Affordable Care Act (ACA) reporting is a crucial part of employers’ compliance with federal mandates. It requires all Applicable Large Employers (ALEs), generally businesses with at least 50 full-time employees, to provide the IRS with detailed reports of the health care coverage they provide to their employees.
To help employers meet their reporting obligations, technology vendors have developed ACA reporting software that simplifies the process by automating calculations, generating compliance forms, and electronically filing them.
In this article, we shall highlight the top 4 types of ACA reporting software and explain why ACA reporting compliance should matter to you as an employer.
We also cover guidelines on the essential features of a sound software system, how the system works, and how to choose the right software for your business.
Let’s begin.
What is ACA Reporting Software?
ACA reporting software is a specialized digital tool designed to help employers comply with ACA requirements for tracking health coverage data, determining employee eligibility for benefits, generating Forms 1094-C and 1095-C, and submitting them electronically to the IRS.
The purpose of the reporting is for employers with more than 50 employees to provide proof to the IRS that they are providing affordable health coverage to their employees as mandated by the ACA.
ACA Reporting Software vs. Manual ACA Reporting
Manual ACA reporting involves manually filing forms, exporting your employees’ payroll or HR data, mapping your employees’ health coverage, checking for errors, and handling IRS e-filing.
Although manual ACA reporting has initially low costs since you do not need to buy any software, you can use existing software such as Microsoft Excel, it eventually leads to indirect high costs.
This is because manual reporting is time-consuming and error-prone, and it provides no alerts for compliance changes or issues, which can lead to missed deadlines and, consequently, hefty penalties.
On the other hand, ACA reporting software automates most, if not all, of the tasks required for full compliance, such as:
- Form generation
- Real-time eligibility tracking
- Schema validation before filing
The automation helps reduce the risk of human error, saves time, allows your HR team to focus on other tasks, and integrates with existing HR and payroll systems, facilitating a smooth data flow.
ACA reporting software also alerts you to material changes in regulatory requirements and flags issues, helping you avoid penalties by ensuring you make the correct filings and meet deadlines.
Why ACA Reporting Compliance Matters for Employers
ACA reporting compliance matters to employers because of the perceived benefits, including avoiding legal issues.
Below are several reasons why ACA reporting compliance should matter to you:
- Avoiding Penalties: If you do not meet the ACA reporting mandates, you risk exposing your company to IRS penalties, which increase annually for each missed deadline or incorrectly completed form.
- Avoiding Audits: Accurate reporting helps your business maintain employee tax compliance, thereby significantly reducing the risk of an IRS audit.
- Complying with Legal Mandates: The ACA requires employers to provide affordable minimum essential coverage to their employees and to provide the IRS and their employees with detailed reports on the same.
- Accurate Record Keeping: ACA reporting compliance helps you improve your record-keeping and data-gathering practices by requiring precise tracking of employee hours and benefits eligibility.
- Protecting Company Reputation: Once you establish a record of consistent compliance, you build trust with your employees and concerned government institutions. This helps you avoid legal issues arising from failing to provide mandated benefits, which can, in turn, cause severe reputational damage to your business.
Essential Features of ACA Compliance Software
The ACA compliance software of your choice should have the following features:
- Automated Employee Tracking: The software should automatically track your employees’ work hours and their benefits eligibility.
- Data Integration: The software should seamlessly integrate with your HR or payroll systems to retrieve the data needed to ensure compliance.
- Form Generation: It should automatically prepare, file, and furnish the IRS and your employees with IRS-compliant forms 1094-C and 1095-C.
- Data Quality and Security: The system should ensure accurate data processing and have adequate security protocols to protect your employees’ sensitive data.
- Risk Assessment: It should identify gaps and liabilities in your compliance protocols and notify you so you can make appropriate adjustments before they become costly issues.
- Customizable Dashboards: The software should provide real-time insights into your compliance status, key metrics, and highlighted deadlines to avoid late filings.
- State-Specific Reporting: If your business operates in a state with unique filing requirements, such as California, New Jersey, or Rhode Island, you should select compliance software that supports those requirements.
How Employers Use ACA Reporting Software in Practice
ACA reporting software is critical for employers to comply with the Affordable Care Act (ACA) and reduce administrative burden.
Below, we shall discuss how companies use these tools to help you select the best solution that fits your plan’s needs:
Software Integrated with Payroll
Employers using major payroll platforms such as ADP, Rippling, or Paycheck use this software to pull payroll data. The tool automatically pulls data such as wages, benefits eligibility, and employee hours and uses it to complete the 1095-C form for federal reporting.
Small to mid-size employers often use this approach to minimize the manual effort by the HR to fill in benefits data manually or reconcile payroll. However, while these options allow IRS filings to be made electronically, they often offer limited flexibility when handling complex benefit plans.
Software with Benefits Consultants
Another common option is using ACA reporting software managed by benefits consultants. In this model, there’s collaboration between the employer and consultant using the software platform.
