Frequently Asked Questions Paychex ESR Services

Transcription

1 Frequently Asked Questions Paychex ESR Services

2 Table of Contents Overview of Employer Shared Responsibility (ESR) Provisions 1. What is Employer Shared Responsibility? 2. When do the ESR provisions go into effect? 3. Who is subject to the ESR provisions? ESR Reporting Requirements 4. What are the ESR annual reporting requirements and who is required to comply? 5. What is the purpose of the reporting? 6. When do I need to begin tracking? 7. Is the reporting different for self-insured employers? 8. If I qualify for transition relief in 2015, do I still have to comply with the reporting requirement for 2015 or can I wait until the 2016 tax year? 9. What is the penalty for not filing ESR end-of-year reports (Forms 1094-C and 1095-C)? Employee Definitions and Calculations 10. Who is considered a Full-Time Employee? 11. What is a Full-Time Equivalent Employee (FTE)? 12. How are Full-Time Employees and FTEs calculated? 13. What hours are calculated when determining ESR eligibility? 14. What if I have international employees? Coverage Requirements to Avoid Potential Penalties 15. What constitutes adequate coverage? 16. What is the Minimum Actuarial Value requirement? 17. What is deemed affordable coverage? Controlled and Affiliated Services Groups 18. If my company is a child company within a Controlled or Affiliated Services Group, would it be considered an Applicable Large Employer? 19. What entities constitute a Controlled Group? Penalties for Not Offering Affordable or Adequate Coverage 20. How do I know if I am at risk for a penalty under the ESR provisions? 21. What are the potential penalties if I do not meet the criteria for providing medical coverage under the ESR provisions? 22. Do self-funded groups have to offer qualified coverage or risk incurring a penalty? Measurement, Administrative, and Stability Periods 23. What is the definition of a Measurement Period? 24. What is the definition of an Administrative Period? 25. What is the definition of a Stability Period? 2

3 26. What are the rules of setting up Measurement and Administrative Periods? 27. What is the earliest Measurement Period I can use? About the Paychex ESR Services 28. What do the Paychex ESR Services provide? 29. What is included in the Paychex ESR Services? 30. How do these services help me with the ESR provisions? Complete Analysis and Monitoring Services 31. What kind of customization is available for the Complete Analysis and Monitoring Services? 32. How far back in time can I run an ESR analysis? Features and Functionality 33. How frequently does Paychex run analyses and reports? 34. Can reports be run on demand? 35. Can I model different scenarios? 36. What does modeling mean? 37. What if the analysis appears to have incorrect payroll-related information? 38. Will I receive a notification if I am missing information? 39. When will data not match my payroll reports? 40. Will I be alerted if I am approaching thresholds that put my business at risk for potential ESR penalties? 41. If I am part of a Controlled Group, will I see data for the entire Controlled Group in my analyses? 42. What if I have a company not on Paychex payroll? Maintenance 43. How do I make changes to my ESR data? 44. How do I make Stability and Measurement Period changes? 45. How do I change my Controlled Group setup? 46. Can my CPA access these reports? 47. How are reports accessed? 48. Do reports come in any format other than Excel? 49. What is the address the notifications and alerts will come from? End-of-Year Reporting 50. What is included with my End-of-Year reporting service? 51. Can I receive ESR End-of-Year Reporting without having the full suite of Paychex Employer Shared Responsibility Services? 52. Is there any information I need to provide to Paychex to ensure my returns are complete and accurate? 53. Will Paychex remit my returns directly to the IRS? 54. Will Paychex mail the employee Forms 1095-C directly to my employees? 55. When do the Forms 1094-C and 1095-C need to be filed with the IRS, and when do I need to provide Forms 1095-C to my employees? 3

4 56. Can you prepare forms for my business if I don t receive health insurance through Paychex? Billing 57. How is the per employee per month fee calculated? 58. When am I billed? 59. Does it cost extra for Paychex to file Forms 1094-C and 1095-C for my business? 60. How does a Controlled Group get billed? 61. Will my bill change month-to-month based on employee count? 62. Will I receive a bill or will my account be automatically debited? 4

5 Overview of the Employer Shared Responsibility (ESR) Provisions The following questions and answers provide you with background information about the ESR Provisions. The rules and regulations of these provisions prompted us to provide the Paychex ESR Services as a benefit for our clients. 1. What is Employer Shared Responsibility? The Employer Shared Responsibility (ESR) provisions of the Affordable Care Act state that Applicable Large Employers must provide adequate and affordable medical insurance for their Full-Time Employees and their dependents or face a potential penalty. To avoid a potential penalty, Applicable Large Employers must offer Full-Time Employees and their dependents medical insurance coverage that meets the established minimum essential coverage (MEC) requirements, at a minimum value, and is deemed affordable. Note: For the purposes of the ESR provisions, dependent is defined as a child of an employee who has not yet attained age 26. This does not include the spouse of an employee. There may be transition relief for offering coverage in 2015 if certain conditions are met. 2. When do the ESR provisions go into effect? Enforcement of the ESR provisions for employers with 100 or more Full-Time Employees, including Full-Time Equivalent Employees (FTEs), began January 1, In general, penalty assessment for qualified employers with between 50 and 99 Full-Time Employees, including FTEs, has been delayed until Important note for employers with between 50 and 99 Full-Time Employees, including FTEs: In general, to qualify for this transition relief, employers with between 50 and 99 Full-Time Employees, including FTEs, must: not reduce workforce and hours to stay under the 100 full-time employee, including FTEs, threshold, not eliminate or materially reduce health coverage offered prior to February 9, 2014, and, provide certification they qualify for this relief in Form 1094-C. 5

