PAYDAY Workforce Solutions Blog

The Affordable Care Act’s employer shared responsibility (ESR) is a reality for employers across the country. The new IRS Forms 1094 and 1095 are required for IRS reporting, but many employers are still unprepared for their reporting requirements in early 2016 and should take steps now to be ready.

Don’t get caught short in December. Start doing the following now:

Get Familiar with the New Forms

Download and print out the transmittal Form 1094-C and Form 1095-C so you can see exactly what they look like. Distribute samples to your payroll, human resources, benefits and accounting departments and review them well to see if you can easily come up with the information needed to fill them out.

Understand Your Filing Requirements

Understand that even if your firm doesn’t offer health coverage for 2015, if you’re considered an “Applicable Large Employer” (ALE) by the ACA, you still must prepare and file the new forms. Employers considered to be ALE’s are those that have 50 full-time employees or a combination of full-time and part-time employee equivalents to 50 full-time employees.

Make sure to meet with your accountant, benefits adviser, and attorney to discuss employer shared responsibility for your firm, transitional relief and requirements for it, which affordability safe harbor to use for 2015, and if your organization is part of a controlled group.

Read the 2014 Instructions for New Forms

Read and familiarize yourself with the 2014 instructions for Forms 1094-C and 1095-C so you know what to expect. While 2015 instructions may change, you’ll be better prepared if you have read the current instructions.

Ask Payroll or HRIS Vendors about Assistance

Discuss the ACA employer shared-responsibility reporting requirements with your payroll or HRIS vendor well before December 2015. Ask what kind of assistance they provide and if they require an upgrade in service to support reporting and form preparation. Get specific information from them about what kind of files and data they need to do the reporting.

Understand How to Identify Full-Time Employees

For ACA employer shared responsibility eligibility, an employee who averages at least 30 hours of service per week or 130 hours of service in a calendar month is a full-time employee. An hour of service is an hour for which an employee is paid to perform work for the company.

Know Whether the Coverage You Offer is Affordable

Under ACA regulations, an employee’s share of the premium for employer-provided coverage must be less than 9.5% of that employee’s annual household income to be considered affordable. Not having access to employees’ household income information, employers have three affordability safe harbor options to use in determining affordability. The three affordability safe harbors are the Form W-2 wages safe harbor, the rate of pay safe harbor, and the federal poverty level safe harbor:

  • The Form W-2 wages safe harbor uses the amount of wages paid to the employee on the employee’s Form W-2 in box 1.
  • The rate of pay safe harbor uses the employee’s rate of pay at the beginning of the coverage period for an hourly employee.
  • The federal poverty line safe harbor uses 9.5 percent of the federal poverty line for a single individual for the calendar year.

Know if Your Coverage Provides Minimum Value

Under IRS rules, a plan that covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the plan provides minimum value. Employers can use the Department of Health and Human Services (HHS) and IRS minimum value calculator to test their plan’s minimum value or talk to their health insurance broker.

Understand How the ESR Penalty Payment is Calculated

The employer shared responsibility payment is equal to the number of full-time employees the employer employed for the year, minus up to 30, multiplied by $2,000. This is triggered if at least one full-time employee gets the premium tax credit to buy marketplace insurance. Employers that offer coverage for some months during the calendar year can calculate the payment separately for each month that coverage was not offered. The payment for the month equals the number of full-time employees for that month, minus up to 30, multiplied by 1/12 of $2,000.

PAYDAY can help with with employer shared responsibility reporting and provide you with the guidance you need to be in compliance this December.


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