In the employer reporting puzzle of the Affordable Care Act (ACA), a missing and critical piece recently surfaced. Faintly.
We now have a draft of Form 1095-C. The IRS released this draft, along with other ACA draft forms, on July 24, 2014. Even without being finalized, Form 1095-C lends insight about steps that companies which process payroll in-house should start taking to get ready for January 1, 2015 – when the penalty-assessment period for most employers begins.
For companies that process payroll with Microsoft Dynamics GP (Great Plains), and which don't already have an ACA system strategy, this insight leads to a review of the five setups detailed below. First, though, let's cover what you need to know about Form 1095-C.
Why Form 1095-C is important for employer ACA compliance
Collecting the information sought on Form 1095-C will show the IRS that an employer has, according to the layers of ACA directives, met the requirement of offering health care coverage to employees.
This document will be a new yearly staple for distribution to employees – much like a W-2. Form 1095-C will also be given to each employee by the end of every January for information from the previous year.
Who will have to produce Form 1095-C
Every employer with 50 or more full-time employees and full-time equivalents will be required to produce Form 1095-C.
Confusion abounds, as many companies believe that their insurance provider will be able to generate this report for them. Not so. Insurance providers will be submitting their own reports to the IRS – reports that cover only those employees who had coverage. Reporting for every employee, regardless of whether they elected coverage, is the employer’s responsibility.
What this means for Dynamics GP Payroll users
To better capture the data needed, and segment that data for generating the information sought on this form, review these setups in Dynamics GP Payroll and make the five following adjustments:
1. Use the Employment Type field in Employee Maintenance.
This field allows you to segment full-time employees from variable-hour employees. For full-time employees, use Full Time Regular; for variable-hour employees, use Part Time Regular. You will then be able to report on both groups better.
If an employee is expected to work at least 30 hours a week on average, they are considered full-time from date of hire and must be offered employer health care coverage within 90 days of their hire date or 90 days from the first day of the next month of their hire date.
If an employer can't tell whether an employee will be working 30 hours a week on average, that employee is considered variable-hour and subject to a measurement period to test whether they will meet the 30-hour threshold for full-time status.
2. Set up benefit codes for employer's contribution to health care insurance.
Some employers bypass benefit codes to capture employer contributions to employee health care costs and manually update Box 12 on the W-2 form at year-end to reflect those costs.
In the ACA world, that practice won't give you the information needed.
One of the requirements for ACA reporting is to show what months an employee had health care coverage. By using a benefit code, you can annotate when the coverage started and keep track of individual health care benefits on a month-to-month basis.
Each plan should have its own benefit code. If your company offers multiple health care insurance options, you should set them up separately. In order to meet the threshold of “affordable,” you will need to make sure one of the plans meets the minimum value criteria of the ACA and that an employee contribution does not exceed 9.5% of the employee’s gross wages. (There are exceptions to this that we will highlight in other posts.)
In setting up the benefit code, you also set up the eventual feed into Box 12 on the W-2.
3. Separate deductions for the employee portion of health insurance and the dependents' portion of health insurance.
If an employee elects both individual and family coverage, don't lump all employee contributions to health care insurance into one deduction code. Employers will have to keep track of employee portions of health care expenses separately from coverage for dependents.
Employers will be responsible for providing monthly information on when an employee had health care coverage, and on if and when their family was covered. Having accurate start dates in the deduction and benefit code setup for the individual employee will be essential for generating accurate information.
4. Pay codes may need to be expanded; you need to track more hours.
An employee must be credited with an hour of service for each hour the employee is paid or entitled to be paid for the performance of duties on the job. Additionally, an employee must be credited with an hour of service for each hour the employee is paid or entitled to be paid because of vacation, a holiday, illness, incapacity, a layoff, jury duty, military duty, or a leave of absence.
Companies that pay lump-sum amounts for vacation, illness or any other absences will now have to break those down to numbers of hours.
In addition, the final regulations for the employer shared responsibility rules state that "special unpaid leave" may be defined as unpaid leave under the Family and Medical Leave Act of 1993, the Uniformed Services Employment and Reemployment Rights Act of 1994, or jury duty. When calculating hours of service for a look-back measurement period, the employer must treat special unpaid leave in one of two ways:
Determine the employee's average hours of service by excluding any periods of special unpaid leave during the measurement period and applying that average for the entire measurement period, or
Input hours of service during the periods of special unpaid leave at a rate equal to the average weekly hours of service for weeks that are not part of a period of special unpaid leave.
5. Capture dependent information if employee elects dependent (family) coverage.
If you look at Form 1095-C, you will see that you need to report on dependent coverage.
Each dependent is listed individually, so you will need to capture the needed information which, at a minimum, is dependent name, SSN or DOB.
The HR module of Microsoft Dynamics GP can capture the needed information.
Access to this information does not require full implementation of the HR module. The dependent information is tied to the employee’s Payroll record.
What’s easy to do next, and what's not
To be ACA-ready with respect to data collection, the changes you need to make in the Payroll module of Microsoft Dynamics GP are minimal. It's the report generation from calculations and analyses based on this collected data that you may need a system enhancement for in order to be ACA-ready with respect to filing with the IRS.
To learn more about the GP-Payroll add-on that Sypnio Software has for ACA formatting and analysis of payroll data, visit www.sypnio.com/products or download our brochure. The add-on is called ACA Reporting for Microsoft Dynamics GP.
For technical questions about this GP system enhancement, email [email protected] or call 815-656-4000.
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