There is help with prefiling, division of responsibility, compliance support, and integration of data in the workflow.
Software Managed by External Compliance Experts
Employers with complex benefits structures or a limited HR team can choose to fully outsource their ACA reporting to external compliance experts. The experts handle the end-to-end management of compliance.
A great example is Ethos Benefits, where we leverage benefits administration technology and provide expert guidance on plan design, employee eligibility, and compliance.
Note: There are particular scenarios where ACA reporting software alone isn’t enough, which are:
- Multi-state Filings: If you have employees across multiple states, you may encounter complex issues that software alone might not account for, including each state’s reporting forms, unique filing deadlines, and compliance requirements.
- IRS Penalty Letters: ACA software can flag some errors, but it can’t help resolve disputes or respond appropriately to IRS penalty letters.
- Rapid Hiring or Layoffs: When a company is experiencing changes in the workforce, it can face challenges such as eligibility calculations mid-year, and there is an increased risk of filing errors. Software might not adjust for these changes with expert guidance.
- Complex Benefits Structure: If you’re an employer offering multiple plan benefits, tiers, and have different contribution schemes, you might face ACA reporting complexities that standalone ACA software might struggle with.
If you’re facing these issues, standalone ACA reporting software cannot help, as it’s designed to boost efficiency and automate repetitive tasks. Therefore, you must have comprehensive oversight to streamline your employee benefits.
Partner with Ethos Benefits, where we combine automation and human expertise to deliver customized solutions for your specific plan structures. We monitor changes in your workforce, reconcile reports in real time, and ensure accurate filings, even during periods of great organizational change.
Book a discovery call, and let’s combine software with expert guidance to achieve regulatory compliance and seamless benefits management.
How ACA Reporting Software Works
ACA reporting software ensures your business makes the required IRS submissions to remain compliant.
The software solutions follow the steps highlighted below:
- Data Collection and Tracking: It imports your payroll and HR data to capture your employees’ work hours, salaries, and benefits for the entire year.
- Employee Eligibility Monitoring: The system applies eligibility rules and safe-harbour logic by tracking your employees’ hours to identify full-time staff and determine whether they qualify for full coverage.
- Automated Calculations: The software calculates the affordability of the coverage you provide to your employees based on IRS criteria.
- Form Generation: Automatically generates IRS Forms 1094-C and 1095-C.
- E-Filing and Distribution: The system then submits the forms electronically through the IRS ACA Information Return (AIR) system. It also ensures your employees receive copies of the submitted forms.
How to Choose the Right ACA Reporting Solution
Choosing the right ACA reporting software is crucial because it affects your ability to comply with ACA mandates and can increase your risk of penalties.
To make an informed decision on the matter, consider the following:
- IRS Approval: Ensure the platform you use is an authorized IRS e-filer with a transmittal control code for the IRS AIR system.
- Expertise: Use software from vendors who have in-house ACA specialists who understand evolving laws and therefore can contribute to the design of user-friendly and mandate-compliant systems.
- Business Size and Complexity: Consider your company’s size and needs, including compliance challenges and payroll and HR data sources. If you run a large company, you may prefer enterprise-level software; conversely, if you have a smaller business, simple platforms are better suited.
- Data Integration: You want a platform that seamlessly integrates with your other software solutions, such as payroll and HR tools, to ensure it pulls accurate data from your systems and eliminates manual entry.
- Compliance Support: It should have real-time dashboards and alerts to reduce risks to your business. The platform should also provide access to experts beyond technical support to help you maximize the healthcare value.
- Updates and Scalability: Ensure the vendor you pick promptly updates their software whenever there are changes to the ACA mandate. The platform should be able to handle your business needs as they grow.
- Cost Structure: Consider the pricing models of each software solution. Evaluate whether a subscription or licensing deal works best for your company.
Frequently Asked Questions (FAQs)
Below are answers to some common questions about ACA reporting:
What is the ACA Reporting Software Cost Per Employee?
ACA software cost per employee depends on the number of 1095-C forms filed, your federal and state filing requirements, whether it offers print or mail services, and whether it offers data validation features.
How Often Do ACA Software Updates Occur?
ACA software updates generally occur annually to align with the IRS reporting deadline for forms 1095-C and 1094-C.
How Long Does ACA Software Setup Take?
The average time it takes to set up an ACA software depends on the size of your organization, the interface of the tool, and the team handling the setup.
Conclusion
ACA software automates reporting, but many employers pair it with fiduciary-focused consultants like Ethos Benefits.
At Ethos Benefits, we are employee benefits consultants who help companies maintain compliant, transparent benefits programs for their employees. This includes selecting the right ACA reporting software to reduce administrative burdens, screening employees for benefits eligibility, and ensuring proactive benefits renewal to avoid last-minute rushes.
Book a no-obligation consultation to see if we are a good fit.
