How to avoid Affordable Care Act penalties

A recent survey of 244 HR professionals by Trusaic showed that 78 percent of respondents were confident or very confident that they were fully compliant with Affordable Care Act legislation. That sounds like great news. Unfortunately, an alarming one in four said they had received penalty letters from the IRS. 

The trouble with ACA penalties is that they can be massive. If an employer fails to meet the 95 percent threshold for offering minimum essential coverage and one employee who should have been offered coverage obtains a premium tax credit from a government exchange, then the penalty is nearly $3,000 multiplied by the total number of employees. You can do the math yourself on how much financial risk your organization faces.

Another concern is that, surprisingly, there is no statute of limitations on ACA penalties. The IRS can come after you for mistakes made years ago.

Hotel Industry Concerns

ACA compliance problems often arise around variable-hour workers. Employers are required to measure the number of hours of service each worker accrued over the course of a specifically defined measurement period to see whether the worker requires an offer of health coverage. This can be hard to do if the technology and processes that are in place have not been strategically thought through to conform to the organization’s operating structure. Note that the ACA legislation provides different options for the time measurement period, so a related concern is knowing which method is appropriate for your situation.

A second concern is locations with high turnover. The ACA contains a provision meant to help employers dealing with employees who come and go called the rule of parity. Unfortunately, this theoretically helpful rule can cause problems because it is complicated—and if hotels don’t get the right advice, then they may apply it incorrectly.

A third issue is a lack of cooperation from employees who decline coverage. The IRS wants proof from an employer in cases where an employee eligible for coverage declines it. For employers relying on paper processes, this means the HR department is relying on the employee to return the appropriate form showing that they declined coverage. Returning such a form is not a top priority for some employees and this can create problems for the hotel.

Risk Factors and Risk Mitigation

“The ACA is one of the biggest compliance liability risks an organization faces," said Maxfield Marquardt, Trusaic’s senior counsel and director of regulatory affairs. "Fortunately, all of the risks can be effectively mitigated with the right responses.”

The table below outlines some common risk factors and how to mitigate them.

 Risk Factor

How to Mitigate that Risk

Treating ACA compliance as an annual process giving the organization no chance to catch and correct mistakes made earlier in the year.

Doing monthly ACA reports to ensure all employees who require an offer of coverage are receiving it.

Inadequate software that does not capture the data you need to ensure compliance.

Recognize that a payroll vendor's ACA module may have been an add-on with limited capability because it’s not the main purpose of the software.  If your software isn’t providing the data you need then upgrading to more capable software is unavoidable. Check out available vendors and budget for it.

Misunderstanding the legislation.

There is no question that ACA legislation is both complex and confusing. If you don’t have deep expertise in-house then find an external expert who lives and breathes ACA legislation and can advise you on tricky situations.

Thinking that all you need is a compliant plan.

It’s relatively easy to create a compliant plan and most organizations have one. That’s not the difficult part, the difficult part is delivering that plan. If you feel there is any chance that the plan is compliant, but the execution is not, then you need to urgently review your technology, processes, and/or the work of an outsourced vendor to ensure you are not at risk.

Some Good News

Leaders may be unhappy to learn that the difficulties and risks of ACA compliance are potentially much greater than they thought. However, compliance isn’t a headache for everyone. A survey from Trusaic showed 27 percent saying ACA compliance was not burdensome. If your workforce consists of relatively high-wage, full-time, white-collar employees—all of whom are offered health coverage as a matter of course—then ACA compliance is unlikely to be a problem.

Another piece of good news is that the cost of outsourcing to a vendor who can completely take the problem off your hands may not be that different from what organizations are spending now. Trusaic research showed that almost 70 percent said they spent 80 hours or more a year on ACA compliance. Any organization spending that much time might well find they can afford to use an outsourced vendor.

It’s true that compliance is often hard, however with the right people, technology and processes it is entirely possible to get it right and have very little risk of facing a penalty.

Looking to the Future

What does the future hold? Leaders need to be aware that, up until 2021, the IRS was operating under a good faith policy. This meant the IRS would not assess penalties for minor reporting errors. That good faith period has now ended. The IRS is also getting better at catching organizations that fail to meet their ACA obligations, which means that things are getting worse for hotels that don’t have good compliance policies, systems and processes in place.

ACA compliance is not just yet another set of reports HR needs to submit. For many employers, it’s a complicated process that comes with significant financial risk. Leaders in the hotel industry need to audit their processes so that they are confident this risk is being managed effectively.

John Ford is executive vice president of product and revenue for Trusaic.