21st Century Payroll support for the Affordable Care Act (ACA)

Starting in 2016 (for the 2015 calendar year), all “large” employers must report details of their offer of health benefits to both the IRS and to their full time employees, if offered. 21st Century Payroll can assist with complying with the new regulations. Much of the required information is already retained in Payrolls's employee transaction history. A few changes that you can make now will ensure that this information is retained in a manner that permits it to be extracted from Payroll.

A big change of focus

Until now, most regulatory reporting with respect to payroll activity (W-2, SUTA, and FUTA) involved dollars. The ACA emphasizes tracking “hours of service” rather than dollars paid. “Hours of service” is not the same as “hours worked”. Under the ACA, “hours of service” means each hour for which an employee is paid, or entitled to be paid, for the performance of duties for the employer, and each hour for which an employee is paid, or entitled to be paid, during which no duties are performed.

In addition, payroll information was reported by the calendar quarter or year, indicated by the payroll check date. Hours of service must be tracked on a calendar month basis. This presents new challenges for accurate tracking for employers who run weekly or biweekly payrolls.

What Payroll does

Payroll version 4.4 or later can assist with ACA compliance by:

Help with determining Applicable Large Employer status: The Hours of Service report will assist with determining the number of full-time and “full-time equivalent” employees as defined by ACA
Reporting hours of service on a calendar month basis
Substantiating that healthcare coverage was offered to eligible employees

What you need to do

As an employer you need to familiarize yourself with the Affordable Care Act. Bottom line, if you have fifty or more employees you will need to prove compliance with the ACA. Here are steps to take that will allow you to have the information to prove ACA compliance.

Set Up Employee Classifications. The choice box for ‘part time’ in Configure Employees has changed to a selector list with the employee classifications that are needed for ACA compliance. The classifications supported are Full Time, Part Time, Variable, Seasonal and Other. The first time that a company is selected in the Payroll release with ACA support, employees who are currently set as ‘Part time’ will retain that status. Other employees will be defaulted to ‘Full time’. Go to Configure Employees/Personnel tab. Modify the field ‘Work hours class’. The Audit report shows a record of the changes made.
Enter accurate pay period start and end dates. In the past, the pay period start and end dates that you enter in Calculate or After the Fact Payroll were optional fields, shown on paychecks and various reports. To accommodate ACA requirements, payroll start and end dates are now required for Calculate Payroll, After the Fact Payroll and Employee Adjustments. For ACA reporting, you need to enter accurate dates.
Record accurate hours of service for salaried employees. Payroll has the ability to track hours for salaried employees, although employers haven’t had much reason to utilize this feature. For ACA reporting, salaried employees must have a reasonably accurate record of hours of service. Check the “hours worked” default in Configure Employees to see that the number of hours that is automatically associated with each employee’s pay period is reasonable, e.g. for monthly employees, it should be at least 130 hours. Hours of service can be changed when payroll is calculated and with employee adjustments.
Record hours of service, such as jury duty, for all employees. Under the ACA, “hours of service” means each hour for which an employee is paid, or entitled to be paid, for the performance of duties for the employer, and each hour for which an employee is paid, or entitled to be paid, during which no duties are performed because of vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Hours worked is already recorded in most situations. However, special unpaid leaves of absence such as FMLA and USERRA must be counted towards each employee’s hours of service. In Payroll, you can set up income types for unpaid leaves of absence that will accumulate hours of service (but not dollar amounts).
To substantiate that an employee received health coverage that was paid by the employer, you can record the coverage costs as a non-cash benefit or as a deduction. This is already required of many employers for reporting on W2 Box 12, label DD. Click on Reporting cost of employer-sponsored health insurance on W-2 for details. The Deduction Summary or Non-cash Benefits Summary will serve as a record that an employee received health coverage.
To substantiate an offer of coverage to “full-time” employees who did not take it: To substantiate that an employee was offered appropriate health coverage, but chose not to take it, document that the employee declined coverage in order to defend against a “failure to offer” penalty. This is outside of Payroll, but we recommend that employees collect and keep on file a signed affidavit that coverage was declined.
To substantiate that minimum coverage offered was affordable: If you offer multiple healthcare coverage options, the safe harbor affordability tests apply to the lowest-cost option that meets the minimum value requirement. If the employee accepts coverage beyond this minimum, then the affordability tests are not applicable.

For employees participating in the lowest-cost option that was, substantiating that the minimum coverage offered was affordable is based on the amount that the employee pays for his own insurance (‘self-only’), not the amount paid for dependents. To permit review of the self-only portion of employee costs, set up separate deductions for employees and dependents. In Configure Deductions, select one deduction to be used for the employee ‘self-only’ portion of the insurance, for all employees. Affordability testing can then be achieved by reviewing the Payroll deduction summary report. Set up another deduction to record costs (both employee and employer) for dependent coverage.
Use the Hours of Service report to determine:

employee eligibility for insurance offering during a certain time frame
if the employer is a “large” employer and therefore subject to ACA regulations
the number of full time and full time equivalent employees
whether employees should be classified as full time or part time for the various measurement periods as required by ACA

To run the report, go to Payroll/Print/Hours of Service. Click here for detailed information.

To make corrections to an employee’s hours of service: The hours of service report will point out employees who may be misclassified with respect to their Work Hour Classification (part time, full time, etc.). Modifications to employee hours can be made in Employee Adjustments.