What Do I Need to Do to have ACA Compliance?
ACA compliance is important for every company, no matter the size. The problem is that there are a lot of moving pieces that you’ll have to wrangle to make sure you’re compliant. If you are anything like me, you second-guess yourself to the point of paranoia when it comes to all things business. I strive to be as thorough and competent as able while mitigating as much risk as possible by performing my own research and leveraging other professionals within my network. My OCD kicks in when I want to ensure that I am 100% in compliance – not 99.9%. But there are times when SOMETHING still feels like it’s missing; and I cannot put a finger on it.
The above, all too familiar scenario applies to many businesses and operations leaders who are embarking on their Affordable Care Act journey once they are hovering around the 50-employee threshold. Common questions that arise as research commences are:
- What if my benefit plan is not “affordable” in the eyes of ACA?
- What if I don’t apply measurement periods, stability periods and look-back periods correctly?
- What if I mislabel an employee who should be full-time?
- Will I be fined if I make a mistake on the reporting of individuals? If so, how much?
- Do all applicable large employers need to post this Department of Labor poster in their workplace? (Hint: The answer is YES!)
The great American philosopher and poet, Eminem, said it best when he alluded that his stress-induced ACA research, made his, “palms sweaty, knees weak, arms heavy.” Ok… he might not have been referring to the feeling he had while researching ACA compliance (though I have my suspicions), but I am sure that this feeling is mutual for most leaders facing the daunting task of staying compliant within the scope and guidelines of the Affordable Care Act.
Building Block Terminology of the ACA
Look, I get it… it’s a lot and staying ACA-complaint seems like a formidable task! Let’s start with the key definitions and basics to build upon what it takes to truly be ACA-complaint.
Employer Shared Responsibility – Employers who employ 50 or more full-time equivalent employees have a responsibility to provide minimum essential coverage to these full-time employees (and their dependents) or potentially owe an employer shared responsibility payment (fine) to the IRS.
Stability Period – The period for which an employee will become and remain eligible for coverage, regardless of whether his/her hours worked drop below 30 hours per week during this period. The stability period should be no less than 6 months and no more than 12 months. The determination of time in this period is up to your organization, but the stability period needs to be applied consistently across the board.
Initial Measurement Period – a period in which the hours of a new employee who is not reasonably expected to average 30 or more hours per week. The initial measurement period spans between 3 to 12 months.
Standard Measurement Period – The measurement period to calculate if an employee worked below or above 30 hours a week on average for a specified period. The standard measurement period spans between 3 to 12 months.
Administrative Period – The time allotted for the employer to calculate the average hours of the measurement period. This period immediately follows the initial measurement period for new employees or standard measurement period for existing employees.
Variable Status – The label provided to an employee when an employer cannot determine whether the employee is reasonably expected to work an average of at least 30 hours per week during the initial measurement period because the employee’s hours are variable or uncertain.
Full-Time Equivalent – full-time equivalent employee(s) are those whose hours worked per week are, on average, greater than 30 hours. For example, if you have two 15-hour per week average employees, they will equal one (1) full-time equivalent employee. A simple calculation to determine full-time equivalent employees is:
# of hours worked by all part-time employees in a given month/ 120
Minimum Value Plan – Plans must be “affordable” meaning if the rate is above 9.12% (2022 rate) of the employee’s total wages, the plan is not affordable. This minimum value plan must also be designed to pay at least 60% of total cost of medical services for standard populations. Benefit brokers will be able to assist in identifying plans that meet the minimum value plan criteria, but it is still the responsibility of the employer to ensure that wages paid to employees are enough to ensure that healthcare premiums do not exceed the 9.12% of total W2 wages.
Each “building block” mentioned above are critical pieces to remaining compliant with the Affordable Care Act. Essentially, the above is the EASY part. Application of these terms in your day to day operations is what will make your organization shine or pay the fine. How do you go about ensuring compliance? Well, the easy way is below!
Working towards full ACA compliance
Now that the basic definitions are covered, how do you apply these terms and work towards full ACA compliance?
First, employers must determine if they have an ACA requirement by counting all hours worked by variable hour employees during a month and dividing that by 120 to get a full-time equivalent count. They add the FTE count to the number of employees that are designated full-time to get a monthly FTE count. After this is done, add all months together and divide by 12 to get the FTE count for the year. If that number is 50 or greater, the business is considered an Applicable Large Employer and has an ACA requirement which includes offering medical insurance and IRS reporting.
Next, employers must decide how long they would like their initial measurement period to be (3-12 months), how long their administrative period should be (generally 30-60 days), and how long their stability period should be (no shorter than the initial measurement period).
All Applicable Large Employers are required to track if a variable hour employee averages over 30 hours per week during the standard measurement period, and when they do hit that threshold, the employee must be offered medical insurance. Also, the hours of all new hires must be measured over the initial measurement period to determine if that employee is averaging over 30 hours per week, and if they are, another offer of insurance.
Finally, after all of this work has been done and the year comes to a close, the results of all of the measurement periods, offers of coverage, cost of insurance coverage and counting of employees is brought together on IRS forms 1094 and 1095 to tell the government whether or not you complied with the rules of the Affordable Care Act.
Working with a CPA or accounting firm for ACA compliance
To me, there are two ways to go about ensuring that your organization is ACA compliant; either through manual manipulation of spreadsheets and formulas as well as filling out year-end reporting manually for each full-time equivalent employee plus applicable forms for the IRS, or investing in technology that can use the existing information within your Whirks HRIS system and produce compliance results and yearly reporting on your organization’s behalf.
Yeah, the second way sounds way easier to me, too!
Whirks has multiple ACA reports that automatically pull relevant data for full-time status review including lookback periods (standard and initial), plan affordability, compliance testing, and 1095-C previews. There are also a variety of reports to show the results of all the counting, adding, and averaging mentioned above that make you remember why you hated math! Technology is your friend to help save time, confusion, and frustration when needing to focus on continuing to grow your business.
Apart from reporting, Whirks’ technology allows for automatic life event recording and automated workflows to open Benefits enrollment for those employees who are/who become Benefits eligible based on hours worked and ACA requirements. Our fully customizable system can also enable workflows to notify appropriate parties of eligibility/ineligibility, enrollments, etc. These features help with the reduction of tedious, administrative tasks and allow you to pour your heart and soul into driving your organization forward.
Whirks also goes the extra mile and submits all yearly reporting for our clients to the applicable parties (IRS, DOL, employees) so that our clients do not have to.
Lastly, Whirks pairs awesome people who truly care about your business’ success with the best technology available From Payroll to HR, Benefits services and full human capital management, we empower you, your team, and your business by helping you get one step better every day!
The Big Takeaway
ACA compliance can feel more complicated than a 12-sided Rubik’s Cube! But with Whirks, it doesn’t have to be. Industry-leading technology, top-notch client service, and the expertise to assist will not only save you time but endless hours of administrative hassle of figuring out the ever-evolving matrix of the Affordable Care Act.
As your business is growing, we want to help you make the best decisions for your business. Check out our article “When should I have a Separate Legal Entity for my Small Business” to learn more about setting your growing business up for success.