Dealing with the complexities of the Affordable Care Act (ACA) is a reality for many small businesses in the United States. While the intention of the ACA is commendable, the number of administrative intricacies involved in its reporting often proves challenging for small businesses.
Payroll teams and human resources departments often feel overwhelmed by the fine details of form submissions and compliance checks, which demands precision, understanding, and timeliness. One slight misstep or oversight can lead to an IRS penalty or compliance problems.
In a previous post, we briefly discussed some mistakes that could lead to ACA penalties, but this blog post dives deeper into the traps that may trip up small businesses during ACA form preparation and submission. Unnecessary mistakes can be avoided, and ACA reporting can become a seamless part of your business operations if you know what to watch out for and how.
5 Common ACA Form Mistakes SMBs Make
Let’s dive into the most frequent ACA form mistakes made by small businesses and find out how to avoid them:
1. Failure to Perform an Aggregated Employer Group Analysis
A common oversight by employers is failing to include all employees across every business entity when determining their company’s Applicable Large Employer (ALE) status under the ACA. Remember that every employee, regardless of their role or location, is essential for correctly calculating your ALE status.
Many businesses may not meet the ALE threshold individually, but when grouped together, they form an ALE and must comply with the ACA’s Employer Mandate. We discussed the ACA Employer Mandate in a previous post.
To avoid this mistake, small businesses should consider outsourcing their ACA compliance to a reputable vendor specializing in this area. These vendors have the expertise to accurately perform the Aggregated Employer Group Analysis and ensure compliance with ACA responsibilities.
2. Incorrect Application of IRS-Approved Measurement Methods
Another common mistake is applying the incorrect IRS-approved measurement method when determining the full-time status of employees. The two main measurement methods are the Look-Back Measurement Method and the Monthly Measurement Method. Each method is suitable for different types of workforces, and using the wrong method can result in inaccurate reporting and potential penalties.
To avoid this mistake, small businesses should carefully assess their workforce and determine the most appropriate measurement method. For example, businesses with predominantly full-time employees who work regular schedules are better suited for the Monthly Measurement Method. On the other hand, businesses with high variable-hour workers may benefit from using the Look-Back Measurement Method.
3. Misclassification of Employees
Misclassifying employees can have significant consequences for small businesses. Understanding the different employee classifications under the ACA, such as full-time, part-time, variable-hour, and seasonal, is crucial. Each classification has specific implications regarding eligibility for health coverage and other ACA requirements.
Small businesses should regularly review and update employee data to prevent misclassification errors and ensure accuracy and consistency across all platforms. This includes payroll, time and attendance, and benefits databases. By maintaining up-to-date and accurate employee information, businesses can avoid missing offers of coverage to eligible employees and potential penalties.
4. Neglecting to Consider Health Benefits
Small businesses must carefully consider the details of the health plans they offer to employees. Documentation should be available to substantiate the health plan’s quality, cost, and eligibility. It is crucial to comply with ACA requirements and provide accurate information regarding the coverage offered, including flex credits, opt-out payments, and health reimbursement arrangements.
To avoid errors in reporting health benefits, small businesses should maintain comprehensive records of their health plans and ensure consistency in their documentation. Regularly reviewing and updating this information will streamline ACA reporting and minimize the risk of penalties.
5. Inaccurate Tracking of Employment Periods
Accurate tracking of employment periods is vital when determining ACA full-time status. Small businesses must carefully record hire dates, rehire dates, termination dates, and any breaks in service. This information is critical for calculating an employee’s full-time status accurately.
Small businesses should implement a robust system for recording and maintaining employee data to prevent errors in tracking employment periods. This system should include mechanisms for tracking changes in employment status, leaves of absence, and rehires. By accurately tracking employment periods, businesses can ensure compliance with ACA requirements and avoid penalties.
Avoiding ACA Form Mistakes and Ensuring Compliance with IRS Requirements
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