Articles & E-Books


How HCM software makes ACA reporting so much easier

Nov 11, 2019

By Chris Riba and Dana Handel

If you’ve been in charge of your organization’s Affordable Care Act (ACA) reporting any of the past few years, you know how complex it can get. Calculations, codes, safe harbors, insurance types, dependents — there’s a lot that goes into ACA reporting and a lot that makes it very time-consuming. 

We’re going to dive into how a human capital management (HCM) software tool helps streamline ACA reporting, not only saving you valuable time but also providing a host of added benefits.

But first, let’s talk about ACA reporting requirements.

What is ACA reporting?

The IRS requires all applicable large employers that employ over 50 or more full-time equivalent (FTE) employees to perform ACA reporting each year. A full-time equivalent employee is anyone who works 120 hours or more per month. This equals out to around 30-32 hours per week.

The reporting is done on two separate forms: the 1094-C form and the 1095-C form.

The 1094 form is basically a cover sheet for the 1095. The 1094 form will show the IRS an overview of the insurance that is offered to employees. It will indicate the total number of employees, full time employees and whether the insurance offered is affordable. 

The 1095 form goes further in depth regarding — if the employee enrolled in the health coverage — how affordable the coverage is for the employee and if their dependents are to be reported on the plan with the months they were enrolled in coverage. 

ACA reporting penalties

Many employers don’t know if they qualify as an applicable large employer, while others are unsure how to perform the required calculations.

It’s important to understand the penalties for not doing ACA reporting. There are two types.

The type A penalty is the big one. It applies when an employer is an applicable large employer and doesn’t offer their employees health insurance. They get penalized for the failure to offer insurance and a penalty for each employee they didn’t offer insurance to, for every month they didn’t offer the insurance. As you can see, it could be a fairly substantial penalty. 

The type B penalty is where the employer is offering insurance, but it’s not minimum essential coverage, minimum value or affordable to the employee. In these situations, the employer is penalized for offering a subpar plan or a policy that isn’t affordable (meaning the employee has to go to marketplace for subsidized coverage). The employer is then penalized per employee per the amount of time the employee had to get subsidized coverage. 

The difference HCM software makes

An HCM system makes a huge impact on your organization when it comes to ACA reporting. With this tool, employers can track ACA reporting information by month. The software takes into account your benefits package and eligibility requirements and automatically determines enrollments based off of look-back periods, coding and safe harbors, and then generates the 1094-C and 1095-C forms.

HCM software also allows employers to monitor their ACA reporting throughout the year. This is a valuable feature, as the system will let employers view how affordable their insurance is throughout the year as well as when an employee becomes eligible for coverage. Because the HCM reports will also show the potential penalty amount at any current time, this could greatly reduce an employer’s potential for penalties at the end of the year. 

Plus, the tool automatically kicks off open enrollment for employees when they become eligible. And the tool doesn’t just notify you when an employee becomes eligible; it also lets you know if an employee’s eligibility drops and they become part-time. 

When it comes down to it, HCM software provides you with information proactively, not reactively. It’s an integrated solution that incudes your payroll and benefits, allowing you to keep all your employee-related information in one central place and eliminating the need for many siloed software programs that don’t talk to one another. 

Lastly, it eliminates a huge amount of manual labor, saving you time, reducing the chances of making errors and streamlining the employee experience.

If you’d like to learn more about how HCM software can change your business, reach out to our team. Or keep reading on:

6 Benefits of Streamlining Your Open Enrollment Process

How Streamlining Human Capital Management Improves Your Business Operations