The Internal Revenue Service (IRS) has recently been ramping up its enforcement of employer requirements related to the Affordable Care Act (ACA), and the penalties for non-compliance can sometimes be severe. Employers with at least 50 full-time employees, considered an Applicable Large Employer (ALE), are subject to Employer Shared Responsibility Provisions of the ACA.
These provisions require organizations considered ALEs to either offer minimum essential coverage or make an employer shared responsibility payment to the IRS. With the IRS more aggressively targeting employers who are potentially not compliant with ACA requirements, it is critical for employers to make sure they are prepared in the event they are audited for non-compliance.
One way to help ensure your business is prepared for an ACA audit is to keep detailed records and documentation of your existing ACA process. In addition to serving as evidence that an organization is meeting its ACA regulatory requirements, the discipline of documentation also helps to foster a culture of accountability — helping reduce the risk of inadvertent violations and reinforcing a company’s commitment to its legal obligations under the ACA.
The importance of detailed documentation
Having a well-documented ACA process helps your organization prove you are meeting your ACA obligations. It serves as evidence of compliance if audited by regulatory bodies like the IRS. An ACA process typically involves complex calculations and data collection across various departments within an organization, and involves many stakeholders. Documenting your process can help ensure that each step is followed consistently, helping reduce the risk of errors in reported information.
A well-documented ACA process also helps streamline operations by providing a clearer roadmap for an organization’s employees to follow. It can help identify redundancies and inefficiencies, leading to a more streamlined and cost-effective approach. Documentation can help a business track and maintain records of offers of health coverage to employees, affordability methods and calculations, and enrollment information, which are critical for ACA reporting requirements.
The question of how long to keep ACA documentation is crucial to avoiding potential penalties, and ensuring less-complicated dealings with both insurance providers and the IRS. Employers are typically advised to retain relevant ACA documentation indefinitely. This is recommended because there is currently no statute of limitations for challenges to ACA requirements by the Department of Labor (although a pending bill could change this in the near future).
The types of records employers would maintain include extensive details about health coverage offered to employees, 1094 and 1095 forms, eligibility determinations, information on employee enrollment in health plans, and any other communications related to the ACA. Adhering to this guideline helps employers demonstrate their compliance with the Employer Shared Responsibility Provisions of the ACA, should questions arise during the audit process.
Reviewing your ACA process regularly
It’s also important for employers to review their existing ACA process documentation on a regular basis — generally annually. The reason for this is that regulatory requirements are a moving target and the expectations placed on employers frequently change. Reviewing your company’s ACA documentation process annually allows for better strategic planning and risk management. Keeping your documentation current, efficient, and aligned with both regulatory requirements and business objectives is essential for a healthier and more successful organization. It not only better prepares an organization for a potential audit, but also helps ensure that the business remains up to date as regulations evolve.
It is also recommended that employers monitor their ACA risk month-over-month for eligibility determinations, offers of coverage, periods of coverage, risk exposure, and any IRS notices. Regular audits of your process, staying informed about legislative changes, and consulting with experts can help you navigate the complexities of your ACA process more effectively.
By maintaining detailed records, employers can demonstrate their commitment to compliance, which can be pivotal during an audit. Documentation can help streamline the audit process and make it much less of a headache for employers to navigate. Having organized records readily available can help expedite reviews and reduce operational disruptions. Working with experts or using tools that help employers navigate these complexities can also help ensure that a company’s ACA reporting remains more accurate.
No business wants to deal with an ACA audit. By taking proactive steps to document your existing ACA process, reviewing that process for risk on a regular basis, and consulting with legal or tax professionals who are experienced in ACA requirements, businesses can better anticipate an audit and help navigate the response process more effectively.
*Disclaimer: The information provided is intended as general guidance and is not intended to convey any tax, benefits, or legal advice. For information pertaining to your company and its specific facts and needs, please consult your own tax advisor or legal counsel.