6 If they do not qualify, then they will be treated the same as employers with 100 or more Full- Time-Employees, including FTEs, and be subject to potential penalties based on coverage offered beginning in January Who is subject to the ESR provisions? The provisions apply to Applicable Large Employers. An Applicable Large Employer is defined as a business entity that employs an average of 50 or more Full-Time Employees, including FTEs, on business days during the preceding year. An employer s status as an Applicable Large Employer is determined by adding the sum of the employer s designated Full-Time Employees and the sum of all FTEs (including any seasonal workers) for each calendar month in the preceding calendar year and dividing by 12. The result, if not a whole number, is rounded down to the next lowest whole number. If the calculation is 50 or more, the employer is an Applicable Large Employer for the current calendar year, unless the Seasonal Worker exception applies. Employee status is determined using specific calculation methods. ESR Reporting Requirements 4. What are the ESR reporting requirements, and who is required to comply? Beginning in January 2016 for the 2015 tax year, all Applicable Large Employers are be required to file Forms 1094-C and 1095-C to provide certification as to whether they offered Full-Time Employees and their dependents the opportunity to enroll in insurance that provides Minimum Essential Coverage at a Minimum Actuarial Value of 60 percent for each month of the year. The U.S. Department of the Treasury released final guidance on March 5, 2014, on end-of-year Internal Revenue Code Section 6056 reporting requirements for Applicable Large Employers subject to the Employer Shared Responsibility provisions of the Affordable Care Act. As part of this new reporting, Applicable Large Employers will be required to file Forms 1094-C and 1095-C to provide certification as to whether they offered Full-Time Employees and their dependents the opportunity to enroll in insurance that provides Minimum Essential Coverage at a Minimum Actuarial Value of 60 percent for each month of the year. Form 1094-C and Form 1095-C are transmittal and employee statements, respectively, filed by the employer with the Internal Revenue Service. Additionally, employers must provide Forms 1095-C to their Full-Time Employees. This process is similar to how Forms W-2 are provided. 6

7 The forms may be submitted in the same package as Forms W-2. Simplified reporting methods are available under certain circumstances. One of these methods is designed for employers with 50 to 99 Full-Time Employees, including Full-Time Equivalent Employees, to allow them to certify they qualify for ESR transition relief in 2015 and some months in 2016 in certain cases. While such employers may not be subject to penalty assessment in 2015, they must still file Forms 1094-C and 1095-C for the 2015 tax year. The IRS also issued reporting requirements for other entities, such as health insurance carriers and self-insured businesses, which must file Forms 1094-B and 1095-B. For Applicable Large Employers who are self-insured, the filing is combined, and they need only file Forms 1094-C and 1095-C. 5. What is the purpose of the reporting? This reporting provides the IRS with certification of whether an Applicable Large Employer is subject to potential penalties for not offering health insurance to full-time employees and their dependents that provides Minimum Essential Coverage and meets Minimum Actuarial Value and affordability requirements. Additionally, this reporting will assist employees in determining their eligibility for a premium tax credit through a state or federal Health Insurance Marketplace. 6. When do I need to begin tracking? Applicable Large Employers (employers who have an average of 50 or more Full-Time Employees and Full-Time Equivalent Employees in the previous calendar year) must begin to track wages, hours, and health coverage for their employees each month beginning in January Is the reporting different for self-insured employers? Applicable Large Employers who are self-insured must file Forms 1094-C and 1095-C. Selfinsured employers who are not Applicable Large Employers must file Forms 1094-B and 1095-B. Note: Paychex will file Forms 1094-C and 1095-C for our self-insured ESR clients who are Applicable Large Employers. We do not file Forms 1094-B and 1095-B on behalf of clients. 7

