(Note: Staffing and temp agencies who are the employer of record are subject to this new reporting provision, if they have at least 50 employees. Those who use a backoffice provider as the legal employer should at least be aware of this provision.)
Starting Jan 2016 many organizations will be required to begin providing the IRS with new reports based on the Affordable Care Act.
The new ACA requirements will represent a significant additional reporting burden on qualifying employers. The reports, while filed in January 2016, actually report on your employees starting in January 2015. The new ACA reporting requirements apply to organizations with 50 or more employees. For each employee a separate 1095C must be filed. The 1095C includes information on the specific employee, that employee’s dependents covered by insurance, and monthly data for each month of the preceding year. An organization with 300 employees may need to provide a 1095C for each of the 300 employees.
Whether you use an outside service provider for your payroll or you process payroll yourself there will be increased expense to capture and record this data and to file the needed reports. That cost will vary depending on your individual firm. We’ve seen service provider costs range from $2-$4 per month per employee for mid-sized firms. A 300 employee firm might see an annual additional cost between $7,000-$14,000 to satisfy the ACA reporting. Typically in-house payroll software users will see a smaller cost for the same reporting—typically $4,000 to $7,000 for software to accomplish this task.
The penalty for non-reporting is significant. Depending on the situation, the IRS penalty ranges from $173 to $260 per employee per month so it is imperative that the ACA reporting is done and done timely.
Preparing the ACA reports requires data which may already be captured in a payroll or HR system. However some needed data may not currently be captured, which may mean building internal routines to capture it. In addition, source data needs to be retained in order to support the reports filed if there’s an IRS audit. Software version updates, report configuration changes, and in some cases new software may be needed to handle these new reporting requirements.
For instance, employers who fall below — but near — the 50 employee threshold who have historically paid employees on a salaried basis, may find themselves needing to implement new time tracking software to substantiate their exemption from providing qualifying coverage. More commonly, employers may simply want to have software vendors configure changes that help to generate the required reporting as efficiently as possible.
Required ACA reporting data, by software module
|Reporting item||Reason for requirement||Software module data source|
|Employee W-2 wage data||To demonstrate the insurance qualifies as “affordable” based on employee compensation.||Payroll|
|Employee insurance premium information||To document that the insurance offered to employees qualifies as “affordable” based on employee paid costs.||Benefits administration|
|Employee hours of service||To determine Applicable Large Employer (ALE) status based on employee hours worked and per employee coverage requirements.||Time and attendance|
|Employee insurance coverage dates||To verify the satisfaction of employee insurance coverage based on employee service dates||Benefits administration|