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Payroll Data is Key to ESR Reporting

Health Care

Updated: July 6, 2016

Reporting requirements under the Affordable Care Act (ACA) call for high levels of coordination between payroll and human resources departments. One of the biggest changes this year is the Employer Shared Responsibility (ESR) provisions that go into effect for many applicable large employers (ALEs), those with 50 or more full-time and full-time equivalent employees.

Correct payroll data is vital to the end-of-year reporting process and in assessing whether an employer is subject to the ESR provisions. Having best practices in place can help ensure accuracy and help reduce the likelihood of penalties:

  • Coordinate with human resources for accurate reporting. Payroll provides much of the data needed for Forms 1094-C and 1095-C, used for end-of-year ESR reporting in 2016. The information needed to determine ALE status, coverage affordability, and eligible employees requires new levels of communication among departments.
  • Know the appropriate reporting time periods. Employers may choose a look-back period of between three months and one year as the standard measurement period. Employee hours of service during this period are used to determine the full-time status for the subsequent stability period, and payroll needs to ensure the data provided covers the appropriate time period.
  • Ensure accurate information for hours worked. Service hours help determine ALE status and which employees are full-time (and may put the employer at risk for penalty if they are not offered adequate, affordable coverage). For entering hours of employees who are difficult to track — adjunct faculty, commissioned salespeople, per diem, etc. — IRS section 4980H provides some guidance on “reasonable” methods for crediting hours of service. Payroll may also note personnel changes that affect the employee’s full-time status (and, potentially, the employer’s ALE status).
  • Provide accurate information on healthcare coverage. Under the ESR provisions, ALEs must offer full-time employees, and their dependents, healthcare coverage that is adequate and affordable or face potential penalties. Payroll is essential to ensuring which employees should be offered coverage and providing the cost of that coverage on Form W-2, wage, and tax statements.
  • Assist in determining affordability. Affordable healthcare under ESR is coverage that does not cost the employee more than 9.5 percent of his or her annual household income. However, the IRS allows three safe harbors to determine affordability. Payroll can help the employer determine affordability based on Form W-2 and employee salary and hourly rate information. 

Overall, accurate payroll data and coordination among human resources, benefit managers, and payroll will be key to having a smooth reporting period. Paychex offers ESR services to help guide your business through the 2015 ESR reporting process and help ensure you’re on the right track throughout the year.


This website contains articles posted for informational and educational value. Paychex is not responsible for information contained within any of these materials. Any opinions expressed within materials are not necessarily the opinion of, or supported by, Paychex. The information in these materials should not be considered legal or accounting advice, and it should not substitute for legal, accounting, and other professional advice where the facts and circumstances warrant.
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