8 8. If I qualify for transition relief in 2015, do I still have to comply with the reporting requirement for 2015, or can I wait until the 2016 tax year? Applicable Large Employers with 50 to 99 Full-Time Employees, including Full-Time Equivalent Employees, may qualify for transition relief from ESR penalties until 2016; however, they must meet certain conditions and certify on a 2015 Form 1094-C that they qualify for this relief. All Applicable Large Employers, including those who qualify for this transition relief, are responsible for filing Forms 1095-C for their Full-Time Employees as well as furnishing these employees with the forms for 2015 and each year after. 9. What is the penalty for not filing ESR end-of-year reports (Forms 1094-C and 1095-C)? Applicable Large Employers who fail to file these returns and provide statements to employees will be subject to penalties for failure to file correct returns and failure to furnish correct statements, similar to the penalties for not filing Forms W-2. The penalty for failure to file correct information returns is: $100 per return, with a maximum penalty of $1,500,000 per calendar year. If the business has annual gross receipts of $5,000,000 or less for the three most recent taxable years, the maximum penalty is $500,000; If the employer files within 30 days of the due date, the penalty is $30 per return, with a maximum penalty of $250,000. If the business has gross receipts of $5,000,000 or less, the maximum penalty is $75,000; or If the employer files by August 1 of the year in which the returns are due, the penalty is $60 per return, with a maximum of $500,000. If the business has gross receipts of $5,000,000 or less, the maximum penalty is $200,000. Penalties may not be assessed when the failure to file is for a reasonable cause, with no willful neglect. Other conditions may apply. Visit the IRS website for more information at: Employee Definitions and Calculation s 10. Who is considered a Full-Time Employee? For the purposes of the ESR provisions, a Full-Time Employee is defined as an employee who works an average of 30 hours per week or 130 hours per calendar month. 8

9 11. What is a Full-Time Equivalent Employee (FTE)? The term Full-Time Equivalent Employee (FTE) means a combination of employees, each of whom individually is not treated as a Full-Time Employee because he or she is not employed on average at least 30 hours of service per week or 130 hours per calendar month with an employer, and who, in combination, are counted as the equivalent of a Full-Time Employee solely for the purpose of determining whether an employer is an Applicable Large Employer. 12. How are Full-Time Employees and FTEs calculated? The calculation for determining the monthly total number of Full-Time Employees and FTEs is: (All part-time and seasonal employee hours* / 120) + Total number of Full-Time Employees *All employees (including seasonal employees) who were not Full-Time Employees in a given month, capped at 120 hours per employee. 13. What hours are calculated when determining ESR eligibility? An employee s hours of service include: time for which an employee is paid, or entitled to payment, for the performance of duties for the employer and time that is paid, but for which the employee may not work, such as paid vacation time, sick time, disability, jury duty, military duty and leaves of absence. Hours for employees on FMLA and disability must be considered in ESR calculations. 14. What if I have international employees? In general, if an American business has employees who are overseas, then their hours need not be counted when determining ESR eligibility. This is assuming those hours of service constitute foreign source income, consistent with the rules of federal taxation for determining whether compensation for services is attributable to services performed within or outside the United States. This also assumes the employee is anticipated to work overseas for at least 12 months. If a foreign employee comes to the United States (U.S.), he would be treated as a newly hired employee, unless he was previously in the U.S., in which case rehire rules would apply. 9

10 Coverage Requirements to Avoid Potential Penalties 15. What constitutes adequate coverage? Adequate health coverage must provide minimum essential coverage (MEC). MEC includes the most broad-based medical coverage typically provided by employers. It does not include certain specific coverage, such as coverage only for accident or disability income insurance; dental and vision insurance; or workers compensation insurance. 16. What is the Minimum Actuarial Value requirement? The Minimum Actuarial Value (MAV) refers to the percent of medical costs that a health plan must share with the participating employees to avoid a potential ESR penalty. To meet ESR requirements, health plans must cover at least 60 percent of the total allowed costs of plan benefits. The Department of Health and Human Services has provided a spreadsheet with a Minimum Value Calculator to assist employers with determining minimum value for their plans, which can be accessed at: Guidance/ 17. What is deemed affordable coverage? Coverage is considered affordable if an employee s required premium contribution for selfonly coverage to the lowest cost plan that offers MEC does not exceed 9.5 percent of the employee s modified adjusted gross household income. Because employers may not know the household income for their employees, they can use one of three affordability safe harbor methods* to determine if the coverage they are providing employees is affordable: Form W-2 Safe Harbor Use employee s Form W-2 wages shown in Box 1. Rate of Pay Safe Harbor Multiply an employee s hourly rate by 130 to determine monthly wages; or use a salaried employee s monthly pay. Federal Poverty Line Safe Harbor Use the federal poverty line for a single individual. *Note: Certain limitations apply. Employers may use any of the three Safe Harbor methods to determine affordability, but they must use them consistently across like classes of employees. Employers who do not offer affordable coverage may be subject to a potential annualized penalty of $3,000 (as adjusted for inflation) per affected employee. 10

