Counting Your Workers Mid-Year for Better ACA Compliance

As part of the ACA (Affordable Care Act), large employers have to provide affordable health care plans to full-time employees or FTEs. The companies also have to report health coverage information on an annual return to the Internal Revenue Service (IRS.) With employee turnovers and changes in staffing, it’s a good idea to count the number of employees you have at the mid-year mark to determine who qualifies as a full-time employee. By doing this, your company is in a better position to remain compliant with the ACA reporting requirements.

Definitions of Employee and Large Employer

An employee performs services for a company, and the employer has the right to control and manage that individual. The employee is told by a supervisor what work is to be performed, and when, where and how that work is to be completed.

An applicable large employer (or ALE) is defined as a company with 50 or more full time employees. A FTE is a person who works 30 or more hours each week on average, or 130 hours or more each month.

Mid-Year Checklist

As part of operations, companies have to plan and budget for the coming year. This includes new hires and staffing costs. The mid-year mark is the perfect time to assess the status of every person who works for your company. This assessment tells you who in your company qualifies to be considered an employee and whether they are a full-time employee.

Keeping track of your workforce helps you to reduce costs by avoiding tax penalties. For companies that don’t offer affordable health coverage to at least 95 percent of its full-time employees, the IRS will impose penalties. The penalties can be huge if a full-time employee gets a premium tax credit from the federal government to buy health insurance coverage from an ACA exchange.

Independent Contractors

If your company uses independent contractors who work long-term and whose work is essential for your business, they may be considered employees. You have to carefully assess these independent contractors, especially if you are close to having 50 full-time employees. You also have to take into consideration the fact that adding them to your workforce might result in your failure to offer health insurance to at least 95% of your full-time employee. Employers also need to look closely at any independent contractor uses a Social Security number as the Taxpayer ID number. By scrutinizing accounts payable records, employers have a better understanding of how to categorize their workers.

Temporary Employees

If you have temporary employees working in your company, you need to review your contract with the staffing agency to determine if you or the staffing firm is the employer. You also need to know if these temps are covered under your health care plan or should be. Alternatively, the temporary, part-time, seasonal and variable-hour employees may be covered under the staffing agency that employs them. In some situations, you can take credit for health coverage if the third-party staffing agency offers these workers minimal essential coverage and also charges you an additional fee any temp that accepts health coverage.

Another important issue is that temporary employees, whether full-time or part-time, are included when calculating full-time equivalents to determine if your company is an applicable large employer. Proper assessment of temporary employees who work full-time will determine if you offer 95% of your full-time employees health coverage.

If you use a temporary staffing agency, the IRS usually deems the workers to be employees of the staffing agency and not your company. However, you need to do your due diligence and review all contracts with a temp staffing agency to ensure that you are not in a PEO arrangement.

Professional Employment Organization

Many large companies hire a Professional Employment Organization (PEO) for the hiring of new employees while also taking care of payroll, employee benefits, and other human resources services. You need to review your contact with the PEO to make certain the organization provides affordable health insurance to each full-time employee the PEO provided for your company. The PEO should charge you a fee for any employee who elects to receive health coverage. This arrangement between a PEO and your company complicates ACA compliance. It’s a good idea to seek legal advice to ensure you and the PEO meet all ACA requirements.

Other Issues with Staffing Companies

Many different staffing arrangement models exist, and this has an impact on how staffing agencies and their clients report health coverage and workforce numbers. The third-party staffing company complicates matters because different approaches are necessary to ensure compliance. For example, some large employers recruit new hires and then refer them to a staffing agency that acts as the worker’s employer. As the employer, the staffing agency is responsible for payroll and benefits. For the IRS, this type of hiring process is a grey area and often results in more scrutiny of your annual returns. You should analyze the pros and cons of such a staffing relationship.

With the ACA laws being so complex, it’s essential that you categorize every worker properly to ensure that your company is in compliance with all the ACA rules and regulations.

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