ACA Compliance for Small Businesses: The Challenges and Opportunities

Small businesses face what seems like a never-ending list of to-dos to keep their companies in compliance with laws and regulations, and managing changes associated with the Affordable Care Act (ACA) is high on that list. It is important for small business owners to understand what areas of the ACA apply to them, how they must comply and the potential penalties for noncompliance.

Small business employers may still have questions about how the ACA could impact their business as new provisions continue to become effective and the guidance evolves.  In fact, an ADP Research Institute® study found that only 26 percent of small companies felt “very confident” or “extremely confident” that they understood their responsibilities regarding ACA compliance.

This makes sense, given the number of provisions that have rolled out since the Act was signed into law in 2010.  And, as you might expect, more are coming down the pike.  For example, new IRS rules require that, beginning in early 2016, certain businesses must annually report data related to health plans they offered to their employees.

Different rules apply to different-sized companies.  For those offering health care benefits, which many small businesses do, the following health insurance requirements now apply, regardless of business size:

• Plans that are not grandfathered need to cover preventive care without cost-sharing
• There is a ban on exclusions for pre-existing conditions
• Coverage must be offered to dependents up to age 26
• Coverage waiting periods are limited to 90 days
• Rescissions are now prohibited (i.e., coverage cannot be terminated during the policy term except in cases of fraud or intentional misrepresentation of material fact)
• There are new annual limits on employee salary reduction contributions to Health Flexible Spending Accounts
• Annual and lifetime dollar limits on essential health benefits are prohibited and cost-sharing limits apply
• In 2018, there will be an excise tax on high-cost plans

Although small employers may be exempt from some of the penalties associated with the Employer Shared Responsibility provisions under the ACA (described below), should their workforce grow in size, making them an Applicable Large Employer, there may be some penalties that would apply to them for noncompliance.

• Employer Shared Responsibility: Small employers bordering on the threshold of 50 full-time and full-time equivalent (FTE) employees need to closely monitor their workforce because if they reach the threshold and do not provide full-time employees with health care coverage during the next year, they could face significant penalties (also known as the Employer Shared Responsibility Payment or “Play or Pay” penalty), described below.
• Minimum Essential Coverage: Businesses with 50 or more full-time and FTE employees are generally considered Applicable Large Employers (ALEs) and face specific requirements under the ACA. For example, these employers generally must provide minimum essential coverage that is affordable and provides minimum value to their full-time employees and their dependents or they could face a penalty. Additionally, ALEs will generally be required to report on their 2015 offer of health care coverage by preparing and remitting Forms 1094-C and 1095-C to the IRS and providing a copy of 1095-C to full-time employees. Violations of these reporting requirements may result in penalties.  Note: Non-ALEs with self-insured health plans also have reporting requirements (Forms 1094-B and 1095-B).

So what’s a small business to do?

It is important to note that the ACA includes incentives to help mitigate the impact on small businesses. One of these is the Small Business Health Care Tax Credit. In general, employers are eligible for a tax credit if they have fewer than 25 FTE employees during the tax year, the employees’ annual compensation averages less than $51,600 for the 2015 tax year, the employer pays at least 50 percent of the total employee-only premium costs to provide health-care coverage and the employer purchases the plan through the Small Business Health Options Program (SHOP) Marketplace.

Of course it’s very important that employers of all sizes understand what rules apply to them and what they need to do to comply with the requirements of ACA to avoid potential financial penalties. Some may find this easier to do than others, as accurately tracking and integrating employee data and completing annual reporting can be complicated and time consuming for any sized employer.  Partnering with a third-party expert can help a small business better determine the right path for their company, remove some of the administrative burden and allow business leaders to focus on what really matters: building their business.