The Affordable Care Act (ACA), signed into law in 2010, brought about significant changes to employers and the healthcare landscape. Understanding and ensuring compliance with ACA regulations is crucial to establishing trust with your employees around their healthcare benefits while avoiding penalties. The following explores some of the ACA requirements for employers that HR leaders need to know for 2024.
What is ACA compliance?
Employers with 50 or more full-time (or full-time equivalent) employees are subject to the Employer Shared Responsibility Provisions under the ACA. These provisions require covered employers to make an offer of affordable healthcare coverage that provides minimum value to full-time employees and their dependents. Employers demonstrate compliance with the Employer Shared Responsibility Provisions through annual reporting of Forms 1094-C and 1095-C.
Steps to compliance
A great place to start your organization on the path to meeting ACA requirements for employers this year is to follow these five steps:
1. Determine method for tracking employee eligibility
The ACA defines a full-time employee as an individual with at least 30 hours of service a week, or 130 hours of service a month. You have two options for calculating hours: the monthly measurement method and the lookback measurement method.
- The monthly measurement method requires employers to determine, on a month-by-month basis, whether the employee has at least 130 hours of service for that month.
- The lookback measurement consists of three steps: the measurement period, the administrative period, and the stability period.
- During the measurement period, you are obtaining and analyzing the service hours for each employee. If the employee averaged at least 30 hours of service per week during the measurement period, they are considered full time and must be offered healthcare coverage throughout the stability period. The measurement period must be between three and 12 months, with a six-to-12-month period most commonly chosen.
- An administrative period up to 90 days is also allowed, giving you time to determine which employees are full-time, to make the offer of health coverage, and to provide employees with information about healthcare coverage. A best practice is to document and retain offers of healthcare coverage.
- The stability period, between six to 12 months, locks the employee in as either full time or part time, regardless of the hours of service worked during the stability period. The stability period cannot be less than the measurement period. For example, if you choose a 12-month measurement period, the stability period must also be 12 months.
When choosing your measurement, administrative, and stability periods, align the dates with your open enrollment period to streamline planning, communications, and coverage.
2. Track hours of service
Hours of service must be tracked to determine whether an employee is full time or part time. An hour of service is defined by the IRS as, “each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer, and each hour for which an employee is paid, or entitled to payment, for a period of time during which no duties are performed.”
Hours of service include vacation, holiday, illness, disability, jury duty, military duty, or leave of absence. Regularly review your payroll system to ensure you are capturing each type of function that is considered an hour of service. Employers who have expanded certain benefits ‒ paid leave, for example ‒ should ensure the paid leave is part of an employee’s calculation of hours of service.
3. Make an affordable offer of coverage
For an offer to be considered affordable, the employee required contribution for the lowest-cost self-only coverage cannot be more than 9.5% of the employee’s household income. This 9.5% threshold is adjusted annually by the IRS.
In 2024, employees must not contribute more than 8.39% of their household income for the offer to be considered affordable. In years when the contribution rate decreases, employers must ensure their offers remain affordable, particularly when facing simultaneously rising healthcare costs.
Because the affordability threshold requires the calculation of the employee’s household income, something employers do not know, there are three safe-harbor provisions upon which to rely:
- Form W-2 Wages Safe Harbor: The employee’s required contribution for the lowest-cost self-only coverage cannot exceed 9.5%, as adjusted, of the employee’s Box 1 wages as reported on the W-2.
- Rate-of-Pay Safe Harbor: The employee’s required contribution for the lowest-cost self-only coverage cannot exceed 9.5%, as adjusted, of the employee’s rate of pay. For an hourly employee, the rate of pay is calculated by multiplying the employee’s lowest rate of pay by 130 hours. For a salaried employee, the rate of pay is the monthly salary.
- Federal Poverty-Line Safe Harbor: The employee’s required contribution for the lowest-cost self-only coverage is no more than 9.5%, as adjusted, of the federal poverty line.
4. Provide and file 1094-C and 1095-C forms
You must provide employees with a copy of Form 1095-C and file Forms 1094-C and 1095-C with the IRS. Form 1095-C is used to report employer-provided health insurance coverage. The key requirements include:
- Providing the employee’s and employer’s information
- Details about the health coverage offered, including safe-harbor provisions
- Information on the months the employee was covered
Accurate reporting is important to help employees understand their coverage and potential eligibility for premium tax credits on the ACA Marketplace.
Form 1094-C is the transmittal form for the 1095-Cs and is used to report aggregate information about offers of health coverage. Key requirements include:
- Employer information
- Total number of 1095-C forms submitted
- Information about the employer size, including number of total employees and number of full-time employees
- Other Applicable Large Employers (ALE) members in an Aggregated ALE Group
You must provide a copy of the 1095-C to your employees by March 1. The deadline to submit 1094-Cs and 1095-Cs to the IRS depends on the manner of filing: paper or electronic. If you are filing via paper, the deadline is February 28. If you are filing electronically, the deadline is March 31.
Keep in mind the IRS has a new threshold for paper filing. Due to recent rule changes, only employers with fewer than 10 information returns can file via paper. Those with 10 or more information returns must file electronically.
5. Ensure overall compliance to avoid costly penalties
A critical area of ACA requirements for employers is avoiding noncompliance penalties. Penalties for failing to offer healthcare coverage can quickly increase. You can incur penalties under the ACA if you fail to make an offer of coverage to at least 95% of your full-time employees and at least one of your full-time employees receives a premium tax credit in the Marketplace, and offer healthcare coverage to at least 95% of your full-time employees but fail to make an offer of coverage to at least one full-time employee, who receives a premium tax credit.
If you fail to offer healthcare coverage to at least 95% of your full-time employees and their dependents, the penalty is $2,000, as adjusted, multiplied by the number of full-time employees (minus 30).
If you make an offer of healthcare coverage to at least 95% of your full-time employees and their dependents but fail to make an offer of affordable or minimum value coverage to a full-time employee who receives a premium tax credit, you will be subject to a penalty. Under this scenario, the penalty is the number of full-time employees who received a premium tax credit multiplied by 3,000.
The penalty amounts are adjusted each year. For failing to offer health care coverage to at least 95% of the full-time employees, the penalty amount for 2024 is $2,970 ($247.50 per month). The penalty amount in 2024 for failure to make an affordable minimum-value offer to a full-time employee is $4,460 ($371.67 per month).
Meeting ACA requirements for employers isn’t difficult if you know the facts
Correctly navigating ACA compliance is essential in fostering a healthy workplace and avoiding potential penalties. Staying informed about regulations, providing accurate reporting, and leveraging technology can streamline the process. By prioritizing compliance, employers not only meet legal obligations, but also contribute to a positive work environment and employee well-being.
When it comes to complying with ACA requirements for employers as well as with other employment laws, having reliable, accurate data is especially important for smaller businesses that sometimes rely on error-prone manual processes which can expose them to risk of noncompliance. Having the right technology in place can give you the automated tools and resources you need to better understand, monitor, and manage compliance for your organization.