE HOURS?
For ACA purposes, a full-time employee is generally an employee who averages at least 30 hours of service per week or has at least 130 hours of service during a calendar month.
Hours of service can include more than hours physically worked. Hours for which an employee is paid or entitled to payment can also count, including hours related to vacation, holidays, illness, disability, layoff, jury duty, military duty, and other leaves of absence.
Ask whether the vendor reviews all applicable ACA hours of service or simply uses the hours already stored in a payroll field.
Payroll corrections also need to be considered. If a timecard or paid leave entry is corrected later, the employer needs to know whether that correction is reflected in the ACA calculation for the applicable period.
HOW ARE NEW HIRES EVALUATED?
Not every new employee follows the same ACA timeline.
An employee who is reasonably expected to work full-time when hired is handled differently from an employee whose future hours cannot reasonably be determined. The rules also depend on whether the employer uses the monthly measurement method or the look-back measurement method.
Ask how the vendor identifies these employees and who monitors the deadline for offering coverage to a new full-time employee.
If the process relies entirely on a job title or a status selected during onboarding, ask what happens when that information does not match the employee’s actual work schedule.
WHO IS TRACKING VARIABLE-HOUR EMPLOYEES?
When an employer uses the look-back measurement method, a new variable-hour employee may complete an initial measurement period before the employer determines the employee’s ACA full-time status.
These initial measurement periods do not all begin and end together. Each variable-hour employee can have an individual timeline based on the employee’s start date.
Ask whether the vendor tracks each applicable employee through the initial measurement period, administrative period, and stability period.
It is also important to ask what happens when the employee later moves from the initial measurement cycle into the employer’s standard measurement cycle. The rules governing that transition cannot be managed by looking only at the employee’s current job title or payroll status.
ARE STABILITY PERIODS REVIEWED BEFORE ELIGIBILITY DECISIONS ARE MADE?
Under the look-back measurement method, an employee’s ACA full-time status during a stability period is based on the employee’s hours of service during an earlier measurement period.
This means an employee who moves from a full-time schedule to a part-time schedule does not necessarily stop being treated as full-time for ACA purposes immediately. A change in job title, department, location, or expected schedule does not automatically erase the result of a completed measurement period.
Ask whether the vendor checks for an active stability period before determining that an employee is no longer required to receive an offer of coverage for ACA purposes.
HOW ARE RETURNING EMPLOYEES HANDLED?
When a former employee is rehired, the employer cannot assume that every returning employee can be treated as a brand-new employee for ACA purposes.
The length of the break in service, the employee’s prior ACA status, and the measurement method used by the employer may all affect how the returning employee must be treated. In some situations, the employee must return with the ACA status they had before the break in service.
Ask whether rehires are evaluated under the ACA break-in-service rules or simply entered into the system as new employees.
HOW IS AFFORDABILITY REVIEWED?
Offering health coverage does not complete the ACA analysis. The affordability of the offer can also affect an employer’s potential exposure under the employer shared responsibility provisions.
Because employers generally do not know an employee’s household income, the ACA provides three optional affordability safe harbors: the federal poverty line safe harbor, the rate of pay safe harbor, and the Form W-2 wages safe harbor.
If the employer relies on an affordability safe harbor, ask which safe harbor is being used and whether it is being applied consistently to each applicable employee category.
The analysis should use the employee’s required contribution for the lowest-cost, self-only coverage option that provides minimum value and is available to that employee.
The vendor should be able to explain how affordability is evaluated. A statement that the employer offers a health plan does not answer the affordability question.
DOES ANYONE REVIEW THE FORMS 1095-C BEFORE THEY ARE FILED?
Forms 1095-C use monthly codes to report information about the coverage offered to an employee. Other codes can provide information relevant to the employer shared responsibility provisions.
Ask whether the forms receive a compliance-focused review before filing or whether they are generated automatically using the information available in the system.
If the vendor provides a compliance review, ask whether that review looks for conflicting codes, missing coverage offers, unexplained monthly changes, incomplete employee records, and other patterns that may need further investigation before filing.
WHAT DOCUMENTATION WILL BE AVAILABLE IF THE IRS ASKS QUESTIONS?
An employer may need to explain an ACA reporting or coverage decision long after the original decision was made.
Ask what records the vendor retains to support employee classifications, hours calculations, measurement period results, affordability determinations, coverage offers, waivers, and reporting codes.
Also ask what happens if the employer receives an IRS Letter 226-J. Will the vendor only provide copies of the filed forms, or can it explain the underlying information used to prepare them?
THE QUESTION BEHIND ALL THE QUESTIONS
The most important question is not whether a vendor “does ACA.”
The question is what the vendor is actually doing before reporting begins.
Preparing and filing Forms 1095-C is one part of ACA compliance. Managing ACA compliance requires ongoing review of employee activity, coverage obligations, measurement period results, affordability, and reporting information.
Employers should know whether that work is included in their current service or whether they are receiving reporting support alone.
ACA 360 provides ongoing ACA compliance management, including employee eligibility monitoring, measurement period administration, affordability review, ACA reporting, and penalty response support.
This article is for general informational purposes only and is not legal or tax advice.
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