11 Controlled and Affiliated Services Groups 18. If my company is a child company within a Controlled or Affiliated Services Group, would it be considered an Applicable Large Employer? If a child company is part of a Controlled or Affiliated Services Group with 50 or more Full-Time Employees and FTEs, then it would be considered to be part of an Applicable Large Employer group. 19. What entities constitute a Controlled Group? Controlled and Affiliated Service Groups of corporations are in general: Parent-Subsidiary A "parent-subsidiary" Controlled Group is when one organization owns 80 percent or more of another organization. For a corporation, the 80 percent test reflects the level of voting power or total ownership based on all classes of stock. For a partnership, the 80 percent test reflects the level of profits, interest, or capital interest. For trusts and estates, the 80 percent test reflects the level of actuarial interest. Brother-Sister A "brother sister" Controlled Group is when the same five or fewer persons collectively own 80 percent or more of the equity in two separate businesses, and 50 percent or more of those businesses are owned by the same individuals. In some cases, relatives may be included in determining ownership. Affiliated Service Group An "affiliated service group" exists whenever several organizations regularly collaborate in providing services to the public (usually integrated services), and the organizations are connected by a material level of cross ownership. Please see the IRS definition in Section 414 (b) (c) (m), and (o); there are sections of 414, such as predecessors, multi-employer plans, and leased employees, that do not apply to this aggregation. Consult your CPA or tax advisor to determine how these regulations apply to your particular business structure. 11

12 Penalties for Not Offering Affordable or Adequate Coverage 20. How do I know if I am at risk for a penalty under the ESR provisions? Beginning in 2015 or 2016,* Applicable Large Employers are at risk for a potential penalty under the ESR provisions if they: do not offer medical insurance to their Full-Time Employees; do not offer MEC to substantially all of their Full-Time Employees and their dependents; offer coverage that does not meet the MAV of 60 percent; or offer coverage that is deemed unaffordable for their Full-Time Employees (based on calculations). *Employers with 100 or more Full-Time Employees, including FTEs, are subject to penalties beginning in Employers with between 50 and 99 Full-Time Employees, including FTEs, who qualify for transition relief, will not be subject to penalties until This may extend to the plan renewal date in 2016 for those who have non-calendar year plans in effect prior to February 10, 2014, if the plan was not modified to begin at a later calendar date. Employers with between 50 and 99 Full-Time Employees, including FTEs, must meet the workforce and maintenance of coverage conditions to qualify for transition relief and certify that those conditions are met in IRC 6056 (ESR) reporting. 21. What are the potential penalties if I do not meet the criteria for providing medical coverage under the ESR provisions? Potential Penalties in 2015 Employers with between 50 and 99 Full-Time Employees, including FTEs, will not be subject to potential ESR penalties in 2015 if they meet certain workforce and maintenance of coverage conditions to qualify. This relief may also extend into 2016 for employers who have noncalendar year plans in effect prior to February 10, 2014 if the plan was not modified to begin at a later calendar date. If these employers do not meet those conditions, they must offer adequate and affordable coverage to their full-time employees and their dependents beginning in 2015 or be subject to the following potential Penalties, which apply to employers with 100 or more Full-Time Employees, including FTEs: Penalty for Not Offering Coverage with Minimum Essential Coverage (MEC) 12

13 In 2015, employers with 100 or more Full-Time Employees, including FTEs, may be assessed an annualized penalty of $2,000 (adjusted for inflation) per Full-Time Employee above the first 80 Full-Time Employees if they do not offer health insurance with MEC to at least 70 percent of their Full-Time Employees and their dependents. This also applies to ALEs with 50 to 99 fulltime employees, including FTEs, who don t qualify for transition relief but is assessed above the first 30 full-time employees. Notes: The MEC penalty is assessed only when one or more of the Full-Time Employees receives a premium tax credit through a federal or state Health Insurance Marketplace. Transition relief for covering dependents may be available to those who meet certain conditions. Additional Penalties For 2015, employers with 100 or more Full-Time Employees, including FTEs, or 50 to 99 that do not qualify for transition relief, who offer insurance with MEC to at least 70 percent of their Full-Time Employees and dependents, may still be assessed an annualized penalty of $3,000 (adjusted for inflation) per employee in the following situations: If any Full-Time Employees who were not offered MEC receive a premium tax credit, the employers may be assessed an annualized penalty of $3,000 (adjusted for inflation) for each of these employees. If they do not offer affordable coverage or coverage that meets the MAV of 60 percent, they may be assessed an annualized penalty of $3,000 (adjusted for inflation) per applicable Full-Time Employee who receives a premium tax credit for purchasing coverage through a Health Insurance Marketplace. Note: The penalty payment cannot exceed the payment for not offering MEC. The maximum ESR penalty would be $2,000 (adjusted for inflation) multiplied by the number of Full-Time Employees minus the first 80 Full-Time Employees for ALEs with 100 or more full time employees, including FTEs or minus 30 for ALEs with full-time employees, including FTEs.: 13

