Employers have long taken on the role of providing healthcare coverage for employees—it’s a highly valued benefit that can help employers stand out in competitive job markets. The advent of the Affordable Care Act (ACA), though, has formalized the role. The ACA has significantly impacted whether and how employers provide health coverage to their employees. It also requires employers to pay close attention to ensuring an accurate full-time employee count.
In fact, employers with more than 50 full-time or full-time equivalent employees are mandated to provide healthcare coverage for employees. In addition, that coverage must be deemed affordable and must meet the needs of 95% of these employees (and their dependents).
Further, employers are required to report on their efforts to ensure employees have access to the affordable healthcare insurance coverage they need. A first step in this process is determining the number of full-time employees they had during a calendar year. That’s a task that isn’t as simple as it may sound. Failing to do this well, though, and to meet ACA requirements can put employers in hot water where they may be subject to penalty assessments from the IRS.
Full-Time Employees and Applicable Large Employers
Under the ACA, a full-time employee is someone who works 30 hours a week or 130 hours a month. Employers with 50 or more full-time and full-time equivalent (FTE) employees on average during the previous year are considered Applicable Large Employers (ALEs) and must comply with ACA requirements. Accurately calculating the full-time employee count is essential for determining ALE status and minimizing potential penalty exposure.
One means of doing this involves what is known as the Look-Back Measurement Method.
The Look-Back Measurement Method
The Look-Back Measurement Method is a valuable tool for employers to monitor and measure their employees’ hours of service over time to determine if they are ACA full-time. This method allows employers to determine full-time status during some future period of time based on a prior time period.
Employers can only use this method when they’re not able to predict whether or not an employee will be working full-time in the future. It’s a method that was designed specifically for organizations that employ highly variable staff to help them avoid overextending offers of coverage—for instance, seasonal workers.
- The measurement period. This is a period of time from at least three months to no longer than twelve months that employers will review to determine whether employees averaged at least 30 hours of work each week. Employers will be working with both initial measurement periods (for new hires) and standard periods for all other employees.
- The administrative period. This is a period of up to 90 days that provides employers with the time to gather data and evaluate their records to determine which employees will be eligible for coverage.
- The stability period. This is a period of time that must be as least as long as the initial measurement period. During this period employees are locked in as either full- or part-time based on the hours of service previously calculated. If an employee is determined to be full-time during the measurement period, they must be offered health coverage during this period, which cannot be shorter than the measurement period.
Using the Look-Back Measurement Method helps employers gain more time to extend an offer of coverage to employees who are determined to be full-time under the ACA.
Consequences of Inaccurate Full-Time Employee Count
Inaccurate full-time employee counts can lead to several negative consequences, including:
- Incorrect ACA reporting. Employers may face penalties if they fail to file Forms 1094-C/1095-C in a timely and accurate manner. In 2023, fines could be as high as $580 per employee.
- Unintentional self-reporting of penalty liability. If the information submitted on Forms 1094-C and 1095-C is not correct, employers may be subject to an ACA employer mandate penalty based on the information they filed.
- IRS audits and penalty assessments. If the IRS determines that an employer is subject to an ACA employer mandate penalty based on information filed on the ACA reporting forms, the employer will receive an IRS Letter 226J outlining the proposed penalty assessment.
Obviously, it’s important to avoid these potential consequences. In addition to ensuring the timely and accurate filing of statements and returns, it’s critical for employers to properly track employees’ hours of service.
Ensuring Accurate Full-Time Employee Count
Here are some steps employers can take to ensure accurate full-time employee counts for ACA compliance:
- Implement the Look-Back Measurement Method to determine average employee hours worked over time.
- Continuously track employees’ hours of service.
- Continuously monitor employees’ full-time status.
- Outsource ACA compliance processes to a service provider who can accurately measure workers’ hours of service and accurately calculate FTEs and ALE status on your behalf.
By accurately determining the full-time employee count and maintaining ACA compliance, employers can avoid costly penalties and ensure they are providing the appropriate health coverage to their workforce.
Determining the accurate full-time employee count during a calendar year is crucial for ACA compliance. Employers should implement the Look-Back Measurement Method and continuously track employees’ hours of service to avoid inaccurate annual information filings with the IRS and potential penalty assessments. By doing so, they can ensure they are providing the right benefits to their employees and maintaining compliance with the ACA.
Don’t risk being caught afoul of the ACA reporting requirements. Let Trusaic guide you through the steps and ensure accurate and timely reporting to avoid potential penalties.
We’re committed to helping companies reduce risk, avoid penalties, and achieve 100% ACA compliance. For questions about the ACA contact us here.