Complying with the Affordable Care Act (ACA) can be a headache. Rules and regulations are complex and constantly changing. Many employers find it easier to outsource their ACA compliance to ACA service providers (like us) or their payroll & benefits vendors. However, not all third-party vendors understand the nuances of the ACA, which can lead to elevated risk for both employer mandate penalties and penalties for inaccurate reporting.
These six questions will help you make a smart decision about the help you need — and the help you’ll get from various vendors — when it comes to tracking your employee’s hours for ACA compliance.
1. What measurement method can I use to track my employees?
It is important to understand the method you are using to measure your employees’ hours, as this will determine when employees must be treated as full-time and offered medical coverage to avoid potential risk of penalty. Most employers opt for the Lookback Measurement Period method as it requires less administrative work.
The Monthly Measurement Period
You measure employees month by month and treat them as full-time employees for any month during which they work at least 130 hours. (In practice, this method is effective only if you offer affordable coverage to every employee.)
The Look Back Measurement Period Method
You measure your employees over a period of 3 to 12 months to determine whether an employee averaged 30 or more hours of service per week. If your employee averaged at least 30 hours per week during this measurement period, you must treat them as a full-time employee for the following stability period. This full-time status is locked in for the full stability period, no matter how many hours they work during that time.
Employers should be aware that not all ACA vendors understand the concept of measurement periods, so it’s important to do your research to ensure the measurement method you are using is a good fit for your employee populations.
2. Are you measuring my new hires separately?
If your service provider answers “no” to this question and you are using the lookback measurement period, RUN! Incorrect measuring of new hires elevates the risk for an IRS penalty.
Newly hired employees in variable hour, seasonal, or part-time positions should be measured separately in what is called an initial measurement period. This initial measurement period can be hard to track as it may end outside of your regular lookback measurement period. Variable, seasonal, or part-time employees may reach full-time hours and may require an offer of coverage at the end of their initial measurement period.
3. What about my employees who work different calendars and have breaks in service?
Education employers have additional considerations when calculating breaks in service during a lookback measurement period and should be sure to verify that your ACA service provider can account for this special rule in their system.
Any break in service greater than or equal to 4 consecutive weeks must either be excluded from the measurement period calculations or the average hours for the remainder of the measurement period also applied during this time, up to a cap of 501 hours.
It is crucial your ACA service provider has a way to incorporate the break in service into your employees’ measurement period calculation. If not, you run the risk of inaccurately measuring your employees which can lead to the risk of substantial penalties.
4. How are you tracking my re-hired employees?
Re-hired employees are commonly overlooked by most ACA service providers and as a result elevate the risk for incorrectly reporting employee status on IRS filings. It is important to verify there is a system in place to accurately track these employees. If your ACA vendor does not have the capabilities to track re-hires, we strongly advise you do it on your own.
Employees returning to employment service within 13 weeks of their termination date (or 26 weeks if you are in education) should be treated as the same full-time or part-time status they had before their termination date. You may need to consider offering coverage to employees who achieved full-time status in the previous measurement period. Failure to offer coverage may result in an ACA penalty.
5. How will I know if I need to make an offer of coverage to a variable-hour employee?
It is important that you keep up with your employees to determine if anyone is nearing full-time status. Make sure you know exactly where to look and what reports are available, and when to look at them so you are not surprised by employees nearing full-time status under the law.
Some providers may even offer a current view of hours so you can make scheduling decisions as you see employees reaching full-time hours. If you don’t review your employees thoroughly, you might face unexpected IRS penalties that could have otherwise been avoided.
Check with your ACA vendor to ensure you are taking advantage of the training and resource materials they have available.
6. What kind of information about the law and compliance issues can I access?
ACA providers are not all created equal. Some may offer a self-service model, leaving all the hard decisions to you. Some may not be equipped to handle your workforce changes. Others may have a customer service resource for their system but are not well versed in the ACA’s rules and regulations. These are all things to consider when evaluating your ACA provider, as having access to an ACA expert can save you time and money.
If your ACA service provider could not provide you adequate answers to the above questions, our team of trusted ACA experts offers a variety of services that can be tailored to your specific needs.
This information is intended to be educational. It is general in nature and should not be considered financial, legal or tax advice. Consult an attorney or a tax professional regarding your specific situation. This blog is up to date as of February 2022 and has not been updated for changes in the law, administration or current events.