Are You Affected by ACA Reporting Requirements?
The primary purpose of ACA reporting requirements is to communicate key details of health insurance coverage, including verification that the “minimum essential coverage” is being met.
The ACA reporting requirements are enforced by two sections of the Internal Revenue Code: Section 6055 and Section 6056.
Section 6055 applies to health insurance carriers, small employers that sponsor self-funded health plans and other entities that provide minimum essential coverage, such as sponsors of multi-employer plans and providers of government-sponsored coverage like Medicare and Medicaid. These businesses must complete the 1095-B (and 1094-B transmittal).
Section 6056, on the other hand, is directed toward applicable large employers.
It ensures compliance with the ACA — particularly the Employer Shared Responsibility provision — through mandatory information reporting on the 1095-C (and 1094-C transmittal). Basically, if you’re an ALE that doesn’t offer health insurance to your full-time employees and their dependents that is affordable and provides minimum value, you may be subject to a penalty.
Are You an ALE?
So you think you’re an applicable large employer, but how can you be certain?
This is where reviewing the hours of service for your workforce comes into play. Hopefully you’ve been tracking employee hours and can pull time-keeping and payroll records to get an accurate monthly picture.
When you’re calculating the full-time and full-time equivalent employees for the preceding calendar year, keep in mind:
- A full-time employee averages at least 30 hours of service per week (or 130 hours in a month). This is different from the typical 40 hours a week you associate with full-time employees. It’s specific to ACA reporting, though, so you want to carve it in stone: 30 hours per week.
- For hourly employees, you must count the actual hours worked and hours paid. For non-hourly, salaried employees, you should count either the actual hours worked and hours paid, or use one
of two measurements:
1: Days Worked Equivalence, which is 8 hours for each day with at least one hour of service, or
2: Weeks Worked Equivalence, which is 40 hours for each week with at least one hour of service.
- With all of the above, you must also include the hours paid, like vacation, sick time, disability, jury duty, military duty and other leaves of absence. You’re looking at the hours of service to the employer, not just the hours worked on the job.
- Based on recent guidance, however, you can exclude payments made to a current employee under a short-term disability or long-term disability plan when premiums were paid by the employee on an after-tax basis or included in income by
- Monitoring your full-time employee count is important not only
for determining ALE status, but also because it’s a trigger for when employees are eligible for coverage. There are measurement methods for this, too — the monthly measurement method and the look-back measurement method, which is often used with variable-hour employees. The point is that when an employee becomes full time, you must offer minimum essential coverage under the ACA to avoid penalties.
Calculating Full-Time Equivalent Employees
Your part-time workers also contribute to your overall employee count.
A full-time equivalent is a combination of part-time employees that counts as a full-time employee.
To determine the number of full-time equivalent employees for a month:
- Add up the part-time service hours in a month (up to 120 hours per employee)
- Divide the total by 120; if this results in a fraction, round down to the next whole number
- For example, if seven employees work 20 hours/week, you would have four FTEs.
(7 x 20 hours/week = 140; 140 x 4 weeks/month = 560; 560 (divided by) 120 = 4.66, or rounded down, 4)
Once you’ve calculated your full-time equivalents, add that to the number of full-time employees on staff to determine whether or not you’re an applicable large employer.
Not included in the calculation are independent contractors, temp workers, seasonal employees working 120 days or less in a year, and COBRA and retired enrollees. The rules around these workers are constantly changing, however,
so you’ll want to keep an eye on that matter.
Something Else to Keep in Mind:
An ALE may be a single entity or may consist of a group of related entities (such as parent and subsidiary, or other affiliated entities). If the combined number of full-time and full-time equivalent employees for the group is large enough to meet the definition of an ALE, then each employer in the group (called an ALE member) is part of an ALE — and subject to the Employer Shared Responsibility provision, even if it wouldn’t be an ALE separately.
Are You Insured or Self-insured?
This trips up a lot of people so it’s important to understand the difference. A self-insured — or self-funded — employer generally contracts with an insurer to administer its plan, but the company pays medical claims out of its own company funds.
With a fully insured health plan, on the other hand, you pay the insurance carrier premiums and it pays health care claims based on the coverage benefits outlined in the policy. (For example, Humana, Blue Cross Blue Shield or Aetna.)
This is an important distinction because it affects which portions of the 1095-C you fill out. If you’re a fully insured employer, you’ll complete Parts I and II of the 1095-C, while those of you with self-insured plans will complete Parts 1, 2 and 3.
Every employee of an ALE who is eligible for insurance should receive a 1095-C. This means eligible employees who decline coverage still receive a 1095-C.