Challenges in ACA Compliance during the Covid-19 Pandemic
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As businesses across the country shutter their doors, reduce their hours and move to remote working to comply with various state or local stay at home orders to combat the spread of the COVID-19 Pandemic, employers are assessing their options for workforce management. This includes considering furloughs, leave policies, terminations and more.
As they gear up for the March 31, 2020 1095-C & 1094-C electronic filing deadline, employers should consider how each of these different options can affect their ongoing ACA compliance, specifically when it comes to offers of coverage.
Under the ACA’s Employer Mandate, employers with 50 or more full-time employees and full-time equivalent employees are required to offer Minimum Essential Coverage (MEC) to at least 95% of their full-time workforce (and their dependents) whereby such coverage meets Minimum Value (MV) and is Affordable for the employee or be subject to Internal Revenue Code (IRC) Section 4980H(a) penalties.
When trying to determine whether employees are considered to be full-time under the ACA, employers must use one of two measurement methods sanctioned by the IRS: the Monthly Measurement Method or the Look-Back Measurement Method.
Many employers who had previously used the Monthly Measurement Method, may want to rethink their approach as they implement different workforce measures to adjust to the economic slowdown associated with the Covid-19 Pandemic. These types of workforce management measures often create a more variable-hour workforce.
If your workforce is primarily comprised of variable-hour workers, the Look-Back Measurement Method will be the best measurement method to use for ACA compliance.
Furloughs, Terminations, Leave Options:
When considering furlough, terminations, and leave options for workplace management, an employer should keep the following ACA Compliance issues in mind.
1) Hours of Service: Employees on furlough or leave generally do not accrue hours of service. From an ACA Compliance tracking perspective, this makes them very similar to terminations. For an employer this can affect full-time counts for individual months, as well as the timing of an offer of coverage.
2) Healthcare Coverage During Absence: Depending on company policies, Employers must ask themselves whether they can rescind an offer of coverage during the furlough/leave period, or if they are going to allow their employee to stay on the employer-sponsored health plan.
3) Offers of Coverage Upon Return: For Employers that choose to rescind an offer or delay making it during the furlough/leave period, they need to remember that if an Employee entitled to coverage based on the prior measurement period and returns during the current stability period, the offer must be made upon their return with a couple of caveats identified below.
Offers of Coverage and the Rule of Parity:
If the furlough, leave or temporary termination was longer than 13 weeks (26 weeks for educational employers), an employer can treat the employee as a new hire when they come back and begin the initial measurement period again.
For newer employees who go on furlough/leave, the Rule of Parity may apply upon their return. If the absence is shorter than 13 weeks but longer than 4 weeks and the absence is longer than the prior period of employment, the employer is entitled to treat the employee as a new hire and begin the initial measurement period again.
For example:
John is hired by Staffing Company on February 1, 2020 and then furloughed six weeks later due to a decline in workforce needs related to the Covid-19 Pandemic. If the furlough lasts longer than his initial six-week employment period, the Rule of Parity applies and Staffing Company would be able to treat John as a new hire upon his return. If the absence lasts longer than 13 weeks, then it would not matter how long the initial employment period was, Staffing Company would be able to treat John as a new hire upon return.
Whether you’re running a restaurant, staffing agency, healthcare facility or some other organization, complying with the ACA on your own can be difficult, this is especially true today as Employers utilize all of their workforce management options to deal with the economic challenges presented by the Covid-19 Pandemic. Consider outsourcing a third-party expert who specializes in ACA compliance, data consolidation and analytics to avoid the headache and focus your resources on bettering your business and managing through the Pandemic.
Your organization will want to get it right to avoid ACA penalties being issued by the IRS. Currently, the agency is issuing Letter 226J penalty notices to organizations identified as having failed to comply with the ACA’s Employer Mandate for the 2017 tax year. If you received one, learn how to respond with this helpful guide.
To learn more about ACA compliance in 2020, click here.
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