Employers Need to Analyze Whole Workforce To Avoid Big ACA Penalties, Practitioners Say

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By Lydia Beyoud  

April 1 --Many employers still haven't done a sufficient analysis of their entire workforces, potentially exposing them to significant penalties under the Affordable Care Act's employer mandate, tax practitioners said during an April 1 webinar presented by EY.

Under the “pay or play” provision of the health-care law, tax code Section 4980H requires employers with 50 or more full-time employees to offer affordable health coverage to at least 95 percent of their full-time staff or pay a penalty. An employer is subject to the penalty if even one of its employees receives premium tax credits through a health-care exchange.

A major misconception among employers is that if coverage is offered but misses a handful of individuals, the excise tax will only be levied on the number of full-time employees who weren't covered, according to Juliette Meunier, a partner in EY LLP's Human Capital Practice in Los Angeles. EY is a provider of assurance, tax, transaction and advisory services.

Rather, the tax is calculated based on every full-time employee working for the company, she said.

Counting Everyone, Even Outside Plan

“That number is often material to a company's financial statements, and what we're seeing is that while the benefits brokers and plans administrators have often focused on plan design and are focusing on those folks that are in the plan, they aren't necessarily focusing on those not in the plan,” she said.

Even employers that provide generous benefits to part-time as well as full-time employees may not be offering coverage to small groups of employees, which may add up and push the company over the 95 percent coverage threshold, Meunier said.

Employers should review whether they also need to offer coverage to interns, temporary or on-call employees, co-op workers or inpatriate staff, as well as their contingent workforce, she said. “Generally we're seeing that employers have not done a sufficient analysis of their workforce,” she said.

Documenting Coverage

“It's not just about providing affordable coverage that meets minimum value, it's about demonstrating that you're doing that and being able to report that you're doing that,” Ali Master, a Dallas-based EY partner in charge of EY's Business Incentives and Credits practice, said during the webinar.

That information is often in disparate company systems, such as human resources and the tax department, so coordination among functions is needed to help the company meet its reporting requirements, Meunier said.

An example of the necessary systems controls is the calculation demonstrating that 95 percent of full-time employees were offered coverage beginning in 2016. Companies will need to start “with something that is an auditable list, something that shows you've captured the entire universe and then have whittled it down to the full-time employees,” Meunier said.