The Affordable Care Act and Timekeeping

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Although the Obama Administration recently delayed enforcement and reporting requirements of employer penalties under the Affordable Care Act (ACA) until 2015, businesses should use this extra time to better prepare.  As an employer, you need a full understanding of how the law impacts your business and you must plan for the law’s implementation.  How does timekeeping come into play?  Employer status.  The number of full-time employees you have on staff determines your employer status.  This status classifies you as either a large or small business and establishes whether you are required to provide health insurance under the ACA’s requirements.  Tracking whether your employees are full or part-time by manually counting hours is time-consuming, cumbersome, and rife with error.  A timekeeping software solution is a small investment with a large return – it makes payroll execution easy, eliminates user error, and prevents penalties for ACA non-compliance.

What is the ACA?

The ACA’s intent is to increase the quality and affordability of health insurance, to lower the uninsured rate by expanding public and private insurance coverage, and to reduce the costs of healthcare for individuals and the government.  A significant component of the ACA is the requirement of employer-sponsored health plans.

Employer Status

Are you a large or a small business?  50 is the magic number.  If you employ less than 50 full-time (FT) or full-time-equivalent (FTE) individuals, you are considered a small business and will not be required to offer health insurance coverage.  If you employ 50+ full-time individuals, you are required to offer affordable health insurance or pay tax penalties.  An employee is considered full-time if he/she works over 30 hours a week or 130 hours a month.  The number of full-time-equivalent  employees is calculated monthly.  Take the sum of part-time (PT) employee hours worked (all employees with less than 30 hours per week) and divide the total number by 120.

EXAMPLE:
FT employees (≥40 hours/week) =40
PT employees (≤30 hours/week) =30

FTE Calculation:
2,700 (Total PT hours for 1 month) / 120 = 22.5 FTEs

Result:
40 FT employees + 22.5 FTEs = 62.5 Total FT employees

Classification: Large Business

Calculating your total full-time employees and determining your employer status will establish your employer-sponsored health care plan responsibility.   Each month’s full-time employee calculation will fluctuate, which is why your review is completed by tabulating employee hours in a self-designated “look-back period”.   Why rely on data pulled from manually kept records when the stakes are so high?  An automated timekeeping solution will make the “look-back period” tabulation quick and accurate.

Look-Back Period

During the transition year of 2013, you can choose any consecutive 6-month period as the “look-back period” for calculating your employer status. This calculation requires accurate records of how many hours each employee works for the months you choose.  If you are using a manual method to account for your employees’ time worked, you open yourself to significant penalties for errors.  Your numbers need to be accurate, and you need to show evidence through documentation.  These reports are only as good as the data you enter – if you are manually keeping track (a process prone to human, data-entry errors) your data will be corrupted.

You are required to keep payroll records, but they do not have to be hard copy.  Having a timekeeping solution allows you to keep the required amount of data for the required period of time.  Employee time sheets must be kept for three years, W-4 forms must be kept between 5 to 6 years, and payroll registers must be kept for four years.  Additionally, these records must be open for inspection by the Wage and Hour Division’s representatives.

Review:

  • Count all paid hours – including paid time off (PTO) for vacations, illness, etc.
  • Complete separate employee counts for each month (see previous calculation) of the chosen 6-month period
  • Add all FT and FTE employees monthly totals and divide by 6
  • Determine your employer status
  • Keep your records
  • Comply with the ACA regulations 

Compliance

As the deadline for ACA implementation draws nearer, many companies are trying to determine which is more expensive: health care coverage for all employees or the tax penalty for non-compliance.  The penalty for non-compliance per year is $2,000 for each full-time employee (minus the first 30 FT employees).

Fortunately, your company’s full-time equivalent is ONLY used to calculate your employer status and not included in calculating the amount you would pay in penalties.

Penalty Calculation:
40 Total FT employees – First 30 FT employees = 10 FT employees at risk of penalty

Result:
10 FT employees X 2,000 Penalty = $20,000 Total fine

If your employer status borderlines between small and large and you choose to not offer employer-sponsored health coverage for your employees, the risk of penalty is high if you continue to track employee hours manually.  Why place your company at risk of fines when an automated timekeeping solution will easily and accurately track your employees’ hours?  There is no need to open the door to IRS audits, federal penalties, and wasted time administering a manual timekeeping method.

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Prepare

Yes, your business has more time to comply with the ACA requirements due to the recent delay.  However, this extra time was provided by the Obama Administration for the specific purpose of preparation.  Your company now has time to implement an automated timekeeping solution that will assist you in tracking your employees’ time worked – resulting in an accurate accounting of hours used to calculate both full-time employees and full-time equivalents.  Both calculations are integral to your employer status which will determine your responsibility as an employer to provide affordable healthcare coverage.

Improve your company’s timekeeping process by transitioning from a manual method to an automated solution.  This solution should be easy to set up and should offer daily management of employee timecards.

Find a solution that helps meet ACA guidelines and provides the following advantages:

  • Reduced labor costs through higher efficiency and more accurately tracked employee hours.
  • Increased productivity by eliminating payment for late arrivals and early departures.
  • Easy reporting for data analysis to help you comply with the ACA provisions.
  • Easily imports to payroll.
  • Prevention of employee time theft by eliminating “buddy punching.”
  • Simple hardware set up.
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Brian Sutter

Brian Sutter

Director of Marketing at Wasp Barcode
Brian Sutter is the Director of Marketing at Wasp, responsible for the development and execution of the company’s marketing strategy. His role encompasses brand management, direct and channel marketing, public relations, advertising, and social media. He also writes and speaks on topics related to helping small business owners grow their business and improve operational efficiency.
Brian Sutter
Brian Sutter