Companies scrambling to make sure they have all the documentation they need for health care
The provision in the Affordable Care Act requiring companies to offer health insurance to their employees did not have a major impact on many businesses.
As it turned out, most already were doing so.
Now comes the hard part: Proving it.
In January 2016, companies with more than 100 employees will need to show they offered their full-time employees, and their dependents, affordable health care coverage that meets a minimum standard.
In January 2017, the so-called employee mandate will apply to those with 50-99 employees.
As employers prepare to comply with reporting requirements, they are realizing the process isn't as simple as checking a few boxes on a form.
The process will work similarly to W2 reporting. Employers will complete forms stating they offered each full-time employee affordable health care benefits that met the minimum coverage, and file those forms with the 1RS.
"What many employers do not understand is they need to have all the underlying data to support the codes they are checking on the forms," John Haslinger, vice president of strategic advisory services at ADP, said. "If the 1RS thinks you didn't complete the forms correctly, you are going to have to produce evidence.
"It's not enough to say T offered affordable coverage' if there is a dispute; the employer has to be able to back it up."
Many employers are wrestling with compiling this necessary data. To complete the 1094-C and 1095-C forms required by the 1RS, companies have to pull human resource information, such as name and address, dates of employment and Social Security numbers.
Christopher Ryan, vice president of strategic advisory services for ADP, said that's a fundamental change for companies.
"Historically, different portions of human resources have been administered by different HR systems," he said. "Companies would have one vendor to do payroll, a software system for HR information, a time and attendance database and a broker handling benefits. The big challenge right now is figuring out how to create a uniform system for managing all of this information."
To prove the health care plan offered to employees is affordable, employers must then pull salary or rate of pay information that is traditionally tracked in payroll system.
Next, employers tap their benefit eligibility systems for a month-by-month record of employees and dependents covered by the employer plan.
Because of the ACA, companies now also have to track which employees were offered a health care benefit package, but turned it down.
"The calculations of affordability and whether the health plan offered meets the minimum coverage requirement are complex," Michael J. Mascolo, national practice leader for North region employee benefits at Wells Fargo, said. "The calculations can't be done in the payroll system or in the benefit eligibility system. So, now there is a third category of data that a lot of companies, especially small companies, don't have a system to maintain."
As it turns out, many large companies don't have the necessary system, either. And because the reporting guidelines were not available until earlier this year, major corporations have not had much time to shift huge volumes of employee data to unified systems.
One of those large companies is Newark-based Panasonic Corp. of North America.
With more than 5,000 employees in the U.S., the company had to engage a third-party vendor to produce all of the required forms, according to Isabel Daguet, a company vice president for HR services & recruiting.
"We knew this reporting was coming, but it wasn't until early this year that some of the guidance became available so we could begin to understand what needed to be reported and how it had to be reported," she said. "When we analyzed what was required, we felt that the best decision for us was to engage with a third party. We don't have the capability internally."
Bridgewater-based Brother International Corporation, anticipating the depth of the ACA reporting, began reorganizing its human resources department a year ago.
Brandin Sargent, senior director of shared service and total rewards, said the company felt it had no choice.
"The ACA is challenging in that it is such a big act and with so many details you have to understand," he said. "If you don't have the right technology and the right vendors or consultants to help you navigate it, you'll have to hire someone full time just to keep up with the regulatory changes and compliance."
The process only figures to get more difficult.
This year, employers are required to offer at least 70 percent of full-time employees affordable coverage. For 2016, scrutiny of employer compliance will get tighter.
"By next year, employers will have to prove that they offered minimum essential coverage to at least 95 percent of their full-time people," Haslinger said.
"If they can't prove that, and just one of their employees goes to the exchange to get a subsidy, it can trigger a penalty on every single full-time person. That is a severe penalty of $2,000 per employee."
In addition to going to the exchange for a subsidy, employees could trigger fines for their employers if they don't file or incorrectly file their 1094-C.
At Brother International, the human resources team already has begun the pro-SPOTLIGHT cess of educating their more than 1,000 U.S.-based employees about the ACA, and plans to make frequent communication updates and host in-person Q&A training sessions.
"We are trying to provide information as often as possible to our employees become educated health care consumers," Lizet Cardinzoa, director of total rewards at Brother International, said. "If we are going to give employees a heads-up and prepare them upfront, there will be no surprises when we give out the forms."
According to Haslinger, many of his clients are concerned that they are counting their independent contractors and temporary employees correctly.
"There is a lot of potential risk for employers to trigger fines," he said. "We refer to this as the big penalty or the catastrophic penalty."
To determine if an employee is full time, employers have to account for the hours of service, not just the hours worked. They have to consider all the paid time off - spent for vacation or sick time - and they have to calculate any unpaid time off for things like jury duty, family medical leave or military service.
"An area we are seeing a lot of employers struggle with is capturing unpaid leave," Haslinger said. "Most employers can capture unpaid jury duty and military leave, but a lot of employers have not done a good job capturing family medical leave. And if you don't capture that, you could be undercounting someone's hours of service. And that person can trigger a penalty."
File late? Here's what's at stake
"A lot of companies don't realize how significant the tax penalties could be if they don't meet the requirements," MichaelJ. Mascolo, national practice leader for North region employee benefits at Wells Fargo, said.
Companies have to complete and submit the forms correctly and on time or face fines. The 1095-C forms have to go out to employees in January. For most large employers, the 1094-C forms have to be submitted to the 1RS in March; but if the employer has less than 250 employees for the year, it will have to submit in February.
"For late forms, the government has said they will impose penalties of up to $250 per form, up to a maximum total penalty of $3 million," John Haslinger, vice president of strategic advisory services at ADP, said. "That's just the tip if the iceberg. If the employees don't get their forms from employers on a timely basis, that could end up triggering the individual mandate. And I suspect there are plenty of attorneys out there looking for exactly that to happen so they can create class action suits against employers."
Securing the data
In addition to navigating the seas of employee data, the ACA reporting has raised data security concerns for many companies.
The 1095-C, or the form companies issue to their employees, contains sensitive personal information. In order to prepare and distribute these forms, employers handle the names, addresses and Social Security numbers for every employee, as well as their dependent spouses and children. Payroll information is also included.
"When companies are preparing these forms, they have to make sure all of this data is kept in a safe, secure environment," Michael J. Mascolo, national practice leader for North region employee benefits at Wells Fargo, said. "If it's floating around on an Excel spreadsheet on somebody's desk or is being emailed back and forth in a manner that is not secure, there is a significant risk of a breach of very sensitive data."
Mascolo added that in working with clients to assess any gaps in the technology the new reporting has revealed, they often find that programs have to be updated to keep this personal data secure.
E-mail to: dariam@njbiz.com
On Twitter: @dariameoli
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