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Payroll Systems Can Help Determine ACA Responsibilities

by Marsha Oliver, CPA

Mize Houser & Company P.A.

UPDATE: Obama Administration Delays ACA Employer Mandate

  • The Obama Administration on July 2 announced a one year delay of the employer mandate portion of the Affordable Care Act, which had been scheduled to take effect on Jan. 1, 2014. The other two key parts of the ACA – the individual mandate and the government-managed health subsidies and federal/state health insurance exchanges – remain unchanged. Read more ...
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While most businesses hoped the Affordable Care Act (ACA) would just "go away", it certainly hasn’t. And while the thought of how it will affect business may be overwhelming, the best place to begin researching employer responsibilities is the payroll system.

Whether payrolls are prepared in house or outsourced to a payroll provider, the details in the payment history files contain insight into how the ACA will affect a business and its employees. The data from the payroll system – which is easy to retrieve and analyze – will enable employers to

  • Determine if the company is considered an "Applicable Large Employer" and must comply with the Employer Mandate of the ACA.
  • Work effectively with an insurance advisor to reach a decision whether to "pay or play".
  • Remain in compliance as the law evolves.

President Obama signed the ACA into law on March 23, 2010. It puts in place comprehensive health insurance reforms that will roll out over a period of four years and beyond. Let’s take a look at what has happened so far – and what is anticipated to happen in the future.

2012 – Employers were required to report the total health insurance premiums paid on a company plan on each employee’s W-2. Although that information was most likely not something tracked in the payroll system, it had to be added to comply with the 2012 filing requirement.

2013 – Here’s where the information in the payroll system about employees’ "hours of service" and total wages will really come in handy. This is the year all employers must determine if the ACA Employer Mandate applies to them – and if it does, to decide whether to "pay or play".

The ACA Employer Mandate applies to organizations that are considered "Applicable Large Employers". An Applicable Large Employer had at least 50 full-time equivalents in the preceding calendar year. Note: During this year only, employers are granted a Transition Period and can use a six month period in 2013. The measurement period must begin no later than July 1, 2013, and end no earlier than 90 days before the first day of the plan year beginning in 2014.

For planning purposes, use the following calculation for a recent consecutive six- to 12-month period to measure full-time equivalents.

  • Start With: The number of known full-time employees (expected to work an average of 30 hours or more per week) for a calendar month
  • Add: The number of hours of service of part-time employees in a month, divided by 120

The resulting number is your "Total Full Time Equivalent Employees" for a calendar month. The next step is to add together the number of full time equivalent employees for each calendar month in the preceding calendar year and then divide by 12 (or the number of months that will be used for the 2013 transition period). The result, if not a whole number, is rounded to the next lowest whole number. If that number is 50 or more, the company must comply with the ACA. Employers then have two options:

  1. PLAY - Offer affordable and minimum essential health insurance to full-time employees (not full-time equivalents as calculated to determine if you are an Applicable Large Employer) and their dependents. Full-time employees for this purpose are defined as employees who are "employed on average at least 30 hours of service per week."
  2. PAY – Do not offer insurance or offer insurance that is not affordable or that does not provide minimum value and pay a penalty/tax.

Again, as businesses consider these two very different options, a look at the payroll system can provide the information needed to compare the impact of each. Employers should be able to:

  • Look back over several acceptable time frames to determine how many employees would have been eligible for coverage if the plan were in effect today.
  • Determine the maximum withholding from employees’ income if the plan were in effect today (under the Form W-2 safe harbor, employee’s withheld amount for employee only coverage must not exceed 9 1/2 percent of their current year’s Box 1, W-2 income). Note that employers are not penalized for failing to subsidize any of the premium for dependent coverage.

The information will provide much of what's needed for employers to "shop" for a health insurance carrier. Once expected premium costs are determined, employers will be in a better position to decide whether to "pay or play". If they decide to "play", most intend to have this analysis completed in time to contract with an insurance company by Oct. 1, 2013. This should allow enough time to offer coverage to eligible employees, get them enrolled and begin coverage Jan. 1, 2014 – when the Employer Mandate officially begins.

2014 and beyond – Based on what we know today, the payroll system should continue to provide the information needed to remain in compliance. This will include tracking:

  • If employees already in the plan are eligible to continue
  • If additional existing employees become eligible
  • When employees added after Dec. 31, 2013, become eligible and should be offered coverage
  • Enrollments in the insurance plan
  • Full and part-time employees who are working more (or less) than their status assumes – this will enable employers to keep budgeted plan costs as stable as possible.

Of course there are many decisions to make surrounding the ACA and each company’s situation is unique. A good payroll system not only should be a means to pay employees – it also should be a resource to make a good business decision about whether to "pay or play" and to remain in compliance with the ACA.

This article is provided by the regional CPA and information technology firm of Mize Houser & Company P.A. The firm processes payrolls for over 1,500 locations in more than 40 states. To learn more, please contact Marsha Oliver, CPA, Marketing Shareholder, at moliver@mizehouser.com or 785.233.0536 in Topeka, KS – or visit www.mizehouser.com.