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Trouble Tracking ACA Hours? Better Figure It Out To Avoid The $2,160 ACA Penalty.

Many employers in the marketplace are still experiencing difficulties in measuring the hours of their part time and variable hour employees to determine if they are actually full time under the Affordable Care Act (ACA) regulations.  Making this determination is critically important since as an Applicable Large Employer (ALE) beginning with the 2016 reporting calendar year, you must provide qualifying coverage to 95% of your full time employees in order to be considered compliant.

The penalty for not being compliant in 2016 is that you will be charged $180 per full time employee per month.  It is important to remember this penalty applies to all of your full time employees, and not just the ones whom you might have failed to offer coverage to.

How does this have anything to do with tracking of part time employee hours you ask?  Let’s take an example so you can see how it plays out in reality.  We will make the following assumptions of an employer:

  • 130 full time employees who are offered coverage
  • 50 part time employees who’s hours are measured to determine if they are eligible for coverage

In our simplistic example, we will assume that the employer offered coverage to all of their full time employees, 130 in total.  So you immediately are likely thinking that they should be in good shape since they have offered coverage to 100% of their full time employees.  Right? … Well, Maybe.

We will further assume that in the measuring of the hours of part time employees they did not extend an offer of coverage to any of these employees.  However, at a later date they determined that correctly applying the measuring rules under ACA would mean that 12 of these 50 total part time employees actually were indeed full time.

Oh … No ….  Now think about what percentage of coverage you offered as an employer.

130 offered coverage  |  Total full time employees 142  |  91.5% offer of coverage

So what happens now?  Your company now will owe a penalty in 2016 of:  112 X $2,160 = $241,920

(Why 112 you ask?  The A penalty isn’t paid on the first 30 full time employees.  Also, this is a simplified example.  In reality an employer would be charged the penalty at the rate of $180 per month per employee.  Therefore, if they did not make the appropriate offer for the entire year that would add up to $2,160 per employee for the year.  Otherwise, the penalty would only apply to each month in which appropriate coverage was not offered.)


Do I have your attention now? 

So you might not understand some of the complexities that come into play when measuring the hours of part time employees, so let’s talk about that.

The Affordable Care Act requires applicable large employers (ALEs) to offer appropriate and affordable health coverage to their full time employees who work 30 or more hours per week (130 hours per month). Employers are also required to measure the hours worked of part time and variable hour employees to determine if they should be offered coverage as all other full time employees. There are two methods available to employers for use in measuring: Monthly Measurement Method, and the Look-Back Measurement Method.

Monthly Measurement Method

The monthly measurement method proves difficult in application since an employee must be offered coverage in any month which they worked over 130 hours, yet the employer might not know this until the end of the month. Many employers are unaware of this fact and apply the method incorrectly, measuring one month and then making the offer in the following month. This is an incorrect application of the rules.

Overall, the monthly measurement method leads to uncertainty and inability to predict employees as full time and can lead to unnecessary penalties. For that reason, most employers choose the Look-Back Measurement Method.

Look-Back Measurement Method

The Look-Back Measurement Method involves designating a period of months over which you measure the hours worked by an employee to determine if they are indeed full time. This period is called the measurement period. Following the measurement period, employers are given a short administrative period during which they can communicate and enroll any new employees on the plan. Finally, employees enter their stability period where they are guaranteed to maintain coverage regardless of the number of hours worked.

Administrating the look back method can be complex. However, by following our simple methodology you can easily track your employees and ensure you offer coverage to anyone who becomes a full time employee.

Example of the Difficulties

As an example let’s consider an employer in the Staffing Industry.  This employer hires a new employee and then put them on assignment.  Let’s further assume that assignment ends after 4 months.  The overwhelming majority of companies would continue to keep this person on their ‘books’ as an employee rather than go through the process of formally terminating them.  After all, they could go out on another assignment at any time.  However this methodology then causes the employees ACA reporting to be completely wrong, and as you likely know you as an employer are ultimately on the hook for penalties due because of incorrect reporting.

For Applicable Large Employers (ALEs), 2016 is the calendar year in which the prior rules of offer of coverage expired.  Specifically, I am referring to the fact that in 2015 ALEs only had to offer coverage to 70% of their ACA full time employees in order to avoid the ‘A’ penalty for not providing coverage.

