12 Reasons Not to Use Your HRIS or Payroll Software for ACA Reporting

When it comes to preparing for the Large Employer Mandate in the Affordable Care Act (ACA), many companies rely on either their payroll software or HRIS vendor to take care of it. After countless implementation calls with our ACA clients, it continues to be painfully clear that payroll vendors are not telling their clients the reality of the situation with the Affordable Care Act.

The IRS updated their Internal Revenue Manual (IRM) to include 1095-C and 1094-C compliance as a part of their general audit rules, meaning ACA compliance is officially a part of the “Required Filing Check”.

1. Your data is incomplete or inaccurate.

“Accuracy in hours worked” just isn’t something you’ve been focused on tracking. Before ACA, the only focus of your payroll software vendor analysts has been to pay your employees the correct amount of money, and to hold back the correct amount for taxes, medical deductions, etc. However, when it comes to ACA reporting, accuracy in hours worked is a vital part of the overall picture.

And to be clear: scheduled hours is not “actual hours” in the eyes of the IRS.

2. Last year’s hours still count.

Unless you have a non-calendar benefits year, your payroll data from November and December of the previous year will need to accurately track benefits eligibility for ACA. This is an important point when converting to a new HRIS/Payroll software.

3. Your payroll software vendor can’t certify the accuracy of your look-back period.

Your results can’t be certified as accurate if you do not track the three types of federally protected unpaid leaves of absence critical to your data tracking while performing a look back.

4. They don’t know which ACA category your employees fall under.

The ACA has different rules for various categories of employees, and the categories can be vast and numerous. Among these are:

• Full Time
• Part Time
• Variable Hour
• Seasonal Employees
• Seasonal Workers
• Volunteers
• Bona Fide Volunteers
• Adjunct Professors
• Airline Pilots
• Commissioned Sales People
• Student Workers

HRIS and payroll vendors are not experts at knowing the differences between these types of employees and how each impact healthcare benefits offerings, eligibility, and affordability.

5. IRS 6055 and 6056 reporting requires more data than HRIS and payroll software vendors are prepared to capture.

There are data requirements that aren’t normally captured or considered within payroll systems. Failure to maintain a full audit trail or not tracking changes month-by-month means 6055 and 6056 data reporting will likely be impossible. For example, the IRS requires you to print and file Dependent first, middle, and last names as separate and distinct fields.

6. They’re not prepared to help you assess affordability on union or collective-bargaining plans. 

Affordability rules for guaranteed benefit payments to unions are very complicated and require a level of analysis that wasn’t previously required and isn’t tracked. A payroll vendor isn’t equipped to deal with these changes. In addition, handing out transition relief for a union plan is only allowed if you certify the union is offering affordable coverage that meets ACA requirements.

7. Incomplete data means your payroll software vendor can’t use 2 of the 3 affordability safe harbors.

It is impossible to use the Federal Poverty Level or Rate of Pay safe harbor appropriately without knowing an employee’s exact work location, lowest self-only monthly plan for each individual employee, or day-by-day history of hourly rates or salary.

8. University clients will be the last to be compliant and first to be audited.

The ACA rules for school districts and universities are very complex. The amount of rigor required by payroll analysts is catching everyone off guard and creates a perfect environment for regulatory mistakes, such as:

• Adjunct professors need to be measured throughout the prior school year to determine a credit hours rate.
• Student workers need their hours tracked based on whether work is under a federal grant.
• Coaches working on a stipend need their hours tracked.

So far, over thousands of penalty letters have been sent to employers for non-offers during the 2015-2017 tax years. Universities and other educational entities were included in this audit, facing stiff penalties for non-compliance.

9. They may help you assume or estimate the number of hours for an employee – but that’s not legal.

Part time office assistants may only be scheduled for 25 hours, but if you know they are regularly working more (or fewer) hours you can’t make assumptions for a standard number each month and squeak by using the monthly or weekly look back/measurement period. It’s against the law.

10. HRIS and payroll software vendors haven’t been investing in their software.

It’s no surprise that the political climate and calls to repeal ACA means HRIS and payroll vendors stopped adding new technology around the time President Trump was elected. There continues to be a lack of functionality to handle:

• Letter 226J research and response generation
• Handling corrections and refiling across multiple tax years
• Updated Dependent name requirements for 2018-forward
• Updated IRS Internal Revenue Manual (IRM) audit procedures

11. ACA compliance is not the primary function of HRIS and payroll software.

If your HRIS and payroll vendor offers low-cost reporting, or bundles it with the software, they’re expecting you to be the expert. They will expect you to understand every nuance of the law, and you’ll be the one held accountable and responsible for the results. The ACA law is very clear: third parties are not responsible for mistakes. Don’t put yourself in harm’s way by dealing with someone who is less than an ACA expert. 

12. Few HRIS or payroll software systems are supporting State Mandate Reporting.

To date, California, the District of Columbia, Massachusetts, New Jersey, Rhode Island, and Vermont have passed their own state mandates and additional states are looking at similar legislation. Companies are finding it difficult to keep up with the different regulations and reporting requirements for each state. Even if one employee files taxes in one of those states, you must comply with that state’s mandate, as well as be ACA compliant at the federal level. Most HRIS and payroll systems are not prepared for state individual mandate reporting. 

What’s Next?

Learn more why HRIS and payroll software are deficient when it comes to ACA reporting: eBook: Top 3 Things Missing From Your HRIS and Payroll ACA Solutions.

For the latest information on State Mandates, check out our Complete Guide to State Individual Mandates.

The easiest to achieve more accurate ACA reporting is to work with a specialized ACA vendor that offers robust, standalone software and expert services to keep you compliant. You should also verify that your vendor checks off all the key ingredients to mitigate your ACA penalty risks. Check out our ACA Checklist for more details on how to evaluate a vendor.

We offer a full-service ACA Compliance & Reporting solution and specialize in large, complex businesses. Our software was created to manage ACA reporting and our experts are focused on the ACA. Learn More About our ACA Compliance & Reporting Solution.