14 Business Size Maximum Annual ESR Penalty* in Full-Time Employees $0 90 Full-Time Employees $0 (or $120,000 if business does not qualify for transition relief in 2015) 100 Full-Time Employees $40, Full-Time Employees $240, Full-Time Employees $840,000 *Penalty amount will increase each year with cost of inflation beginning in Potential Penalties in 2016 and Beyond Penalty for Not Offering Coverage with MEC Beginning in 2016, Applicable Large Employers (employers with 50 or more Full-Time Employees, including FTEs) may be assessed a potential annualized penalty of $2,000 (adjusted for inflation) per Full-Time Employee above the first 30 Full-Time Employees if they do not offer MEC to the greater of either: all but 5 percent of Full-Time Employees and their dependents (Employers offer coverage to at least 95 percent of Full-Time Employees and their dependents.) or all but five Full-Time Employees and their dependents. (Employers are allowed to not offer coverage to up to five of the Full-Time Employees and dependents). This means that Applicable Large Employers with between 50 and 99 Full-Time Employees, including FTEs, may be considered compliant with the MEC requirement if they offer MEC to all except five of their Full-Time Employees and dependents, even though this is fewer than 95 percent of Full-Time Employees. Small Employer Example An employer offers MEC to 55 of 60 Full-Time Employees and dependents, or 92 percent of his Full-Time Employees and dependents. Offering to all but five percent would mean offering to all employees except three. This employer offers to all except five. Even though the employer offers MEC to fewer than 95 percent of Full-Time Employees and dependents, the employer is compliant with the MEC requirement because he offers MEC to all but five of the Full-Time Employees and their dependents. 14

15 Large Employer Example An employer offers MEC to 470 of 500 Full-Time Employees and their dependents. This is equal to 94 percent of the Full-Time Employees (or all but six percent of the employees). Therefore, this employer is not compliant with the MEC requirement since he does not offer to at least 95 percent of the Full-Time Employees and their dependents. Note: The MEC penalty is assessed only when one or more of the Full-Time Employees receives a premium tax credit for purchasing coverage through a federal or state Health Insurance Marketplace. Additional Penalties In 2016 and going forward, Applicable Large Employers who do offer insurance with MEC to all but five percent (or, if greater, five) of their Full-Time Employees and dependents may be assessed an annualized penalty of $3,000 (adjusted for inflation) per employee in the following situations: If any Full-Time Employees who were not offered MEC receive a premium tax credit, the employer may be assessed an annualized penalty of $3,000 (adjusted for inflation) for each of these employees. Applicable Large Employers who do not offer affordable coverage or coverage that meets the MAV of 60 percent may be assessed an annualized penalty of $3,000 (adjusted for inflation) per applicable Full-Time Employee who receives a premium subsidy through a Health Insurance Marketplace. The penalty payment cannot exceed the payment for not offering MEC. The maximum penalty would be $2,000 multiplied by the number of Full-Time Employees minus the first 30 Full-Time Employees: Business Size Maximum Annual ESR Penalty* in Full-Time Employees $40, Full-Time Employees $120, Full-Time Employees $140, Full-Time Employees $340, Full-Time Employees $940,000 15

16 *Penalty amount will increase each year with cost of inflation, beginning in Do self-funded groups have to offer qualified coverage or risk incurring a penalty? Yes, self-funded groups must offer adequate and affordable coverage for their Full-Time Employees and dependents or face a potential ESR penalty. Measurement, Administrative, and Stability Periods 23. What is the definition of a Measurement Period? There are three types of Measurement Periods defined in the ESR provisions: Initial, Look Back, and Standard: Initial Measurement Period: An Initial Measurement Period selected by an employer of at least three but not more than 12 consecutive calendar months is used to determine if new variable hour and new seasonal employees are Full-Time Employees as defined in the ESR provisions. The employer may begin the Initial Measurement Period on any date between the employee s start date and the first day of the first calendar month following the employee s start date.* For example, for an employee hired on January 10, an employer must begin the start of the Initial Measurement Period by February 1. An employer should note that there are limits on the combined length of the Initial Measurement Period and optional Administrative Period. Specifically, the two combined cannot extend beyond the last day of the first calendar month following the one year anniversary of the employee s hire date. *Hour and wage data is normally entered in lump sum amounts for employees (e.g., 1,000 hours for January 1, 2014 through December 31, 2014) - if the pay period-end date is on or after the employee's measurement start date, the number of days in this example would be incorrectly counted all the way back to January 1, This will factor extra days into the calculation causing a lower Average Hour value. Look Back Measurement Period: For ongoing employees, an employer using a Look Back Measurement Period determines each ongoing employee s full-time status by looking back at the Standard Measurement Period. 16

