ACA Penalty Notices Are Giving Employers Indigestion This Holiday Season
Many employers are starting to receive penalty notices from the IRS based on their failure to comply with the Employer Mandate portion of the Affordable Care Act (ACA) in 2015. While the future of the ACA is not certain, the law is still in effect. For those who did not adhere to its stipulations, the repercussions are severe. Under the ACA, large employers, defined as having 50 or more Full-Time Equivalent (FTE) employees, are required to offer affordable insurance coverage to at least 95% of their full-time employees and their dependents (70% for 2015). The fines for non-compliance include a penalty of $2,260 per full-time employee, minus the first 30 employees. So, if an employer had 51 FTE employees and failed to offer the required coverage to its employees, it could be looking at a penalty of $47,460…OUCH!!! The ACA did build in some Transition Relief for 2015 Plan Years, which may alleviate some areas of non-compliance.
Applicable Large Employers (ALE) will receive a Letter 226-J from the IRS indicating that they may be responsible for an Employer Shared Responsibility Payment (ESRP) based upon their failure to adhere to the ACA’s coverage requirements. The letters will include how the applicable penalty was calculated and employers must respond via Form 14764 to indicate whether or not they agree with the findings. If an employer disagrees, a detailed explanation must be provided on their Form 14764 response. If an Employer agrees they are liable for the penalty, they must sign the form and return it with payment.
The status of the ACA will continue to remain in flux unless it is repealed. In the meantime, the complexity of the existing regulations and legislative changes to specific portions of the law will likely continue to cause confusion for both employers and employees alike. To mitigate against potential penalties, employers should continue to track mandated requirements of the ACA including:
- Number of Full-Time Equivalent (FTEs) employees, which includes tallying hours of part-time employees and seasonal employees
- Measuring cost of offered coverage against employee compensation to ensure affordability thresholds are met
- Make certain offered coverage complies with minimum essential coverage benefits stipulations
- Review all form 1094s and 1095s for accuracy and file them in a timely manner as required
- Weigh cost of coverage vs. potential ESRPs (Pay-or-Play Strategy)
By implementing ACA Manager as part of their CheckmateHCM solution, employers can automate and streamline the management of their ACA compliance and avoid many of the potentially costly mistakes associated with the error-prone and time-consuming task of manually computing and analyzing their ACA compliance status. Using payroll and/or time and attendance data with user-defined inputs for look-back and measurement periods, ACA Manager automatically maintains real-time visibility for management to stay on top of ACA compliance. Alerts can be triggered when FTE thresholds are being approached, employees become eligible for coverage (including automatically offering coverage to those employees and keeping an audit trail of opt-in/opt-out elections) and plans offered are outside of the required affordability levels for 95% of employees.