Large Employers: Are You Ready to Report?

Earlier this month, the Journal of Accountancy published a detailed article about the shared-responsibility provisions of Section 4980H of the Affordable Care Act. The 3200-word article, titled "The Sec. 4980H assessable payment for large employers," demonstrates how time-consuming and complex traversing the provision can be, and time is running out for employers to determine if they are "applicable large employers" and, more importantly, put the necessary payroll systems in place to comply with the provision.

Section 4980H Overview

To briefly recap, the employer shared-responsibility provisions of Section 4980H requires "applicable large employers" to offer full-time employees and their dependants—and full-time equivalent employees (FTEs)—the opportunity to enroll in an employer-sponsored health insurance plan that provides employees minimum essential coverage with minimum value at an affordable cost.

Employers with 100 FTEs or more who fail to provide the required coverage in 2015 to at least 70 percent of those FTEs are subject to what's called an "assessable payment"—essentially a hefty tax penalty. In 2016, employers with 50 - 99 FTEs are phased in, and all applicable large employers must provide required coverage to 95 percent of those FTEs.

The Journal of Accountancy has another detailed article from June 2013, titled "Planning for 'play or pay'," which shows how to calculate the assessable payment and will give you an idea of the penalty for not complying with the provision.

Reporting Requirements

Determining if you are an applicable large employer within Section 4980H involves calculating the number of FTE hours in the "lookback year," which is calendar year 2014, or any six consecutive months in 2014—if elected. This calculation is straightforward assuming you have proper payroll records and only full-time employees. The rules become complex if variable-hour or seasonal employees must be accounted for.

What's important to realize is once you've determined that you are in fact an applicable large employer and liable to provide coverage, putting the appropriate payroll accounting systems in place to report this information to the IRS can be very time consuming. Here's why.

According to the rule released in March, the reporting requirements include:

• the number of full-time employees for each calendar month during the calendar year, by calendar month
• for each full-time employee, the months during the calendar year for which minimum essential coverage under the plan was available
• for each full-time employee, the employee's share of the lowest cost monthly premium for self-only coverage providing minimum value offered to that full-time employee under an eligible employer-sponsored plan, by calendar month
• the name, address, and taxpayer identification number of each full-time employee during the calendar year and the months, if any, during which the employee was covered under an eligible employer-sponsored plan

To accurately report this information, there are several data points to factor into existing payroll practices:

• Standard measurement period: this is the 12-month lookback period used to calculate FTE hours. For existing employees, the standard measurement period is the same 12 months every year. For new employees, the initial measurement period may be the first 12 months of employment; however FTE hours must also be calculated during the standard measurement period.
• Stability period: this is the period of time after the standard measurement period in which the employer must offer health coverage to full-time employees
• Administrative period: this is an optional period before the start of the stability period.

Determining how to incorporate the new standard measurement, stability and option administrative period methods takes a great deal of planning and testing. It becomes increasingly complicated if you have variable-hour or seasonal employees.

While transition relief was provided and applicable large employers do not have to report until 2016, time is certainly running out to determine if you are an ALE, provide affordable health insurance to FTEs, and put the systems in place to record and report to the IRS.

Are you ready to report?