ACA compliance review: requirements, guidelines, and reporting

Understanding worker classifications

First things first: To determine if your business falls under the ACA employer mandate, it’s important to understand how the IRS classifies workers.

Here’s why: Under the ACA’s employer mandate, also known as the employer shared responsibility provisions, applicable large employers (ALEs) must provide group health insurance to at least 95% of their full-time employees. The employer-sponsored health plan must meet the minimum essential coverage requirement, which is “affordable” and offers “minimum value.”

Every year, the IRS determines which employers are considered an ALE. Currently, any employer with 50 or more full-time employees, including full-time equivalent (FTE) employees, is an ALE and subject to the employee mandate. Employers with fewer than 50 FTEs don’t have to meet the ACA’s SMB health insurance requirements.

Full-time employees vs. part-time employees

When classifying workers, there are two main categories:

• Full-time employees
• Part-time employees

A full-time employee is anyone who works at least 30 hours per week or 130 hours per month. A part-time employee is anyone who works fewer hours than the full-time threshold.

ALE calculations for part-time employees convert their hours to full-time equivalent hours. The Affordable Care Act uses the full-time equivalent metric to determine workforce size. An FTE employee doesn’t have to be a single person working full-time. It can be a mix of part-time employees who when combined put in the same number of hours as one full-time worker.

To calculate FTE employees, first add up all the hours your part-time employees worked in a month. Take that total and divide it by 120. This is your total FTE figure for the month. Then add this to the number of full-time workers.

Use this formula to determine if you qualify as an ALE or not:

Number of full-time and FTEs for the month = (total part-time hours in a month / 120) + the number of full-time employees.

Although your part-time employees’ hours determine if your business is an ALE, you are not required to give these workers health insurance.

Seasonal workers and interns

You must count all employees when determining if your business is an ALE, but there’s an exception for seasonal workers. A seasonal worker is an employee who works for a company on a seasonal basis, such as retail workers hired only for the holiday season.

Your company is not considered an ALE if your workforce exceeds 50 full-time employees for 120 days or fewer during a year and the employees exceeding that number are seasonal workers.

Under the ACA, interns who meet the full-time hour threshold will require health coverage unless they work less than 90 days or are considered seasonal workers.

Minimum essential coverage: what employers need to know

ALEs must offer affordable minimum essential coverage or qualifying ACA-compliant health coverage. There are two components that an employer health plan needs to meet: affordability and minimum value.

Affordability

For 2025, the lowest-priced healthcare plan option or self-only coverage cannot cost more than 9.02% of an employee’s total household income. Since you may not know your employees’ household incomes, you can measure affordability in three ways:

1. Form W-2 Wages: Premiums don’t exceed 8.39% of box 1 in an employee’s W2.
2. Federal poverty level (FPL): Premiums don’t exceed 8.39% of the FPL for the employee’s household size.
3. Rate of pay: Premiums don’t exceed 8.39% of the employee’s monthly salary or hourly pay rate times 130 hours.

Minimum value

The health plan must cover at least 60% of the total predicted healthcare costs for the year. Plans that fail to meet these standards can result in penalties under the employer shared responsibility provisions.

Now let’s touch on important dates you’ll want to have on your calendar.

Key ACA reporting deadlines

Following ACA reporting deadlines is central to compliance. A missed deadline can result in penalties, even if you satisfy other ACA compliance requirements.

Annual reporting cycle

Every year, ALEs must report information to the IRS and to its employees about the healthcare plans offered to full-time workers.

Important form submission dates

You can either file the required information either electronically or in paper copies. How you file will determine the deadline.

• January 31: Provide Form 1095-C to employees. For the 2024 tax year, the deadline was March 3, 2025
• February 28: File paper copies of Forms 1095-C and 1094-C with the IRS
• March 31: Submit electronic copies of Forms 1095-C and 1094-C to the IRS. If filing more than 250 Forms 1095-C, you must file electronically

Required forms for ACA reporting

There are two forms that employers must submit every year.

IRS Form 1095-C explained

Form 1095-C, Employer-Provided Health Insurance Offer and Coverage, is issued to all ALE employees who worked as an FTE for one or more months during the calendar year. As an employer, you must file a separate Form 1095-C for each FTE for all 12 months of the calendar year. The form verifies that each employee had healthcare coverage and provides information about the plan.

IRS Form 1094-C breakdown

Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, summarizes all the Forms 1095-C your company files. You must submit it to Uncle Sam as a “cover sheet” with the Forms 1095-C. The form provides employer-level data, such as your company’s ALE status and the total number of full-time employees.

Best practices for data submission

ACA regulations frequently change, making staying on top of all the requirements challenging. These tips help ensure that you’re ACA compliant.

1. Keep accurate records: Maintain up-to-date employee records including hours worked, employment status, and healthcare coverage.
2. Regularly update records: Track the status of each employee, and review all documentation for mistakes.
3. Stay educated: Stay informed about any legislative updates or changes to ACA regulations.
4. Leverage technology: Use payroll and HR software to automate ACA tracking, reporting, and form submission.

Potential penalties for noncompliance

To make sure you have all the information on ACA compliance at your disposal, we need to point out there can be fines for noncompliance. Here are the amounts for 2024 and updates for 2025.

Note: If your company violates both penalties, the IRS will assess the higher of the two.

Failure to file or inaccurately filing ACA forms can result in additional penalties per return (see table below).

The good news is that a little preparation can help you keep ahead of the game — and avoid these potential fines altogether.

Understanding ACA compliance makes good business sense

Though staying compliant with the ACA is another thing to add to your to-do list, it can be a wise move. On one hand, it keeps your business compliant with the rules. On the other hand, because access to healthcare is one of the benefits that employees most want, carrying a policy can encourage top performers to stick around and help you recruit talented job candidates. If you need assistance understanding the ins and outs of health insurance and keeping ahead of the ACA, our OnPay team is here to help!