ACA Reporting During the COVID-19 Pandemic

Maintaining your organizational wellbeing during the unprecedented COVID-19 pandemic requires a broad view of the factors that impact your ability to achieve your business objectives while supporting the personal wellbeing of your employees. However, even during challenging times, employers have to tend to regular employee benefits-related responsibilities, including reporting and disclosure obligations. In response to financial and other issues created by the COVID-19 pandemic, many employers may have had to lay off, furlough, or otherwise reduce employees' work hours, all of which affect an employee's Patient Protection and Affordable Care Act (ACA) status and, therefore, ACA reporting. Below, we highlight some important considerations for employers as they plan for their ACA reporting in the midst of the pandemic.

Establish. Track. Record.

Numerous legislative and regulatory changes arose in the wake of COVID-19 intended to assist employers and employees during the COVID-19 pandemic. The ACA employer responsibility requirements, however, thus far remain unchanged. As a refresher, the ACA requires Applicable Large Employers (ALEs) (employers with 50 or more full-time employees and full-time equivalent employees) to offer affordable, minimum value coverage to at least 95% of their full-time employees to avoid employer shared responsibility penalties. For ACA purposes, an employee who works an average of 30 or more hours per week (or 130 or more hours per month) is considered to be a full-time employee. ACA rules allow an employer to use either a monthly measurement method or a lookback measurement method to determine an employee's full-time status. Organizations must be aware that certain staffing changes, such as furloughs, layoffs, leaves of absence, and reductions in hours, can have a significant impact on employees' hours of service under both the monthly measurement and the lookback methods. For example, if an employer furloughs an employee (i.e., reduces the employee's hours of service to zero without terminating that employee), the employee's hours of service must still be tracked for purposes of determining that employee's ACA status. Employees on leaves of absence under the Families First Coronavirus Response Act (FFCRA) must also have their time accounted for during their leaves. How have you ensured that you have accurately tracked employees' hours as impacted by furloughs, layoffs, leaves of absence, and reductions in hours during the pandemic?

Recognize. Support. Compensate.

Employers can avoid employer shared responsibility penalties only if their offers of minimum essential healthcare coverage provide minimum value and are affordable. A plan is considered to be affordable for an employee if the employee's required contribution for self-only coverage does not exceed a specified percentage of the employee's household income (9.78% in 2020 and 9.83% in 2021). The IRS has provided three safe harbors to determine whether an offer of coverage is affordable: the Form W-2 safe harbor, the rate of pay safe harbor, and the federal poverty line safe harbor. Reductions in hours or pay in response to the pandemic will impact affordability determinations. For example, if an employee who is subject to the Form W-2 safe harbor experiences a reduction in hours, but must continue to pay the same employee contribution each month, the coverage may no longer be affordable when compared to the employee's annual Form W-2 earnings. Additionally, changes in pay during the calendar year can also impact which safe harbor is available. For example, the rate of pay safe harbor cannot be applied to a non-hourly employee whose monthly salary is reduced. In contrast, for an hourly employee, the safe harbor calculation uses an assumed rate of 130 hours per calendar month multiplied by the hourly employee's rate of pay, regardless of whether the employee actually works more or less than 130 hours during a calendar month. The affordability determination for the hourly employee is unchanged by a reduction in hours or a leave of absence. How has your organization considered the effect of reductions in hours or pay on affordability determinations?

Count. Categorize. Confirm.

Because full-time employees are the primary focus of Forms 1094 and 1095 reporting, an employee's status as a current or former employee is important for purposes of ACA reporting. For example, an employee who has been laid off is no longer an employee and, therefore, would be reported as not an employee (i.e., using code 2A on line 16) for the period after the layoff and before any applicable rehire. In contrast, an employee who is on a furlough or a leave of absence continues to be an employee and thus should be treated as a current employee for ACA reporting, even if the employee has had a break in service (i.e., a period of zero hours of service). How is your organization ensuring that it has properly categorized, for ACA reporting purposes, employees who were laid off, on a leave of absence, or furloughed during the year?

Pay. Determine. Include.

With the passage of the FFCRA, two new types of leave were introduced into the workplace for 2020 — Public Health Emergency Leave (PHEL) and Emergency Paid Sick Leave (EPSL). Employers subject to the FFCRA (i.e., private employers with fewer than 500 employees and all governmental employers) must consider the effect of these types of paid leave on their employees' ACA status. Under the ACA, time for which an employee is paid or entitled to payment when duties are not performed (like a vacation, holiday, jury duty, and leave of absence) is counted when determining that employee's status as full-time or not full-time. Because PHEL and EPSL are types of paid leave, while an employee is on PHEL or EPSL, that individual's hours will continue to count for ACA purposes. What processes do you have in place to account for employees' hours during PHEL and EPSL for ACA purposes?

Assist. Continue. Support.

In an effort to assist employees who have been furloughed or have reduced hours resulting in a loss of eligibility for health coverage, many employers have chosen to continue health coverage for these employees. Employers offering this generous option should confirm that their coverage carriers are willing to cover individuals who would otherwise be ineligible and discuss potential implications with their benefits counsel and/or advisors. Some employees, however, may decline to continue coverage during a furlough or a reduction in hours. Employers with employees subject to the lookback method should consider how a reduction in hours impacts an employee, considered to be full-time pursuant to a stability period, who decides to discontinue coverage. IRS rules permit an election change that would allow affected employees (i.e., employees who worked more than 30 hours per week and drop below 30 hours per week) to drop their employer-sponsored coverage, provided they intend to enroll immediately in other "minimum essential coverage." Employers will not be penalized for employees whose coverage is canceled because they cannot cover their salary reduction elections as long as certain requirements are met. Still, employers must be careful to correctly report their offers of coverage and their employees' status as full-time or non-full-time (e.g., using Code 2B on line 16 for an employee who is not full-time for a particular month). What action has your organization taken to ensure that coverage for employees with an extended offer of coverage, but who are no longer full-time, is reported properly?

This is a preview of Priorities and Perspectives, a monthly publication produced by Gallagher's Compliance Consulting Practice. For five more action steps to help you focus your compliance efforts in 2020, contact your Gallagher representative or visit our Compliance Resources page for the full version of this month's edition.

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Compliance is a series of actions, not a final destination. As a trusted advisor, Gallagher has developed this Priorities and Perspectives series to help you pursue a path through employee benefits compliance issues as part of an overall continuing compliance plan. Employers should carefully evaluate their health and welfare plans to determine if they are in compliance with both federal and state law. If you have any questions about one or more of the compliance requirements listed above, or would like additional information on how Gallagher constantly monitors laws and regulations impacting employee benefits in order to support employers in their compliance efforts, please contact your Gallagher representative.


The intent of this analysis is to provide you with general information. It does not necessarily fully address all your organization's specific issues. It should not be construed as, nor is it intended to provide, legal advice. Questions regarding specific issues should be addressed by your organization's general counsel or an attorney who specializes in this practice area.