The ‘A’ penalty for employers is a penalty of $2,160 per full time employee and you count all of your full time employees (not just the ones you didn’t offer coverage to).

Employee Benefit Brokers, ACA Reporting. Huge Prospecting Opportunity, OR Administrative Pitfall?

The Million Dollar Question most employee benefit brokers are considering currently is should our firm try to perform this ACA reporting via an in-house technology solution that we purchase, or recommend having our clients use an outside vendor.  The reality is that every operation is different, has different needs and have promised their clients different things.  Some brokers take a full service approach and look to take administrative burdens off of their clients.  Other brokers take a more consultative approach.  Neither avenue is ‘wrong’, but each works for different type of benefit broker operations.

Regardless of which option you choose, here are some things you should be thinking of as you consider the question:

  • Do we have the necessary resources internally to do a good job with this IRS form filing function?
  • Do we have the knowledge internally to complete the job well?
  • What approach will be most comfortable to our clients?
  • What are the security ramifications of the solution we choose?  (Knowing that having employee social security numbers compromised could be a disaster for your company.)
  • If you decide upon an outsourced solution, will you want to refer your clients to someone who also competes with your company as a benefit broker?
  • Do we need a solution to talk with employers about right now?  What is gained or lost by waiting longer into the year before bringing a good solution to the table?
  • How much time, money and staff will it take to deploy our solution?
  • Would our time be better spent prospecting for new clients during this time using this issue as opposed to trying to manage the process internally?
  • Which option is more profitable to our business?
  • What is the logic of the system we intend to use?  Are the codes and amounts for 1095c lines 14, 15 and 16 automatically generated?  Will our staff or clients be responsible for completing these fields without the assistance of smart technology to intuitively figure out what the codes should be?
  • How will customer service be handled for this whole process?

Often the reality for an employee benefit broker is that a mixture of different solutions makes best sense for their operation.  When it comes to full service ACA 6056 reporting and efiling, we are here to help.

Employee Benefit Brokers, ACA Reporting. Huge Prospecting Opportunity, OR Administrative Pitfall?

The Million Dollar Question most employee benefit brokers are considering currently is should our firm try to perform this ACA reporting via an in-house technology solution that we purchase, or recommend having our clients use an outside vendor.  The reality is that every operation is different, has different needs and have promised their clients different things.  Some brokers take a full service approach and look to take administrative burdens off of their clients.  Other brokers take a more consultative approach.  Neither avenue is ‘wrong’, but each works for different type of benefit broker operations.

Regardless of which option you choose, here are some things you should be thinking of as you consider the question:

  • Do we have the necessary resources internally to do a good job with this IRS form filing function?
  • Do we have the knowledge internally to complete the job well?
  • What approach will be most comfortable to our clients?
  • What are the security ramifications of the solution we choose?  (Knowing that having employee social security numbers compromised could be a disaster for your company.)
  • If you decide upon an outsourced solution, will you want to refer your clients to someone who also competes with your company as a benefit broker?
  • Do we need a solution to talk with employers about right now?  What is gained or lost by waiting longer into the year before bringing a good solution to the table?
  • How much time, money and staff will it take to deploy our solution?
  • Would our time be better spent prospecting for new clients during this time using this issue as opposed to trying to manage the process internally?
  • Which option is more profitable to our business?
  • What is the logic of the system we intend to use?  Are the codes and amounts for 1095c lines 14, 15 and 16 automatically generated?  Will our staff or clients be responsible for completing these fields without the assistance of smart technology to intuitively figure out what the codes should be?
  • How will customer service be handled for this whole process?

Often the reality for an employee benefit broker is that a mixture of different solutions makes best sense for their operation.  When it comes to full service ACA 6056 reporting and efiling, we are here to help. 

What are the ACA Reporting Penalties?

When an Applicable Large Employer (ALE) fails to comply with their ACA reporting requirement, they will then be subject to various penalties.  These penalties apply both for not providing forms timely to employees as well as not filing timely to the IRS.

The penalties are as follows:

  • Did you fail to file a return, and on-time?  The penalty will be $250 for each return up to a maximum of $3,000,000.
  • Did you fail to provide your employees with their statements, and on-time?  The penalty will be $250 for each return up to a maximum of $3,000,000.

