Comprehensive Guide to ACA Compliance for Large Employers

ACA Compliance for Large Employers

1. Definition of a Large Employer: The ACA considers an organization a "large employer" if it has 50 or more full-time employees, including full-time equivalents. The determination of an Applicable Large Employer (ALE) depends on the average size of an employer’s workforce during the prior year. For more detailed criteria, visit the IRS's page on Determining if an Employer is an Applicable Large Employer.

To clarify the definition of a "large employer" under the Affordable Care Act (ACA), let's go through a calculation example that a business owner can use to determine if their organization qualifies as an Applicable Large Employer (ALE).

·        Scenario: Imagine you are a businessowner trying to determine if your organization is an ALE for the current year. This is based on the size of your workforce in the previous year.

Step 1: Count Full-Time Employees

• Full-time employees are those who work an average of 30 hours per week (or 130 hours per month).
• For example, let's say you had 40 full-time employees each month throughout the previous year.

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Step 2: Calculate Full-Time Equivalent (FTE) of Part-Time Employees

• Part-time employees work less than 30 hours per week.
• To calculate their FTE, add up all the hours part-time employees worked in a  month and divide by 120.
• For instance, if you had 20 part-time employees each working 60 hours a month, the total monthly hours would be 20 * 60 = 1,200 hours.
• Divide 1,200 by 120 to find the FTE. In this case, 1,200 / 120 = 10 FTEs.

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Step 3: Add Full-Time Employees and FTEs

• Combine the number of full-time employees with the FTE of part-time employees.
• Using our example, 40 full-time employees + 10 FTEs = 50.

Step 4: Determine ALE Status

• If the combined total is 50 or more for the previous year, your organization is considered an ALE for the current year.
• In our example, since the total is exactly 50, your organization is an ALE.

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Important Note:

• The calculation should be done for each month of the previous year, and then the average should be taken. If the average is 50 or more, you're an ALE.
• Seasonal workers can affect this calculation, and there are specific rules for including their hours.

Remember, this is a simplified example. For more detailed criteria and specific situations like seasonal workforce variations, it's recommended to refer to the IRS's page on Determining if an Employer is an Applicable Large Employer.

2. Affordability Requirement: Employers must offer health coverage that doesn't exceed 9.12% of an employee's household income. Since determining the household income can be challenging, employers can use safe harbor methods based on poverty level, rate of pay, or W-2 wages. For comprehensive information on     these requirements, refer to the IRS's ACA Tax Provisions for Employers. Below is example to help better understand.

·        Scenario: You are a business owner who needs to offer health insurance to your employees. Under the Affordable Care Act (ACA),there's an "Affordability Requirement" you must meet.

·        Requirement: The health insurance you provide should not cost more than 9.12% of an employee's household income.

·        Challenge: It's difficult to know each employee's total household income.

·        Solution: Safe Harbor Methods

- Poverty Level Safe Harbor: You can refer to the federal poverty level to estimate affordability. For example, if the federal poverty level is $12,880, your employee's premium should not exceed 9.12% of this amount annually.

- Rate of Pay Safe Harbor: You can base the affordability on the employee's rate of pay. For instance, if an employee earns$15 per hour and works 30 hours a week, their monthly income is about $1,800.The insurance premium you offer shouldn't exceed 9.12% of this amount per month.

- W-2 Wages Safe Harbor: You can use the employee's W-2 wages to determine the insurance affordability. If their W-2shows $30,000 annual income, the premium should not exceed 9.12% of this amount for the year.

Note: These methods are provided to make it easier for you as a business owner to comply with the law without needing detailed knowledge of each employee's total household income.

3. Minimum Standard Coverage: The coverage provided must include essential services like physician visits and hospitalization, covering at least 60% of the     costs an employee might incur. This ensures that the coverage meets the minimum value standard set by the ACA.
4. Communication Responsibilities: Employers are required to inform their employees about their health coverage options. This includes distributing notices about     the health insurance marketplace and providing a Summary of Benefits Coverage (SBC). Failure to do this can lead to significant penalties. More details about these communication requirements can be found on the IRS website.
5. IRS Filing Requirements: Large employers must also adhere to specific IRS filing requirements, including submitting Forms 1095 and 1094. Form 1095 must be distributed to employees, and Form 1094 should be filed with the IRS. Penalties for non-compliance can be substantial. Detailed information about these forms and filing deadlines is available on the IRS Forms and Instructions page.

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How Mission HCM Can Help

Navigating these ACA requirements can be complex and time-consuming. Rollo HCM offers an all-in-one platform that assists employers in managing these obligations efficiently from hiring to retirement, including ACA compliance. This platform simplifies the compliance process, helping businesses to meet all ACA mandates and avoid potential penalties. For more information about how Rollo HCM can assist in this process, you can visit their website: Rollo HCM.

This comprehensive approach ensures that businesses not only comply with the ACA but also manage their workforce more effectively, benefiting both the employer and the employees.