Payroll's Important Role for Shared-Responsibility Compliance

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By Michael Baer  

Unprecedented coordination of payroll activities and human resources is needed because of the Affordable Care Act, Brent Gow, CPP, director of global payroll for Starbucks Coffee Co., told Bloomberg BNA July 28.

Many employers already must report the cost of employer-provided health-care coverage on Forms W-2, Wage and Tax Statement, and address possible employment tax consequences of the Medical Loss Ratio rebates, both of which involve payroll administration.

The shared-responsibility requirements are the most critical phase of implementation for employers covered by the ACA. Before the 2014 benefits open season starts, covered employers are pulling together the various pieces of information needed to make decisions about approaches and coverage options because the penalties for failure to comply are effective for many in 2015.

Critical Areas

Payroll-related information necessary for ACA compliance includes data to be used in determining full-time equivalent employees for covered employers and for determining those individuals who must be allowed to join a health plan, Gow said.

An employer's human resources and benefits departments should be working closely with those administering payroll to calculate hours of service and explore options for determining who is covered and when must coverage be offered, Gow said.

The payroll department also may help to meet the ACA's affordability requirements. Two of the three ways that employers may use to prove coverage is affordable involve information taken from payroll records.

Additionally, a third area of the ACA relevant to payroll administration involves information reporting.

New Forms 1095-B and 1095-C and the related transmittal form (Form 1094) are being developed for reporting that will be required in early 2016 to fulfill the information-reporting requirement. The forms are to be due generally the same time employers file Forms W-2 with employees, and several pieces of information included on these forms are to be generated by payroll. This highlights the need for an enterprise system between payroll and human resources to ease reporting, Gow said.

Coordinating service-hour, earned-wages and other data are required for compliance.

For employers on the cusp of being an applicable large employer for ACA coverage, generally those that have at least 50 full-time equivalent employees, Treasury regulations outline a way to mix hours of part-time workers with already identified full-time workers to come up with a total full-time equivalent amount. The data to make this determination generally reside in the timekeeping system.

If coverage is determined and the ACA requirements apply to the employer, the regulations provide different full-time calculations to be used to figure who on staff is mandated to be offered health-care insurance by the employer. Only full-time workers need to be offered coverage. Those who average 130 service hours a month under one of two general methods qualify for the required-coverage offer. Hours-of-service data may be synced with payroll periods, the regulations said.

Any nonwork hours that are not tracked by the payroll system would need to be considered in verifying service hours, Gow said.

Under the method for determining those employees who qualify using look-back periods, the payroll department should be aware of whatever period is decided upon so that appropriate reports may be run and reviewed.

Employers may use a retrospective monthly measure to determine whether the hours-of-service thresholds are met but may find out too late that there was a need to make the offer to an employee in a prior month.

Treasury regulations allow employers to confirm that the health-care plan offered is affordable through three safe harbors. Under the law to meet the affordability test, the employee's cost may not exceed 9.5 percent of household income.

Because employers generally only know the amount paid to employees, Form W-2 wages may be used for the amount to apply the 9.5 percent threshold.

Employers also may use a calculation to determine that the cost to the employee does not exceed 9.5 percent of the employee's assumed monthly income or show that the cost of the insurance to the employee does not exceed 9.5 percent of the federal poverty level.

The payroll department's role in this requirement will vary from employer to employer, Gow said.

Information Reporting

An employer's benefits staff and insurer would be most involved in completing and filing the required 2015 forms in early 2016, but the data collection and time of filing coincide with payroll's busy year-end process. The reporting is voluntary for 2014.

Reporting may require employers to solicit new information, pull information from separate computer systems and combine the new data with the data from different systems into one report for the Internal Revenue Service and another statement sent to full-time employees, Greta E. Cowart, a shareholder at Winstead PC in Dallas, said in a July 2014 Bloomberg BNA Insight article. For example, Forms 1095-C may be mailed with W-2s to employees because they generally are due at the same time, she said.