If there ever is intentional disregard of the requirement to provide employee statements, the total penalties stand to be increased from the base fines listed above.
The waiver of penalty and special rules under section 6724 and the applicable regulations, including abatement of information return penalties for reasonable cause, may apply to certain failures under section 6721 or 6722.

What are the ACA Reporting Penalties?

When an Applicable Large Employer (ALE) fails to comply with their ACA reporting requirement, they will then be subject to various penalties.  These penalties apply both for not providing forms timely to employees as well as not filing timely to the IRS.

The penalties are as follows:

  • Did you fail to file a return, and on-time?  The penalty will be $250 for each return up to a maximum of $3,000,000.
  • Did you fail to provide your employees with their statements, and on-time?  The penalty will be $250 for each return up to a maximum of $3,000,000.

If there ever is intentional disregard of the requirement to provide employee statements, the total penalties stand to be increased from the base fines listed above.
The waiver of penalty and special rules under section 6724 and the applicable regulations, including abatement of information return penalties for reasonable cause, may apply to certain failures under section 6721 or 6722.

Payroll Vendor Doing ACA Reporting … MUST be HIPAA Compliant

For payroll companies performing ACA reporting, we are increasingly finding that they forgot one very important detail … HIPAA and HITECH Compliance.

The reason most payroll companies forget about this detail is that they normally work with employee specific information regarding payroll records.  For payroll record specific information, HIPAA privacy rules have an exception that allow for the data to not be considered Protected Health Information (PHI).

When it comes to ACA Reporting however, there is no similar exception.


The information that is necessary to complete ACA reporting (list here)  contains employee Social Security Numbers that are connected with medical plan enrollment details.  For this reason, the data necessary to complete ACA Reporting must include PHI and thus the HIPAA and HITECH Compliance rules come into effect.

These rules require many various things, including the following:

  • Employers must enter into a Business Associate Agreement with any vendor they share PHI to in order to complete ACA reporting.
  • Once the vendor (payroll company in this case) comes into contact with the PHI, they have responsibilities to encrypt and safeguard this information.
  • Any communication that includes PHI (emails, etc) must be sent encrypted in order to ensure compliance
  • Once the payroll company receives the data, they must maintain all other HIPAA and HITECH compliance items regarding how the data is accessed and stored.

….So one quick question you can ask yourself is, “Did I sign a Business Associate Agreement with the payroll company I hired to do my Affordable Care Act Reporting?”.  If the answer to that is No, then you might have a problem.


This link is a blog article from the American Institute of CPAs that you might find helpful on this topic. (link here)


If you are curious how we handle HIPAA Compliance for our clients, you can learn more here.

Payroll Vendor Doing ACA Reporting … MUST be HIPAA Compliant

For payroll companies performing ACA reporting, we are increasingly finding that they forgot one very important detail … HIPAA and HITECH Compliance.

The reason most payroll companies forget about this detail is that they normally work with employee specific information regarding payroll records.  For payroll record specific information, HIPAA privacy rules have an exception that allow for the data to not be considered Protected Health Information (PHI).

When it comes to ACA Reporting however, there is no similar exception.


The information that is necessary to complete ACA reporting (list here)  contains employee Social Security Numbers that are connected with medical plan enrollment details.  For this reason, the data necessary to complete ACA Reporting must include PHI and thus the HIPAA and HITECH Compliance rules come into effect.

These rules require many various things, including the following:

  • Employers must enter into a Business Associate Agreement with any vendor they share PHI to in order to complete ACA reporting.
  • Once the vendor (payroll company in this case) comes into contact with the PHI, they have responsibilities to encrypt and safeguard this information.
  • Any communication that includes PHI (emails, etc) must be sent encrypted in order to ensure compliance
  • Once the payroll company receives the data, they must maintain all other HIPAA and HITECH compliance items regarding how the data is accessed and stored.

….So one quick question you can ask yourself is, “Did I sign a Business Associate Agreement with the payroll company I hired to do my Affordable Care Act Reporting?”.  If the answer to that is No, then you might have a problem.


This link is a blog article from the American Institute of CPAs that you might find helpful on this topic. (link here)


If you are curious how we handle HIPAA Compliance for our clients, you can learn more here.

