The Affordable Care Act (ACA) has significantly shaped how HR teams manage benefits eligibility, employee classification, and annual reporting. For organizations subject to ACA regulations, compliance isn’t just a once-a-year task — it’s a continuous process that requires year-round vigilance.
ACA compliance is crucial for HR because missteps can lead to costly penalties, time-consuming audits, and even lawsuits. Whether you’re part of a small HR team or managing compliance for a large organization, understanding ACA rules and requirements is essential to protecting your company and supporting your workforce.
Let’s break down what HR needs to know to stay compliant and streamline ACA responsibilities.
Determine if your organization is an applicable large employer (ALE)
What HR needs to know
The first step in ACA compliance is determining if your organization qualifies as an Applicable Large Employer (ALE). An ALE is defined as having an average of 50 or more full-time employees, including full-time equivalent employees, during the prior calendar year.
If you’re an ALE, you’re subject to the ACA’s employer mandate and reporting requirements.
HR’s role in ALE determination
HR teams are often responsible for calculating employee counts across multiple departments and locations. This involves not only tracking headcount but also factoring in hours worked by part-time staff to determine full-time equivalents. Getting this calculation right is critical — misclassifying your organization can result in missed responsibilities and penalties.
Understand ACA coverage and affordability requirements
Employer shared-responsibility mandate
ALEs must offer Minimum Essential Coverage (MEC) to at least 95% of their full-time employees (and their dependents) to avoid penalties. The coverage must meet Minimum Value (MV) standards, meaning it pays at least 60% of the total allowed costs of benefits.
Affordability requirements
Coverage must also be considered affordable. For 2025, the employee’s share of the premium for self-only coverage must not exceed a set percentage of their household income (adjusted annually by the IRS).
Safe harbors HR can use
Because employers often don’t have access to household income data, the IRS allows three affordability safe harbors HR can apply for:
- W-2 safe harbor
- Rate of pay safe harbor
- Federal poverty line (FPL) safe harbor
Using a safe harbor method can help protect your organization from penalties — even if an employee receives a subsidy through the Exchange.
Track and classify employees correctly
Full-time status under the ACA
The ACA defines a full-time employee as one who works an average of 30 hours or more per week (or 130 hours per month). Accurate classification is critical to determine who is eligible for coverage.
HR’s measurement method options
HR can choose between:
- Monthly measurement method — assesses hours worked each month
- Look-back measurement method — also known as the ACA lookback period, measures hours over a defined timeframe to determine eligibility for a future stability period
Selecting the right method and applying it consistently ensures compliance and helps avoid surprises at year-end reporting. HR should also understand how ACA rehire rules apply when an employee returns after a break in service, as this affects how measurement periods and benefits eligibility are handled.
Fulfill ACA reporting requirements
IRS forms to file
Employers subject to the ACA must file:
- Form 1095-C — provided to employees to detail their coverage
- Form 1094-C — a transmittal form submitted to the IRS summarizing data from all 1095-Cs
Form 1094-C sections HR should know
HR should be familiar with key parts of the 1094-C form, including:
- ALE member information
- Aggregated ALE group indicators
- Certifications of eligibility
Key reporting deadlines
- January 31: 1095-C must be furnished to employees
- February 28 (paper)/March 31 (electronic): Forms 1094-C and 1095-C must be submitted to the IRS
Missing these deadlines can result in significant per-form penalties.
Avoid common HR mistakes and penalties
Common pitfalls
- Misclassifying employees’ full-time status
- Failing to track hours for variable-hour employees
- Providing unaffordable coverage
- Missing reporting deadlines
Potential penalties
Penalties can range from hundreds to millions of dollars depending on the size of your workforce and the violation. In some cases, penalties apply per employee, per month of noncompliance.
Use tools and strategies to simplify ACA compliance
Compliance can be overwhelming without the right systems in place. Consider leveraging:
- Benefits administration technology for eligibility tracking
- Outsourcing ACA reporting to partners with specialized tools to automate reporting
Best practices for HR teams
- Start ALE determination early in the year
- Regularly audit employee classification and hours worked
- Document safe harbor decisions and affordability calculations
- Partner with vendors that offer compliance support
- Stay updated on IRS changes to thresholds and deadlines
Enhance compliance through employee wellbeing programs
A strong employee wellbeing strategy can indirectly support ACA compliance by reducing absenteeism, increasing productivity, and improving retention. Healthier, more engaged employees are also more likely to enroll in and use the benefits you offer — making your ACA coverage investment more impactful.
Conclusion
ACA compliance is a year-round responsibility that requires diligence from HR teams. From determining ALE status to tracking employee eligibility and submitting accurate reports on time, every step is critical.
By understanding your obligations, using smart tools, and collaborating across departments, HR can take control of ACA compliance and reduce the risk of costly mistakes. Start with ALE determination, monitor full-time status throughout the year, and use technology to streamline reporting—so you can focus on supporting your workforce, not just filing paperwork.
