How the ACA has changed payroll best practices

Blog / By Sean Cooper

The Affordable Care Act (ACA) caused a mild earthquake in the American economy, shaking up industries across the board. While insurance companies and hospitals felt the tremors, some of the largest changes brought on by this regulation hit other organizations typically behind the scenes. One of them is payroll providers.

If you’re a payroll provider, you’ve probably witnessed this shift first hand. You might still be struggling to get a foothold in the new ACA landscape. You might have even delayed the switch from pre- to post-ACA practices, and are beginning to fall behind.

After three years of shakeup, payroll providers that have taken the ACA into consideration tend to be better at their job. Customers are getting wind of this, and slowly switching from providers that fell behind the curve to those that have caught up and keep compliance simple.

If you’re still working to bridge the gap, we have some ACA tips that can help you get the most out of your relationships with your clients.

Why you need to shed your old practices now

First and foremost, recognize the importance of standardization.

The payroll industry used to be much looser. You might have paid multiple paychecks to employees who worked at multiple locations, fired and rehired teachers between school years, and kept terminated employees on the books. Despite being common, these practices often meant that the full-time, part-time, and termination statuses of employees could become confused.

This was fine, when the only people checking on that status were employees who thought they hadn’t been paid properly or had a problem with their W-2. But once the law dictated employers had to provide some of these employees with health insurance, practices had to be tightened up for compliance purposes.

Suddenly, steep penalties for clients became a real risk, and standardization and regulation across the industry became important.

But these loose-regulation practices were deep-rooted, and if you’re like most payroll providers, you probably haven’t shaken them all. Unfortunately, with penalties looming this year, it’s more important than ever that you conform to the new standards.

3 payroll mistakes you might be making

As payroll providers, you are a helpful source of information for your clients. While businesses are slowly coming around to educate themselves on the nuances of the ACA, payroll providers are often the ones dealing directly with these compliance measurements, and therefore you have larger stocks of knowledge on what’s expected, and what could get an employer in trouble.

Because of this, it’s important to understand when an employer makes a misstep that could cost them when reporting season rolls around, and make sure that your clients are enforcing the best practices you suggest to them.

Most of the big things—like ensuring your clients are inputting hourly data—are typically taken care of. However, there are a number of small mistakes that you or your clients may not be aware of, which could impact your ability to ensure compliance:

1. Bad termination data: If a terminated employee is kept on payroll to pay out their severance package, rather than taking it all at once, it’s possible that this person gets mistaken as employed—and marked as someone who should have been offered insurance. This would look to the IRS as though a company deserved a fine, and could result in an audit or payment collection from the company. Make sure companies have uploaded historic termination records of up to a year, so that the IRS can accurately assess an employee’s status.
2. Non-hourly measurements: Not all industries are measured equally. In the agriculture and trucking industries, bushels and poundage are substituted for hours in payroll, and need to be translated to hours when determining full- and part-time ACA equivalency. Make sure you and your clients know the calculations, so that they can provide the right people with health insurance.
3. Paying from location vs. EIN: Sometimes, employees end up working different roles within a company, or at different company locations that are under the same EIN. Pre-ACA, many payroll providers would issue a paycheck for each individual job or location. Now, due to the need to track ACA full-time and part-time, it’s imperative that one paycheck is issued per EIN, not per location or position.

While it’s the employer’s responsibility to provide accurate data, it’s important you explain to them what data is needed for you to best perform your job and get them back the information they will need for reporting season.

Facing change head-on

It’s normal to struggle with certain aspects of the ACA—such as switching from a location-based payroll to an EIN-based payroll—but overall, the process is becoming more standardized, and better for everyone.

If you’re working toward the ACA standards, rather than standing still, you’re headed in the right direction. You don’t need to go back and retroactively correct mistakes, as extensions and goodwill efforts from past years gave businesses a pass. This year, however, it’s time to get on top of any data errors or mistakes, and make sure you’re prepared going forward. Under the ACA, that’s one of the best ways to attract new customers and make your existing customers both happy and compliant.