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The Employer Mandate component of the Affordable Care Act (ACA, aka Obamacare) requires all employers with 50 or more employees to provide affordable health insurance to employees who work at least 30 hours a week. Since its 2010 inception, this seemingly simple mandate has ballooned into hundreds of pages of complex tax law that requires precise tracking and reporting — and carries stiff penalties for businesses that fail to meet its tenets. Here’s what you need to know about the complexities of ACA payroll compliance and why you need a good system that facilitates end-of-year reporting.

Editor’s note: This blog post is not intended to be tax advice. Always check with your legal counsel or tax adviser about your specific situation.

ACA payroll compliance: Excel tracking spreadsheets don’t cut it

Under the mandate, each month companies must track which employees are eligible for health insurance, which employees waived coverage, the cost and type of coverage offered, whether or not the coverage was affordable, the number of hours worked by employees and a variety of other detailed metrics. These figures must then be reported to the IRS on 1095-C and 1094-C forms, and each employee must be given a copy of Form 1095-C. Employers must also calculate their number of full-time employees plus full-time equivalent employees every month. Full-time equivalent employees represent a combination of workers who individually work less than 120 hours in a given month, yet whose contributions equate to that of a full-time employee. Calculating full-time employees can prove tricky, especially for savvy employers who use the “look-back” method to save thousands of dollars per hire per year. All that adds up to a lot of costly man hours — and a ton of headaches — for payroll and HR staff who must create complex formulas for Excel tracking spreadsheets, then take the time to tediously enter required data. The reality is ACA tracking spreadsheets no longer cut it. Not only could staff time be better spent on business operations and growth initiatives, the potential for human error is enormous — and the penalties for errors even greater.

ACA penalties can kill small and mid-sized businesses

You might consider your business small or mid-sized, but if you average 50 or more full-time employees the IRS classifies you as an applicable large employer (ALE). That means you’re required to deliver accurate and detailed information, on time, or you’ll be subject to penalties. It can be a major risk for companies that rely on Excel spreadsheets to track ACA payroll, especially since a single formula error could result in hundreds of incorrect 1095-C’s. Note that even “small” companies qualify as ALE’s if they’re part of larger companies or cooperate with other companies to provide services. For example, if you have fewer than 50 employees but you’re under an umbrella corporation that has hundreds of employees, the IRS classifies you as a member of an applicable large employer group (ALEG) and the same reporting provisions — and penalties — apply. IRS penalties can be exorbitant. For example, the penalty for failure to provide correct payee statements is $270 each, with a maximum of $3,275,500 per calendar year. Think about it this way: If your spreadsheet results in 100 incorrect 1095-C’s, your business could face a $27,000 penalty. That doesn’t include the costs associated with identifying the problem and reissuing correct forms. Not only that, but transferring manual spreadsheet-tracked data to individual 1095-C and 1094-C forms can be a time-consuming task that jeopardizes your ability to file on time. The penalties for missed ACA deadlines are steep:

Large business ACA penalties (gross receipts exceeding $5 million)

  • Within 30 days of deadline: $50 per return, with a maximum of $556,500
  • 31 days to August 1: $110 per return, with a maximum of $1,669,500
  • After August 1 or failure to file: $270 per return, with a maximum of $3,339,000
  • Intentional disregard: $550 per return, with no limitation
  • Failure to furnish forms to employees: $270 per return

Small business ACA penalties (gross receipts under $5 million)

  • Within 30 days of deadline: $50 per return, with a maximum of $194,500
  • 31 days to August 1: $110 per return, with a maximum of $556,000
  • After August 1 or failure to file: $270 per return, with a maximum of $1,113,000
  • Intentional disregard: $550 per return, with no limitation
  • Failure to furnish forms to employees: $270 per return

It begs the question: would your business survive if the IRS levies such stiff penalties?

Deluxe Payroll’s ACA dashboard helps with compliance and eliminates worries

ACA compliance is difficult to navigate for employers both large and small, but it doesn’t have to be. Deluxe Payroll’s ACA Dashboard helps minimize the hassle of tracking and reporting required information. It automates compliance efforts with a streamlined interface that helps your business meet all ACA requirements. The dashboard also provides helpful indicators and charts so that employers know when changes are required. There is no set up fee and no end-of-year charge for filing ACA forms 1094-C or 1095-C. “The Affordable Care Act is incredibly complex, and we’ve found that most employers simply don’t have the time to manage it on their own,” says Kathleen Strakes, President of Deluxe Payroll. “With our ACA Dashboard, employers have been able to easily manage their ACA compliance without adding additional personnel, running numerous Excel spreadsheets or worrying about penalties.”

Deluxe Payroll’s ACA Dashboard provides the following capabilities:

Complete payroll integration

Paycheck information is used to automate eligibility tracking, which means no double entry of employee data is required. Payroll integration saves time and reduces the potential for costly data entry errors.

Multi-company ACA status

The Employer Mandate has complex rules to determine whether the ACA applies to a multi-company employer. Deluxe’s ACA Dashboard incorporates these rules to remove any guesswork and facilitate compliance.

Eligibility notifications

Each month, the ACA Dashboard notifies you about employees who will soon be eligible for health care coverage as well as those who will soon lose their eligibility. This automatic notification helps you properly enroll employees so you can comply with the ACA mandate — and you’re not paying health insurance costs for non-eligible employees.

Full support for look-back measurement method

Employers with many hourly employees can benefit by using the optional look-back method to calculate total number of hourly employees, which can sometimes save thousands of dollars per new hire per year. The ACA Dashboard provides tools to track hourly employees so you can benefit from this optional method.

Early warning reports

The ACA Dashboard provides employers the ability to review misclassified employees, unaffordable insurance, enrollment issues and various other warnings well before issues result in penalty situations.

Individual employee tracking

The ACA Dashboard automatically monitors your ACA compliance for each and every employee. It’s a time and resource saving feature that will help reduce penalty risk and avoid unnecessary costs.

Easy-to-read reports

All reports provide the details you need in clear, simple, easy-to-understand language — no legal expertise needed.

At-a-glance dashboard

Get a complete ACA compliance snapshot at-a-glance for easy, real-time monitoring. All your ACA metrics are in one place so it’s easy to understand the ever-changing employee health coverage landscape. The Deluxe Payroll ACA Dashboard is a 100% automated solution that makes it easy to evaluate, modify and report on compliance. Don’t trust your business to error-prone Excel spreadsheets; instead, partner with Deluxe to save time and help make your business ACA compliant. For more information on Deluxe Payroll’s services, including the ACA Dashboard, contact Deluxe Payroll

Editor's note: This blog post was deemed accurate at the time of publication and may not reflect recent changes related to payroll law. The information provided in this blog does not, and is not intended to, constitute legal or financial advice.

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