ACA Employer Mandate: The Ultimate Guide

February 23, 2015

Category: Compliance

ACA employer mandate

The Affordable Care Act’s employer mandate went into effect two months ago. Is your company ready? Sometimes known as Employer Shared Responsibility or “ACA play or pay,” the ACA employer mandate aims to reduce the number of uninsured people in the U.S. by promoting employer-sponsored health coverage. When people talk about ACA compliance, they’re typically referring to the government’s mandate that businesses provide employees with affordable health coverage.

But just offering health insurance doesn’t make a business ACA compliant. Per Section 6056, many employers are now required to file information returns with the IRS and provide statements to their full-time employees about the health insurance coverage they offer. To determine whether businesses are in compliance with the ACA employer mandate, the IRS uses two new tax forms, 1094-C and 1095-C.

Here’s our who, what, when, where, why and how guide to help you stay compliant.

So, WHO needs to comply with the ACA employer mandate?

The ACA considers you an Applicable Large Employer (ALE) if your company has 50+ full-time (FT) employees. Compliance with the ACA employer mandate in 2015 is based on the size of your company in 2014.

If your company had 100+ FT employees in 2014:

  • In the 2015 plan year, you are required to comply with the ACA employer mandate. You must:
    • Offer health coverage to 100% of your FT employees (and their dependents up to age 26).
    • Report this information to the IRS on the new tax forms, 1094-C and 1095-C, in 2016.

If your company had 50-99 FT employees in 2014: 

  • The ACA employer mandate applies to you in the 2015 plan year.
    •  However, companies that qualify for transition relief won’t be subject to penalties for lack of compliance in 2015.
    • We recommend you keep reading, as penalties will be enforced for ~50 ALEs in the 2016 plan year.

If your company had 1-49 employees in 2014:

  • You’re not an ALE.
    • You’re not required to comply with the ACA employer mandate.

So, how many FT employees do you have, really?

You’ll need to determine whether your company had 50+ FT or full-time equivalent (FTE) employees during the 2014 calendar year.

  • First, the easy part: A FT employee works an average of 30+ hours per week or 130 hours per calendar month.
  • Now, the tricky part: Part-time (PT) employees’ hours are used to calculate whether the employer mandate applies to your company.
  • Confused? Here’s an example: 40 FT employees working 30 hours per week + 20 PT employees working 15 hours per week = 50 FTEs.
  • Special considerations: Teachers and other education employees are considered full-time employees, even if they don’t work a traditional year-round schedule. However, seasonal employees, such as holiday retail workers, are not considered full-time employees.

Who qualifies for transition relief?

Employers with 50-99 FT employees (including FTEs) in 2014, that meet the following three conditions, do not have to pay the Employer Shared Responsibility penalties under Section 4980H for any calendar month during 2015.

  1. Limited Workforce Size. The employer must employ on average between 50-99 FT employees (including FTEs) on business days during 2014.
  2. Maintenance of Workforce and Aggregate Hours of Service.  From February 9th, 2014 to December 31st, 2014, an employer may not reduce the size of its workforce or its employees’ hours of service purely to qualify for the transition relief.
  3. Maintenance of Previously Offered Health Coverage. The employer must maintain—and not materially reduce—the health coverage offered as of February 9th, 2014, until the last day of the 2015 plan year.

Remember to calculate carefully. The size of your ALE corresponds directly to your ACA compliance requirements and potential penalties.

So, WHAT forms do you need to file to comply with the ACA employer mandate?

OK, you’ve identified your company as an ALE. Let’s look at your ACA employer reporting requirements.

Which forms do you have to file in 2016?

Form 1094-C which accounts for each of the following, per 2015 calendar month:

  • Full-time employees
  • Total headcount
  • Whether Minimum Essential Coverage was offered
  • Whether an applicable 4980H “Safe Harbor” was used

Form 1095-C which accounts for each of the following, per 2015 calendar month:

  • Proof of offer of coverage (with code)
  • Employee’s share of the lowest cost monthly premium
  • Whether an applicable 4980H “Safe Harbor” was used

A written statement to each covered employee, which includes:

  • The employer’s name, address and contact information
  • The information for the employee on the return being filed

Yikes, the ACA employer mandate requires a lot of paperwork!

So, WHEN do you need to file forms 1094-C and 1095-C?

To be in compliance with the ACA employer mandate:

  • Your employees must receive their copies of form 1095-C by January 31st, 2016* March 31st, 2016.
  • The IRS must receive your forms 1094-C and 1095-C by February 28th, 2016 May 31st, 2016 (March 31, 2016 June 30th, 2016 if filed electronically).

Will you be ready?

But, WHY do you need to file forms 1094-C and 1095-C?

One goal of the Affordable Care Act (ACA) is to reduce the number of uninsured people in the U.S. and promote employer-sponsored health care benefits. Forms 1094-C and 1095-C help the IRS enforce the ACA employer mandate.

What happens if your company doesn’t comply with the ACA employer mandate? (“Play or pay.”)

Even if you find the language of Section 6056 confusing, the message around the penalties for 100+ ALEs (or ~50 ALEs that don’t qualify for transitional relief) is clear. Comply with the ACA employer mandate, or pay steep fines.

  • Offer your employees health coverage, or pay a penalty of $2,000 for every FT employee at your company (less the first 30).
  • Offer affordable health coverage (an employee’s contribution doesn’t exceed 9.5% of their household income) that provides minimum value (the plan covers, on average, 60% of an employee’s medical expenses), or pay a penalty of $3,000 for every FT employee at your company (less the first 30).
  • File forms 1094-C and 1095-C, or pay a penalty of $200 for each delinquent or incorrect return.
  • Provide written informational statements to each of your employees, or pay a penalty of $200 for each missing statement.

The penalties are already in effect for the 2015 plan year for companies with 100+ FT employees. For companies with 50-99 employees, penalties are effective for the plan year beginning on January 1st, 2016.

OK, WHERE do you get forms 1094-C and 1095-C?

You can get the ACA employer mandate forms directly from the IRS. Download 1094-C here and 1095-C here.

Wait, HOW do you do all this???

There’s a light at the end of this tunnel. Short-term relief from reporting penalties is provided for ALEs that can show they’ve made “good faith efforts to comply with the information reporting requirements.”

We’re here to help you with the ACA employer mandate.

In addition to sending your employees their ACA statements, which we already do today, we’re busy building two new features that automate this ACA administration work. With Zenefits Time & Attendance (now in private beta) and ACA Automation (launching well in advance of the 2016 tax filing deadline), you’ll be able to automatically:

  • Generate forms 1094-C and 1095-C pre-filled with all the information we store for you, so you can easily file in time for the deadline—without spending your time on data entry.
  • Keep your reporting history up-to-date, and relax as Zenefits tracks and stores all the required reporting data. (Payroll sync required.)
  • Ensure hourly employee eligibility with Zenefits Time & Attendance (coming soon) as your watchdog. When employees work more than 30 hours/week, we’ll invite them to enroll in your health insurance and then de-enroll them and administer COBRA if they drop below the hourly ACA threshold.

Stay tuned to this blog for details! Need to put into place your “good faith effort” to comply with the new ACA employer mandate right now? Give us a call: 1 (888) 249-3263.

*The IRS extended these deadlines on Dec 28th, 2015.
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Jeremy "Sprout" Brautman is a writer, problem solver, and big fan of growth. When he's not trying to solve problems to help small businesses grow, he can be found developing amenities to increase occupancy at his urban Ladybug Hotel.

Category: Compliance

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