Employer preparation for preparing for health care reform’s pay-or-play provisions, especially data reporting (under Sections 6055 and 6056) to the IRS, can be complicated by: (1) changes in workers’ employment status (from part-time to full-time); (2) an organization’s switching from one measurement method to another; and (3) the structure of controlled groups and subsidiaries, speakers at a recent American Bar Association webinar explained.
Measurement period methods should be reasonable and well-documented, speakers from the IRS Office of Division Counsel & Associate Chief Counsel stated, after emphasizing that they were sharing their opinions, not official policy. Section 6055 and 6056 reports have to be submitted to the IRS and to plan members. See Final Rule: Shared Responsibility for Employers Regarding Health Coverage (Feb. 12, 2014). Attorney Greta Cowart with the Winstead PC law firm in Dallas also spoke.
Flexibility
An employer may change from “monthly” to “look-back” measurement periods (and vice versa) when determining who is full-time and who is not, which can change outcomes. But when they do that, it’s important to harmonize that with cafeteria plan eligibility, so a coordinated offer of coverage and benefits can be made to every eligible worker.
If shifts in measurement methods are uncoordinated, offers of major medical coverage could be made to a different group than is made to Section 125 program participants, speakers warned. For more information on the shared responsibility provisions, see Section 410 of The New Health Care Reform Law: What Employers Need to Know.
The more different methods an employer uses to count and identify full-time employees, the more it needs to capture and maintain the records justifying eligibility determinations, the two IRS speakers said.
The situation can arise when individuals switch between jobs (for example, salaried vs. variable-hour; collectively bargained vs. not; workers in different states) that use different measurement methods (monthly vs. look-back).
Another source of snafus could be new hires, who get their own measurement method in the final rules. Also, rehires: If an employee doesn’t work for 13 or more consecutive weeks, the employee may be treated as a new hire when he or she resumes work, the rules say.
Employer data is readily available from payroll, but that’s measured usually in two-week pay periods. Meanwhile the government requires calendar-month reporting on coverage and hours worked, which aligns with the other parts of the ACA system, such as the exchanges. In light of this, the government can be flexible on monthly data that does not always start on the first of the month, the IRS speakers said.
Compliance in the controlled-group context
Different subsidiaries under a controlling applicable large employer may use different methods of counting full-time employees and full-time equivalents. If a subsidiary is on the verge of becoming an ALE or may change status, then that subsidiary must use the month-by-month calculation of full time status for purposes of determining its status as an ALE, Cowart said.
It can use a different method for the purpose of defending against the pay-or-play tax and for determining employees to whom coverage must be offered. That only underscores the need to maintain records on all methods used, she continued.
If one controlled group member does not comply with the employer mandate rules and subjects itself to fines, the fines end there, speakers said. The parent company and other controlled group members are not penalized just from the violation of the other subsidiary. The simplest controlled-group test is whether a parent company owns 80 percent or more of a subsidiary.
Independent contractors
Who is an employee under the ACA is defined using common law employee standards. The question of temp workers or workers on loan from agencies is important for ACA reporting and ACA tax calculations. There’s a need to review independent contractors and agreements with staffing firms. Under Treasury rules at §54 4980H-4(b)(2), amounts paid for health premiums for such temp employees can be reported only if the employer pays the staffing firm extra for health insurance furnished by the staffing firm, they said.
Over-reporting FTEs cuts burden
They discussed the requirement that employers report the full- versus part-time status and coverage status of each worker on new ACA tax forms.
However, employers have an easier option: First include everyone they know is a full-time worker, defined as people who work more than 30 hours per week. Then add part timers who are close to but slightly below the 30-hour per week threshold. Then make an offer of insurance to 98 percent of that group. In that case, the employer can report without having perfectly identified all full-time vs. part-time employees. But the 98-percent offer rate has to be upheld all 12 months of the year. Eleven months of 100-percent and one month of 80-percent offers will not comply, an IRS speaker said.
The employer must certify that it made the 98-percent offer to the list of employees on its section 6056 report (Form 1094-C); coverage must be affordable; coverage must provide minimum value; and this does not exempt the employer from penalties for failing to report FTEs.
These reporting requirements were to have been effective Jan. 1, 2014, but were delayed to Jan. 1, 2015 by IRS Notice 2013-45 issued on July 29, 2013. Information on the 2015 year must be reported in March 2016. Electronic reporting is required if an entity files information on 250 or more workers.