17 Standard Measurement Period: A time period of at least three but not more than 12 consecutive months that the employer selects and uses in determining whether an ongoing employee is a Full-Time Employee under the Look Back Measurement Period. The employer determines the beginning and ending of the Standard Measurement Period, and must apply the standards on a uniform and consistent basis for all employees in the same category. 24. What is the definition of an Administrative Period? An Administrative Period is an optional period of up to 90 days following the Initial or Standard Measurement Period and ending immediately before the subsequent Stability Period in which the employer can identify, notify, and offer Full-Time Employees health coverage. Employers should note there is a limit on the combined length of the Initial Measurement and Administrative Periods as described in the Initial Measurement Period definition above. In addition, the Administrative Period 90 day limit must include the time between an employee s start date and the beginning of the employee s Initial Measurement Period. 25. What is the definition of a Stability Period? The Stability Period begins as soon as the Administrative Period ends (or as soon as the Measurement Period ends if the employer is not using an Administrative Period). This period is no less than six months, or at least as long as the Measurement Period, whichever is greater, for Full-Time Employees. For Part-Time Employees, it can be no shorter than the Measurement Period. For new Variable-Hour Employees, the Stability Period must not be more than one month longer than the Initial Measurement Period. 26. What are the rules of setting up Measurement and Administrative Periods? Measurement Periods can be only three months or six through 12 months. An Administrative Period must not exceed 90 days. For newly hired employees, the Initial Measurement Period plus the optional Administrative Period cannot extend beyond the last day of the first calendar month following the one year anniversary of the employee s start date. (This would total at most 13 months and a fraction of a month.) An Administrative Period must include any days worked by a newly hired employee prior to the Initial Measurement Period within the 90 day period limit. 17

18 27. What is the earliest Measurement Period I can use? The earliest Measurement Period start date that can be used is October 3, 2013, and cannot exceed 12 months. About the Paychex ESR Services 28. What do the Paychex ESR Services do? The Paychex ESR Services include proactive data analytics and communications that will alert you to trends in your payroll information that may subject you to penalty assessments as well as assistance preparing and filing brand new and complex year-end IRS tax reporting. The services help you: Define if your business is an Applicable Large Employer Calculate how many Full-Time Employees you have based on IRS definitions Determine if your benefits coverage is considered adequate and affordable for Full-Time Employees* Prepare and help you file tax Forms 1094c and 1095c Track your designated Measurement, Administrative, and Stability Periods and handle the logic for when transitions between these look back periods occur (including from new hire to ongoing employee, between employee categories and others). * Coverage Adequacy Analysis and Monitoring is available only to clients who receive health insurance through Paychex Insurance Agency or Paychex PEO. 29. What is included in the Paychex ESR Services? The Paychex ESR Services is comprised of: Complete Analysis and Monitoring Services: Applicable Large Employer Analysis and Monitoring Full-Time Employee Analysis and Monitoring Coverage Adequacy Analysis and Monitoring* End-of-Year Reporting * Coverage Adequacy Analysis and Monitoring is available only to clients who receive health insurance through Paychex Insurance Agency or Paychex PEO. 18

19 30. How do these services help me with the ESR provisions? With the Complete Analysis and Monitoring Services, you ll receive alerts and notifications about potential ESR penalties and have access to a web portal where you can view reports or run custom analyses on demand: Applicable Large Employer Analysis and Monitoring provides you with information that helps you determine whether or not you are an Applicable Large Employer and, therefore, subject to the ESR provisions. Full-Time Employee Analysis and Monitoring provides you with information on who your Full- Time Employees are based on the ESR definition. It also provides you with your designated Measurement, Administrative, and Stability Periods so you can make an educated decision based on how these time periods will affect your specific business. Coverage Adequacy Analysis and Monitoring* identifies new and ongoing employees who are considered Full-Time Employees and indicates if you are offering adequate insurance that meets the Minimum Actuarial Value and is affordable by applying the three Safe Harbor affordability tests to the lowest cost employee-only premium. The analysis also calculates an estimation of potential penalties that could be assessed if you do not offer adequate and affordable coverage by a certain date. With End of Year Reporting, Paychex prepares and files Forms 1094-C and 1095-C with the IRS and provide you with Forms 1095-C to furnish to your Full-Time Employees. *Coverage Adequacy and Monitoring Analysis and Monitoring is included as part of the Paychex ESR Services package; however, clients must receive their health insurance through Paychex Insurance Agency or Paychex HR Solutions PEO to receive this analysis so that Paychex can access their health insurance information. 19

20 Complete Analysis and Monitoring Services 31. What kind of customization is available for the Complete Analysis and Monitoring Services? The Applicable Large Employer analysis can be run for any 12-month date range you choose. This report can also be run with one of three different methods to help you estimate your Full- Time Employee and FTE employee calculation (based on the pay period ending in the month, allocating pay periods across months based on the percentage of the month they were in, or using a year-to-date calculation instead of a monthly calculation). Note: The Applicable Large Employer analysis tracks payroll hours per pay period (not per calendar day). In the event your pay period includes portions of two months, the calculation is an estimation of your actual Full-Time Employee and FTE calculation. To determine your actual Full-Time and FTE calculation, you will need to allocate Hours of Service to the specific calendar month in which they occurred. The Full-Time Employee and Coverage Adequacy analyses can be run on demand at a point in time. The Full-Time Employee analysis also allows you to model different Measurement, Administrative, and Stability Periods. This modeling would then be applied to the Coverage Adequacy analysis. 32. How far back in time can I run an ESR analysis? As a client, you will be able to run an ESR analysis for the shorter of the time you have been with Paychex or three years of prior payroll information. For example, if you have processed payroll with Paychex for three years, you can run an ESR analysis on your prior three years of payroll information. Features and Functionality 33. How frequently does Paychex run analyses and reports? Reports will run automatically at the beginning of every month. 34. Can reports be run on demand? Yes, all reports can be run on demand. To do this, log in to the web portal and go to the Documents and Reports menu and the Custom Reports tab. 20

