Editor's note: The following is a guest contribution by Todd Praisner, founder and CEO of Tango Health, a provider of software and service solutions that help organizations optimize their health benefits and ensure compliance with regulations.
It’s becoming clear that 2015 will go down as one of the more challenging tax years. All but the smallest employers assumed the additional burden of “1094-C” and “1095-C,” the first major new tax forms to be issued since the W-2 in 1944.
As HR professionals know, this is the first year for which employers must report certain ACA compliance data related to health insurance coverage. In this New World Order of compliance, many companies have been relying on their payroll software vendor to make sure they are gathering the right employee data and meeting all requirements.
Yet payroll vendors are not ideally equipped to prepare their clients for the harsh reality of ACA compliance. Here’s why:
1. They don’t have the right data.
Accuracy in hours worked is not something most organizations have been focused on tracking. Historically, payroll systems were designed to get the right amount of money to employees and withholding for taxes, medical deductions, etc. When it comes to ACA reporting, accuracy in hours worked is vital, and most organizations will find they have errors in their data.
2. The look-back period started over a year ago.
Unless you have a non-calendar benefits year, you may need to gather payroll data from as far back as October, November and December of the previous year to accurately track benefits eligibility.
3. They don’t know which category your employees fall into.
The ACA has different rules for different categories of employees: full time, part time, variable hour, seasonal employees, volunteers, bona fide volunteers, adjunct professors, airline pilots, commissioned sales people, student workers and more. Payroll processors are not experts at knowing the differences.
4. IRS section 6055 and 6056 reporting requires more data than they can capture.
Not only are there data requirements that aren’t normally required or captured within payroll systems. Failure to maintain a full audit trail or not tracking changes month-by-month mean 6055 and 6056 reporting on your data will likely be impossible.
5. They’re not prepared to help assess affordability on collective-bargaining plans.
Affordability rules for guaranteed benefit payments to unions are very complicated and require a level of analysis that wasn’t previously required and simply isn’t tracked.
6. Incomplete data means they can’t use two of the three affordability safe harbors.
Without knowing an employee’s exact work location, lowest self-only monthly plan for each individual employee, or day-by-day history of hourly rates or salary, it’s impossible to use the “federal poverty level” or “rate of pay” safe harbor appropriately.
7. University clients will be the last to be compliant and first to be audited.
The ACA rules for school districts and universities are very complex. The amount of rigor required by payroll analysts is taking everyone off guard and creates a perfect environment for regulatory mistakes, such as: determining an hours credited rate for adjunct professors; tracking student workers based on whether work is under a federal grant or not; and tracking hours for coaches working on a stipend.
8. They may help you assume the number of hours for an employee, but that’s actually not legal.
Part-time office assistants may only be scheduled for 25 hours, but if you know they are regularly working more (or fewer) hours, you can’t just make assumptions for a standard each month and squeak by using the monthly or weekly measurement period. It’s against the law.
9. They may provide files late or in a flat format that doesn’t give you what you need.
Payroll vendors service a broad range of clients and can’t provide customization of the data to help you report on your specific situation. And many were providing data after the original due dates – which would have made clients late and subject to penalties, prior to the 2015 extensions.
10. They don’t think ACA compliance is their job.
If your vendors offer low-cost reporting, or bundle it with payroll software, they’re expecting you to be the expert. They will expect you to understand every nuance of the law, and you’ll be the one held accountable and responsible for the results. The ACA law is very clear: third parties are not responsible for mistakes.