Challenges of ACA reporting

Revisions to the Affordable Care Act may or may not be pending, but right now, ACA compliance is still the law of the land. Are you an Applicable Large Employer (50+ full time employees or full time equivalents) looking to simplify ACA reporting?  Let’s take a look at some of the challenges of ACA reporting.

Identifying who is full time

The look-back method takes the average hours worked over a measurement phase of up to 12 months, in order to make a part-time or full-time determination during your administrative phase.

A stability phase lasting at least as long as the measurement ensures continuity. The most common standard measurement period uses a 12-1-12 pattern, with 12 months of measurement, 1 month of administration, and 12 months of stability.  This is the longest allowed by law, which means less frequent adjustments.  It also tends to “smooth out” any short-term scheduling fluctuations.  A pattern with a shorter measurement such as 6-2-12 might be advantageous if you have a highly seasonal business.

Your stability phase should match your plan year, coinciding with your insurance enrollment date.  Coverage cannot be rescinded unless an employee is terminated or voluntarily opts to switch to a part time position during that stability phase.

When to make an offer

You may use the look-back method to measure up to 12 calendar months for part-time or variable hour new hires, but a coverage offer should not be withheld an entire cycle if it is intended they will be full time from the beginning.  If you hire someone as full time (with reasonable expectation the they will remain so), make the offer of coverage within 90 days.  The same applies to someone officially promoted from a part-time to a full-time position during their measurement period.

For employees who are determined to be full-time during a measurement phase (initial or standard), coverage offers should be effective immediately following the administrative phase, not an additional 90 days later.

How do you know if an offer is affordable?

Every full-time employee of an ALE is entitled to a qualifying offer of coverage. The offer must provide minimum essential coverage, which follows established limits on cost sharing of coverage. The offer must also provide minimum value, which means it pays at least 60% of the total cost of medical services for a standard population.

Benefits must also include substantial coverage of physician and in-patient hospital services. The employee share of self-only coverage cannot be greater than 9.69% of their income (the exact percentage fluctuates from year to year).

The subject of income leads to the topic of safe harbors, which is simply an approved method of estimating someone’s income.  The IRS describes three methods:

The first is the federal poverty level ($11,880/yr.) safe harbor (FPL), which equates to an employee premium of less than $96 per month to be considered affordable.

The rate of pay safe harbor uses an employee’s hourly rate and multiplies it by the 130-hour requirement.  If all your full-time employees earn more than the federal minimum wage, or if your local minimum wage is substantially higher than the federal standard, this will be much better than the FPL method.  For example, an employee making $10/hr. could afford a monthly premium of $134 instead of just $96.

The downside of the rate of pay calculation is that you don’t get “credit” for hours above 130/month or any type of extra pay such as commissions or overtime.  This is why the final and most popular safe harbor method is W-2 wages.  It uses the full box 1 wages and is relatively projectable in most cases.

In summary:

Only use the FPL if you already offer extremely inexpensive (or free) coverage.

Only use the Rate of Pay if you expect to reduce the hours of someone designated as full-time to less than 130/month during their stability phase.

For all other cases, using W-2 Wages is strongly encouraged.

This post was written by guest blogger Adam M. at TimeClick Software’s partner Passport Software. Learn more about Passport Software’s Comprehensive ACA software.  Passport Software’s payroll module has an optional interface with TimeClick.

Adam M.


Author Bio: Adam splits time between Chicago and Logan, UT. He has a background in engineering, the service industry, and print, which makes him a technically proficient and patient/friendly communicator for TimeClick. He enjoys building and racing motorcycles (with a particular love of Italian bikes), exploring the regional national parks and forests, and is a nationally accomplished bridge player.

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