21 35. Can I model different scenarios? Yes, for the Full-Time Employee analysis, you can model different Measurement, Administrative and Stability Periods. To do this, log in to the web portal and go to the Administration menu. 36. What does modeling mean? Modeling allows you to view what your employees status would look like if you used different Measurement, Administrative, and Stability Periods moving forward. It does not change the current Stability Period, but it changes the current Measurement and Administrative Periods; therefore, it changes the subsequent Stability Periods. After viewing and analyzing models, you may choose to apply the model if you want. 37. What if the analysis appears to have incorrect payroll -related information? Check with your payroll representative first to see if the source data/payroll data is correct. If the payroll data is correct but the analysis still looks incorrect, you should call the ESR Service Center to research. Please note: The data on the ESR reports may not match data on your payroll reports exactly because the data undergoes specific calculations to comply with the ESR provisions. When you are comparing, please do not compare the sums and totals, but rather the employee demographic and setup information. 38. Will I receive a notification if I am missing information? Yes, if there is missing information that prevents the system from performing the calculations, you will see a notification on the reports. 39. When will data not match my payroll reports? The source data should match, and you will be able to view how the data is set up in payroll (such as the employee name, average/standard hours per week, or hourly/salary status). The ESR analysis data will not necessarily match your payroll reports when we use ESR-specific calculations that are not typically used for payroll purposes. 21

22 40. Will I be alerted if I am approaching thresholds that put my busi ness at risk for potential ESR penalties? Alerts are provided in the form of notifications and notifications on the web portal in the following situations that may put your business at risk for potential penalties: when you are approaching or exceeding 50 Full-Time employees and FTEs when you have employees identified as Part-Time approaching or exceeding 30 hours per week during their current Administrative or Measurement Period If you qualify to receive the Coverage Adequacy Analysis and Monitoring service, you will also receive alerts: when our records show that you have not offered affordable or adequate health insurance to some Full-Time Employees and when your business has employees in a current Administrative Period who show a coverage status of not enrolled/not waived. To avoid a potential penalty, you should offer these employees adequate and affordable medical insurance before the start date of their upcoming Stability Period. Note: If your company is part of a Controlled Group and you are not designated as the parent company, then the alerts and notifications you will receive for the Applicable Large Employer analysis will not include information on the entire Controlled Group. Please consult with the designated contact for the Controlled Group parent to determine your Applicable Large Employer status. Applicable Large Employer status is determined by the total hours across the Controlled Group, and only the parent company will have access to this analysis for security purposes. 41. If I am part of a Controlled Group, will I see data for the entire Controlled Group in my analyses? Applicable Large Employer Analysis If you are designated as the parent company in a Controlled Group, then on the Applicable Large Employer analysis you will receive the aggregated data for the entire Controlled Group on the Summary page and data for all the employees across the Controlled Group on the Detail page. If you are not designated as the parent company, then you will see only the data for your 22

23 single company on the Applicable Large Employer analysis. If you are not the parent, then the numbers on the Summary page are for informational purposes only, and you should consult with the contact designated as the parent to determine your Applicable Large Employer status. Full-Time Employee Analysis On the Full-Time Employee analysis, each company will receive a list of the employees who have hours for their individual entity. The analysis will include hours worked for the individual entity as well as an aggregated number for the hours that employee worked across the entire Controlled Group. Coverage Adequacy Analysis On the Coverage Adequacy analysis, each company will receive a list of the employees who have hours for their individual entity. The analysis will include hours worked for the individual entity as well as an aggregated number for the hours that employee worked across the entire Controlled Group. 42. What if I have a company not on Paychex payroll? If the company is not on Paychex payroll, we cannot track the hours for that company. Maintenance 43. How do I make changes to my ESR data? You will be able to make several changes on the web, including changes to Measurement, Administrative, and Stability Periods. You can also make changes to payroll data as you typically would. If you need to change other information, please contact the ESR Service Team at , ext How do I make Stability and Measurement Period changes? You can change the Stability and Measurement Periods through the Administration tab on the web portal by creating a model and then applying the model. 45. How do I change my Controlled Group setup? You can change your Controlled Group setup by contacting the ESR Service Center. 23

