ACA Mythbuster
By Meunier, Juliette | |
Proquest LLC |
Running Afoul of Mandate Can Spell Hefty Penalties
Does your organization use independent contractors? Does your medica] plan cover interns? Depending on your answer» in these questions, your company could face a potential liability accrual for exrise taxes arising from die Affordable Care Act (ACA] under FASS Accounting Standards Codification Topic 450, CsuhnfflKtes (previously FAS 5),
For the technology; consulting, media and ralcrtainmenl mduslrcr* iwhich have traditionally boosted their workforce with interns, temporary employees or contract employees], assessing ACA compliance risk can he especially tricky. Companies that hired independent contractors in place of regular employees, typically as a result of hiring freexes during die economic diiwnturn, have a similar challenge.
Considering the entire workforce composition according«) definitions ret by the ACA is critical to any risk assessment.
Hie wdl-pulilki/rd employer mandate requires many businesses to provide health insurance or pay an excise tax penalty. This penalty is difficult to assess, especially when contingent workers are involved, and it can be triggered even if a company offer» health insurance to mtwt or its employee*.
As CPAs, controllers or finance directora, you can take a critical step toward mitigating risk exposure. Let's consider some of the most common ACA myths and how you can help minimize the tax penally risk.
Myth 1 : Employers offering health care coverage to employees twill not incur ACA penalties.
While most employers arc aware or the ACA mandate, they may nul realize that *limply offering health insurance tkacs not necessarily satisfy the mandate, which applies to companies with at least 100 employees in ¿015 and 50 employees thereafter, iiVote; This is as of press lime. While the timeline for implementing senne of tile law's provisions Itas changed, the proviswina themselves have mol)
An emptoyer muai either offer health insurance to its full-iimc employees and dependents ra potentially face an excise tax. The taw defines a fiiU-timc employee as one who works ii| least 30 hours per wed!.
The good news is lhal starling in
The bad news is (hit lb Li margin of grace » id isolate; so an employer who mases die 5 percent threshold (30 percent Ln '¿015) by even one full-time employee could face a hefty excise tax of
For example, a company with 5,000 employees in 2016 that mistakenly docs not offer coverage to 251 full-time employees could be assessed an cxdsc tax of SI0 million.
While many companies offirr hriJdi insurance to its employees, high-risk groups (call eetiter staff, hourty employees, interns, inpatriaces, seasonal, temporary and contingent workers) arc typically not offered benefits. These group» may constitute an insignificant portion of a company's entire vraiidoreç when viewed individually, but they often exceed the 5 percent threshold when aggregated.
Myth 2 Employers can minimiza their ACA panalty risk by using temporary or coating ant workers.
Indeed, the opposite a truet Temporary or ccHitingcnt workers can increase the ACA penalty risk. That's because the AGA cmpEoyrr mándate applies to all full-time "common law" employees, a definition hared DO fart* and rircunusanrrs that can change throughout the duration of a worker's relationship with the company.
Correctly classilving a workforce is a complex exercise and many organizations Struggle. Hwvever, it'i critically LmporUnl because ntisdassifytng too many employees ju independent contractors may came ait employer to offer benefits to less than the requisite portion of its full-time employees.
Even if your company or clients luire written controls in place to account for contingent workers, business units sometimes circumvent them in the normal course of business. While this risk to companies is not a new one, the ACA i» shining 3 spotlight on the contingent worker arc»,
Given tin: potential for a material excise tax, this should be an area of significant focus of finance, internal audit and tax in preparation for the employer mandate, Now is tintime to review your control* to ensure dial workers are properly thurified und lise risk is mitigated.
Myth 3: Companies with robust Information technology system» can wait until 2015 lo gather information for
The AGA include* several reporting requirement* designed to enforce the employer and individual mándales, bill frv. IT syitcms are ready to generate the tremendous amount of required data, such as monthly munis of all fuU-timc employees and detailed information on covered individuals.
Data challenges include tracking actual hours rather than scheduled hours and tracking on a calendar month basis rather than on a payroll-by-payroll basis. Tracking interns, rehires, employe« on leaves of absence, as well as call center, hourly and temporary) or contingent workers can challenge even the most robust systems.
Given that the first month for gathering employee information for
To determine an employee's full-time status as of
Myth 4 : Human resources will handle ACA compliance, including FA KB ASC Topic 450. internal controls and responding to notices from state exchanges.
While human resources initially leads ACA couipliaiKe, an organization's Finance, tax and internal audit departments should al» take note because ihr excise tax could be material.
Under ASC 450 (previously FAS 5}, a contingent liability must be recorded on a company's financial statement if it's probable and reasonably estimable-, Because the amount of die potential ACA excise lax can be reasonably estimated, finance and accounting departments should assess, implement and document internal controls to demonstrate that the controls mitigate the risk of liability.
These controls can vary front company to company and can include information systems controls, scheduling con trois, manager overtime approval or control* around iti contingent workforce.
The company's internal audit function should also consider the risk presented by AGA compliance requirements and its role in testing compliance and related controls.
Furthermore, employees receiving affordable health coverage might still apply for premium credit* with the state exchange*. If so, employers will receive notices for which they have 90 days to respond. F-mptuyerx should designate an owner to implement a process of ensuring prompt and adequate response*.
Myth S: Startup and entrepreneurial bus in e ss e a don't need to worry about the ACA.
Employer* with fewer than 50 full time employees arc not subject to many aspects of the ACA, including the reporting requirements. Additionally, employers with more than 50, but les* than 100 liill-limr employees, have until Jan, 1,2016, to provide the necessary health coverage.
However, startup businesses face their own sets of risks. Smaller businesses without dedicated individuals serving the human resources, payroll or tax functions may be at a disadvantage when navigating the AGA's complexity.
Entrepreneurial businesses that are close to the threshold of 50 full-time employees face the risk of being deemed a "large employer." Butin «ses that do nc)t approach the large employer threshold may quickly grow beyond itEven if your company or clients are not considered large employers under the ACA, it is never too early to consider the act's implications, ft1
Top 5 Tips for ACA Compliance
1. Assess high-risk groups to ensure at least 95 percent coverage [70 percent lor 20151.
2. Review operational com rob regarding independent contractors.
3. Assess whether information systems must be modified to (rack actual hours sorting July 2QH.
4. Ensure appropriate ACA related internal controls are in place and effective a I the business unit level,
5. Engage finance, accounting, internal audit and IT aT oil stages o! the process.
More information can be found at www.calcpa.org/contenl/ACA.
Copyright: | (c) 2014 California Society of Certified Public Accountants |
Wordcount: | 1369 |
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