ACA Affordability Safe Harbors must work for Everyone in a Class …

The IRS regulations for ACA reporting require an employer to show that they offered the ‘right type of plan’ at the ‘right type of cost’ or else face penalties.  This means that an employer must have offered minimum essential coverage and minimum value coverage at a cost no greater than 9.5% of the employees household income.

Problem!  When you hired an employee you didn’t hire their whole household, so how are you to know what that number actually is?  To deal with this issue the IRS allows for employers to make assumptions on what the household income is for an employee.  It is important to note however, the Affordability Safe Harbor MUST work for everyone within a class of employees in order to use it.  Lets take an example …

Example:  The employer has a class of hourly employees that they are applying the rate of pay safe harbor for affordability purposes.  There are 100 employees in this class.  The safe harbor works for 99 of the employees but does NOT work for 1 person.  This safe harbor cannot be used for ANY employees in this class.  Instead, line 16 of their form 1095-C would simply be left blank and the IRS would use the final, actual household income of the employee to determine if a penalty could apply.

Of course for our clients, we perform all of this analysis on their behalf.  If by chance you used a different vendor for reporting and need assistance, we can assist you through our consulting services.


To see specifically where this information and guidance comes from, you can visit this link here to see the Federal Register Vol.79, No.29.  On page 57 of this document you will find the following language:

(i) Conditions of using an affordability safe harbor. An applicable large employer member may use one or more of the affordability safe harbors described in this paragraph (e)(2) only if the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that provides minimum value with respect to the selfonly coverage offered to the employee.  Use of any of the safe harbors is optional for an applicable large employer member, and an applicable large employer member may choose to apply the safe harbors for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category. Reasonable categories generally include specified job categories, nature of compensation (hourly or salary), geographic location, and similar bona fide business criteria.  An enumeration of employees by name or other specific criteria having substantially the same effect as an enumeration by name is not considered a reasonable category.

1095-C Code Calculator Released

The most confusing portion of the entire Affordable Care Act employer reporting comes to bear when considering the lines 14, 15 and 16 for form 1095-C.


There are nearly 100 various logic combinations to create the codes necessary for the IRS reporting to be completed correctly.  To assist employers and organizations in checking the validity of the logic of these lines 14, 15 and 16 of form 1095-C, we have created a calculator.


Here is how it works … Simply select the codes below for lines 14 and 16 below and then press ‘search’.  You will then see the full logic as to why certain code combinations work or do not work.
Click here to load this Caspio Online Database.

ACA Affordability Safe Harbors must work for Everyone in a Class …


The IRS regulations for ACA reporting require an employer to show that they offered the ‘right type of plan’ at the ‘right type of cost’ or else face penalties.  This means that an employer must have offered minimum essential coverage and minimum value coverage at a cost no greater than 9.5% of the employees household income.

Problem!  When you hired an employee you didn’t hire their whole household, so how are you to know what that number actually is?  To deal with this issue the IRS allows for employers to make assumptions on what the household income is for an employee.  It is important to note however, the Affordability Safe Harbor MUST work for everyone within a class of employees in order to use it.  Lets take an example …

Example:  The employer has a class of hourly employees that they are applying the rate of pay safe harbor for affordability purposes.  There are 100 employees in this class.  The safe harbor works for 99 of the employees but does NOT work for 1 person.  This safe harbor cannot be used for ANY employees in this class.  Instead, line 16 of their form 1095-C would simply be left blank and the IRS would use the final, actual household income of the employee to determine if a penalty could apply.

Of course for our clients, we perform all of this analysis on their behalf.  If by chance you used a different vendor for reporting and need assistance, we can assist you through our consulting services.


To see specifically where this information and guidance comes from, you can visit this link here to see the Federal Register Vol.79, No.29.  On page 57 of this document you will find the following language:

(i) Conditions of using an affordability safe harbor. An applicable large employer member may use one or more of the affordability safe harbors described in this paragraph (e)(2) only if the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that provides minimum value with respect to the selfonly coverage offered to the employee.  Use of any of the safe harbors is optional for an applicable large employer member, and an applicable large employer member may choose to apply the safe harbors for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category. Reasonable categories generally include specified job categories, nature of compensation (hourly or salary), geographic location, and similar bona fide business criteria.  An enumeration of employees by name or other specific criteria having substantially the same effect as an enumeration by name is not considered a reasonable category.