24 46. Can my CPA access these reports? Yes, you can provide your CPA with access to the Health & Benefits web portal. Also, you can download the reports from the web portal and send them to your CPA. 47. How are reports accessed? Reports are accessed on the ESR page of the web portal. 48. Do reports come in any format other than Excel? No, reports are available only in Excel format. 49. What is the address the notifications and alerts will come from? You will receive notification alerts from End-of-Year Reporting 50. What is included with my End-of-Year Reporting service? With ESR End-of-Year Reporting, Paychex can both prepare and file Forms 1094-C and 1095-C on behalf of our ESR Services clients. 51. Can I receive ESR End-of-Year Reporting without having the full suite of Paychex Employer Shared Responsibility Services? Our ESR solution includes the year-round analysis and monitoring of employee wage, hour, and coverage information needed to create accurate and complete year-end reports. Therefore, we only offer ESR End-of-Year Reporting as part of the Paychex Employer Shared Responsibility Services package. 52. Is there any information I need to provide to Paychex to ensure my returns are complete and accurate? While Paychex will prepare your IRS reporting information at year-end, you will be able to provide the necessary additional information during the year, and we recommend regular evaluation of your data throughout the year for accuracy. To ensure accurate ESR reporting, you should be sure to: provide and maintain accurate new hire, rehire, termination, and birth dates for all employees; 24

25 ensure employees standard/average hours are accurate when entering payroll; report the actual number of hours employees work on a per-pay-period basis, avoiding lump sum calculations*; provide us with your basic benefits coverage information; use a reasonable method to credit hours of service for employees whose hours can be challenging to track, such as adjunct faculty, commissioned salespeople, per-diem, piece-rate, and airline employees. (A reasonable method should be consistent with IRS section 4980H. Clients should consult with their legal or tax advisor more information and can refer to the ESR provisions Question and Answers page on the IRS website.); and note that information recorded in the Memo Hours field isn t included in your ESR reporting and won t factor into your ESR calculations. (We re working to make this option available in the future.) *Hour and wage data is normally entered in lump sum amounts for employees (e.g., 1,000 hours for January 1, 2014 through December 31, 2014) - if the pay period-end date is on or after the employee's measurement start date, the number of days in this example would be incorrectly counted all the way back to January 1, This will factor extra days into the calculation causing a lower Average Hour value. 53. Will Paychex remit my returns directly to the IRS? Yes, Paychex will file your Forms 1094-C and 1095-C directly with the IRS using our standard Direct-File service; however, if you have fewer than 250 employees, you have the option to have us prepare file-ready forms (File-Ready service) that you would remit to the IRS. If you have more than 250 employees, we will file electronically on your behalf; however, if you want to file directly please notify us so we don t file on your behalf. 54. Will Paychex mail the employee Forms 1095-C directly to my employees? Similar to how we handle Forms W-2, Paychex will prepare the Forms 1095-C and mail them to you to distribute to your employees. We cannot mail the forms directly to your employees. 55. When do the Forms 1094-C and 1095-C need to be filed with the IRS, and when do I need to provide Forms 1095-C to my employees? For the 2015 tax year, Applicable Large Employers must file Forms 1094-C and 1095-C with the 25

26 IRS by February 29, 2016, (since February 28 is a Sunday) or by March 31, 2016, if they file electronically. They must furnish 2015 Forms 1095-C (employee statements) to Full-Time Employees by February 1, Can you prepare forms for my business if I don t receive health insurance through Paychex? Yes, we can prepare Forms 1094-C and 1095-C for clients who don t receive health insurance through Paychex Insurance Agency or Paychex PEO; however, to ensure accurate information is included on the forms, you ll need to provide us with coverage information. Billing* 57. How is the per employee per month fee calculated? These fees are based on the number of active employees (excluding 1099s). 58. When am I billed? You will receive a statement each month for the Paychex ESR Services. You will receive your first statement the month following when you are set up for the services. Please note that this statement is separate from the statement you receive from us for payroll processing. 59. Does it cost extra for Paychex to file Forms 1094-C and 1095-C for my business? There is not an additional cost for Paychex to file Forms 1094-C and 1095-C; it is included in the ESR Services package. 60. How does a Controlled Group get billed? There is a one-time setup fee, an ongoing monthly administrative fee, and an ongoing monthly per employee fee. The setup and administrative fees will be charged to the parent of a Controlled group, and all employees in a Controlled group are combined into one number for the monthly per employee fee (also charged to the parent). Only the parent company receives an invoice. 26

27 61. Will my bill change month-to-month based on employee count? Yes, the bill could potentially change based on employee count as your per employee fee is based on the number of active employees you have each month. 62. Will I receive a bill or will my account by automatically debited? You will receive a monthly statement confirming the amount that will be debited from your bank account for the Paychex ESR Services. *Note: The fee for the Paychex ESR Services is included in certain bundled packages and will not be billed separately in these situations. Contact your payroll representative for more information. The information in this document is not legal or accounting advice and it should not substitute for legal, accounting, or other professional advice. Should you require legal or accounting advice, please consult with your attorney or accountant. 27