United States

Transforming your payroll processes for Affordable Care Act compliance


The Patient Protection and Affordable Care Act, simply referred to as the Affordable Care Act (ACA), is significantly altering the health care landscape in the United States, with a multitude of changes for individuals, employers and providers. The ACA includes several IRS mandates, increasing the reporting and compliance burden on your payroll system. You must ensure that your systems and processes are sufficient to manage the increased demands to collect, report and safeguard relevant information under the new mandates of the ACA.

The employer shared responsibility provisions of the ACA were originally slated to go into effect in 2014; however, in July 2013, the federal government extended the effective date until Jan. 1, 2015, to give employers, insurers and other providers more time to prepare for the new changes. On Feb. 10, 2014, the Treasury Department announced further relief from penalties until Jan. 1, 2016, for companies with 50-99 full-time employees. The ACA also imposes new information reporting requirements on large employers starting with the 2015 calendar year.

While additional time has been given, you should not wait to begin implementing strategies and performing tests to ensure full compliance. The process can be complex, and you may need time to optimize your current payroll system, develop new reports to meet the reporting mandates or even implement a new platform to handle the increased compliance burden. Failure to comply by the deadlines could result in unnecessary penalties.

To summarize key ACA provisions:

  • In 2015, large employers with 100 or more full-time employees (including equivalents) must offer affordable, minimum value health coverage to 70 percent of those employees or potentially pay a penalty. Penalties can be triggered by a full-time employee obtaining a premium subsidy from the health insurance marketplace (i.e., exchange).
  • In 2016, all large employers must offer affordable, minimum value health coverage to 95 percent of their full-time employees or potentially pay a penalty.
  • In 2016, all large employers must file new information returns (Forms 1095 and 1094) to report information to the IRS about their health plans and their workforce for the 2015 calendar year.

The ACA defines "large" employers as having 50 full-time or full-time equivalent employees. "Full-time" is defined as 30 hours per week, and not 40 hours, as we might typically assume.

The good news is that most payroll systems are collecting the required data today. However, the new IRS reporting mandates have increased the burden on employers of all sizes, as their systems are not equipped for these mandates with standard or out-of-the-box reports. Everyone will face growing pains; unfortunately, midmarket companies have fewer resources and less room for error with systems and processes than larger counterparts.     

To comply with new ACA regulations, companies must leverage reporting tools and capabilities within their payroll system. Several different reporting tools and midmarket enterprise resource planning (ERP) systems can help with compliance issues. Many organizations already have adequate systems in place that will require optimization of reporting and alerts, while others may require new systems. In many cases, organizations are capturing the necessary data today, but need to report it in a different way moving forward.

The ACA has introduced several general reporting requirements, and your organization must have internal processes and reports that confirm compliance and alert you of any issues. For example, your payroll system should track:

  • Hours worked by each employee
  • The number of full-time employees and full-time equivalents
  • An employee's eligibility for health care benefits
  • Offers to employees of health care coverage
  • Enrollment of employees and their family members in the health coverage
  • The amount paid for health care
  • Eligibility for a small business health care tax credit

Makers of midmarket ERP systems are not necessarily retooling modules to capture payroll data to meet the new requirements. The systems should already have the ability to capture that information–it's just a matter of reporting the data in a different manner to satisfy new IRS regulations. For example, Microsoft Dynamics or NetSuite are not creating additional standard reports to meet the new requirements, since they can vary significantly from employer to employer. Instead, employers should leverage existing reporting toolsets to tap into data that is already captured to present it in a different way. For instance, employers with many hourly employees working variable hours will need analytical tools to perform a what-if analysis to optimally structure their look-back periods.

Midmarket ERP systems can set up alerts to notify companies or specific employees about potential compliance issues. These indicators can be established for areas such as full-time equivalents, the amount paid for health care, employee eligibility, and other key metrics. In addition, organizations can set up reports using standard midmarket tools, including SQL Server Reporting Services, Crystal Reports and even Excel's ODBC connections, which can tap into tables in Windows-based systems.

For organizations using entry-level systems, defining and calculating full-time employees and full-time equivalents is often more challenging than with a more advanced system. One of the primary reasons companies step up to a more robust ERP system is for deeper reporting capabilities. The ACA will place a greater emphasis on mining and analyzing employee information to ensure compliance with the new laws. 

Another challenge that spurs organizations to upgrade to midmarket ERP systems is the enhanced ability to import and export data. In the future, you will need to generate more files for the new reporting mandates required by the IRS. ACA requirements typically will not result in additional fields in your payroll system; however, as mentioned earlier, the legislation will change the way information is reported.

For the most part, payroll systems all have similar capabilities to set up pay codes, deductions and benefits in the system. Where midmarket ERP systems, such as Microsoft Dynamics and NetSuite, set themselves apart is in performing analytics on data. Those processes are often more difficult, or simply not possible, with entry-level systems. In addition, midmarket ERP systems provide a higher level of security. Processes must be secure when sharing sensitive employee payroll or health care information. 

Software developers are not writing standard reports to align with the ACA's data demands because there are no blanket reporting standards. For example, the legislation introduces a new look-back period for tracking employee hours; however, that period is different for every organization. Your business requires a flexible payroll system with a robust reporting engine, capabilities and tools to satisfy this and other evolving reporting demands. 

The new ACA regulations are complicated, and your payroll system and processes must be ready to manage additional compliance demands. While the implementation timeline has been extended, you must be proactive to discover any issues early and focus on solutions. Updating systems, policies, alerts and reporting can take time, and compliance penalties can be significant.

Optimizing an existing midmarket ERP system, or implementing a new platform if necessary, can help meet your ACA reporting needs, unlocking additional data and reporting capacity. Don't get caught off guard; if you are unsure about your ERP system's ability to comply with new ACA mandates, contact your provider to ensure you have sufficient tools and processes in place.


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