Complying with The Affordable Care Act (ACA) can be a headache for experts and employers alike. Rules and regulations are complex and constantly changing. Many employers find it easier to outsource their ACA compliance to ACA experts (like us) or their payroll & benefits vendors. However, not all third-party vendors understand the nuances of the ACA, which can lead to elevated risk for both Employer Mandate penalties and Internal Revenue Service (IRS) imposed penalties for inaccurate reporting.
We have put together a list of 6 questions every employer should ask their ACA provider regarding employee eligibility tracking to help determine the vendor’s scope of knowledge and capability to accurately track their employees.
1. What measurement method are you using to track my employees?
It is important to understand the method you are using to measure your employees’ hours, as this will determine when employees must be treated as full time and medical coverage offered in order to avoid potential risk of penalty. Most employers opt for the Lookback Measurement Period method as it requires less administrative work.
Monthly Measurement Period
employer offers coverage to any employee for any month during which the employee works full time. (best for employers who offer affordable coverage to everyone)
The Look Back Measurement Period Method
employer may determine whether an employee averaged 30 or more hours of service per week over a period of 3 to 12 months. If an employee was considered full time during this Measurement Period, the employee must be treated as a full time employee for benefits purposes for a subsequent Stability Period regardless of the employee’s number of hours worked during the Stability Period.
Employers should be aware that not all ACA vendors understand the concept of measurement periods, so it is important to do your research to ensure the measurement method you are using works for your employee populations.
2. Are you measuring my new hires separately?
If your service provider answers “no” to this question and you are using the lookback measurement period, RUN! Incorrect measuring of new hires elevates the risk for an Internal Revenue Service (IRS) penalty.
Newly hired employees in variable hour or part time positions should be measured separately in what is called the initial measurement period (IMP). The IMP can be hard to track as it may end outside of your regular lookback measurement period. Variable or part time employees may become ACA eligible and may require an offer of coverage at the end of their IMP.
3. What about my employees who work different calendars and have breaks in service?
Educational Employers have additional considerations for how breaks in service must be accounted for within the measurement period and should be sure to verify that the ACA service provider can account for this special rule in their system.
Any break in service greater than or equal to 4 consecutive weeks must either be excluded from the measurement period calculations or the average hours for the remainder of the measurement period also applied during this time.
It is crucial your ACA service provider has a way to incorporate the break in service into your employees’ measurement period calculation. If not, you run the risk of inaccurately measuring your employees which can lead to the risk of substantial penalties.
4. How are you tracking my re-hired employees?
Re-hired employees are commonly overlooked by most ACA service providers and as a result elevate the risk for incorrectly reporting employee status on IRS filings. It is important to verify that there is a system in place to accurately track these employees. If your ACA vendor does not have the capabilities to track re-hires, we strongly advise you to do it on your own.
Employees returning to employment service within 13 weeks of their termination date (or 26 weeks if you are in education) should be treated as the same full time or part time status prior to the termination date. Re-hired employees may be entitled to coverage if measured full time eligible in previous measurement period. Failure to offer coverage may result in IRS penalty.
5. How will I know if I need to make an offer of coverage to a variable-hour employee?
It is important that you keep up with your employees to determine if anyone is nearing eligibility. Make sure you know exactly where to look and what reports are available, and when to look at them so you are not surprised by employees reaching ACA full time eligibility.
Some providers may even offer a current view of hours so you can make changes before eligibility is reached. Not reviewing your employees thoroughly can lead to unexpected IRS penalties that could have otherwise been avoided.
Check with your ACA vendor to ensure you are taking advantage of the training and resource materials they have available.
6. What kind of information about the law and compliance issues can I access?
ACA providers are not all created equal. Some may offer a self-service model, leaving all the hard decisions to you. Some may not be equipped to handle your workforce changes. Others may have a customer service resource for their system but are not well versed on the ACA law. These are all things to consider when evaluating our ACA provider, as having access to an ACA expert can save you time and money.
If your ACA provider could not provide you adequate answers to the above questions, our team of trusted ACA experts offers a variety of services that can be tailored to your specific needs.
Please contact [email protected] for more information.
American Fidelity Administrative Services, LLC does not provide tax or legal advice. While we’re happy to provide you with this general information, given the complexity of these rules, we encourage you to contact your tax or legal counsel about how the requirements apply to your specific plans.
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