Employer Shared Responsibility (ESR) Reporting Requirements

Health Care
Article
6 min. Read
Last Updated: 10/15/2024

a employee uses health care coverage from their employer that follows ESR provisions

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View a quick list of what you need to know at tax time when reporting information to meet employer shared responsibility requirements under the Affordable Care Act (ACA).

One of the goals of the ACA was to help ensure that businesses with a large number of employees do their part to take care of their employees' healthcare needs. The ACA includes provisions to meet this objective. If you're an applicable large employer (ALE) with in general, an average of 50 or more full-time employees, including full-time equivalents, during the prior calendar year, you must fulfill certain employer shared responsibility reporting obligations to the Internal Revenue Service (IRS) regarding the Affordable Care Act's employer shared responsibility provision. ESR reports let the IRS know you're meeting your obligation to offer affordable health care coverage to your workers.

What Is Employer Shared Responsibility (ESR)?

The shared employer responsibility provisions under the ACA provide that ALEs must offer minimum essential coverage that is affordable and provides minimum value to full-time employees and their dependents or risk a potential assessment if at least one full-time employee receives a premium tax credit when purchasing coverage in a government marketplace. Affordability and minimum value are determined by IRS-approved calculations. Annual ESR reporting informs the IRS of the number of full-time employees your business employed for the tax year. An ALE must also report about the health insurance and coverage your business offers these workers. According to the IRS, employer shared responsibility provisions are sometimes referred to as "the employer mandate" or the "pay-to-play provisions."

What Is the Employer Shared Responsibility Assessment and What Triggers It?

ESR reporting is the tool the IRS uses for tighter enforcement of the ACA's employer shared responsibility provisions. Informational reporting gives the IRS the data to determine if the ALE has fulfilled its responsibilities in offering essential health care coverage to eligible employees. The trigger for an employer shared responsibility assessment is at least one full-time employee receiving a premium tax credit when purchasing health insurance coverage in a government marketplace. The ALE must make a payment to the IRS. Additionally, informational penalties are levied against an ALE for failing to report to the IRS on time.

ESR Reporting Requirements: What You Need To Know

ALE status: In general, an ALE is any employer with an average of 50 or more full-time employees, including full-time equivalents, during business days of the previous calendar year. A full-time employee works an average of 30 hours per week or 130 hours per month. ALE status is based on workforce hours from the previous year. Please note different rules apply to new businesses.
Offers of coverage: The ESR provisions require that ALEs offer minimum essential coverage to at least 95% (or all but five) of full-time employees and their dependents to avoid one of the potential assessments. Remember that the employer is still at risk of being assessed another type of assessment for not offering coverage that meets minimum actuarial value or affordability requirements to all full-time employees if any of these employees who are not offered adequate and affordable coverage receive a premium tax credit.
Minimum essential coverage (MEC) and minimum actuarial value: Most broad-based medical plans meet the requirements for MEC and minimum value. A plan must cover at least 60 percent of the cost of medical expenses to qualify as meeting the minimum actuarial value requirement.
Affordable coverage: The IRS has offered three optional safe harbor methods to help you determine this amount:
- Form W-2 Safe Harbor
- Rate of Pay Safe Harbor
- Federal Poverty Line Safe Harbor

For specifics about the three affordable safe harbors, visit the IRS website.

Forms to file: You must file forms 1094-C and 1095-C by February 28, 2025, if filing on paper, or March 31, 2025, if filing electronically.
Forms to employees: Generally, you must provide applicable employees with copies of Form 1095-C by March 3, 2025, as the due date is automatically extended from January 31, 2025. The form details what type of coverage they were offered, for which months they were offered, and the cost of the least expensive employee contribution to the employee-only option offering MEC and minimum actuarial value.
Penalties: If you fail to offer affordable and adequate coverage to full-time employees and their dependents, you risk a potential assessment when at least one full-time employee receives a premium tax credit. You may also face information penalties for incomplete, inaccurate, or late filing.

ESR Reporting Is Critical for Tax Compliance

Your employer shared responsibility payment helps safeguard your employees' health and well-being, upon which your business depends. Group health insurance offers various options to meet your employees' health needs and your business budget. At Paychex, we can help you find creative solutions that will help stretch both your healthcare dollars and those of your employees. With group health insurance and submitting your ESR reports correctly and on time to the IRS, you can avoid costly penalties while enjoying the benefits of a healthy workforce.

Employer Shared Responsibility FAQs

Below are some common questions and concerns for businesses of varying sizes and what information is needed to address those concerns.

How Much Are the ESR Assessments and Information Reporting Penalties?
How Much Are the ESR Assessments and Information Reporting Penalties?

There are 2 types of ESR assessments.
An ALE is at risk of a Type A assessment when an ALE does not offer minimum essential coverage to full-time employees and dependents, and at least one full-time employee receives a premium tax credit. Even if the ALE meets the offer of coverage threshold, it is at risk of a Type B assessment if one or more full-time workers were not offered affordable coverage that meets minimum value, and one or more of these employees receive a premium tax credit.
The 2024 4980H(a) tax year assessment is estimated to be $2,000 per employee for the year after excluding the first 30 employees. The 4980H(b) assessment is estimated at $3,000 per employee. An employer will receive either one type of assessment or the other. There is also an information reporting penalty of $310 per employee return for failing to timely file your ESR returns with the IRS or furnishing forms to applicable employees.
I Have 20 to 40 Employees, So I Am Not an ALE, But How Will I Know if I Am Approaching the Threshold?
I Have 20 to 40 Employees, So I Am Not an ALE, But How Will I Know if I Am Approaching the Threshold?

You will need to have consistent, accurate employee work-hours reports. ALE status is determined by full-time and full-time equivalent employees. According to the IRS, a full-time employee works an average of at least 30 hours per week. However, included in the full-time employee count that determines ALE status is the total of full-time equivalents (FTEs). You must determine your FTEs by aggregating hours of service per month for employees who were not full-time employees (capped at 120 per employee) and dividing by 120. Track this information throughout the year to stay on top of your status.
My Company Averages between 40 and 60 Employees, with Many Variable-Hour Employees that Put Us Close to the ESR Threshold. I’m Worried I May Cross the ESR Threshold without Knowing It.
My Company Averages between 40 and 60 Employees, with Many Variable-Hour Employees that Put Us Close to the ESR Threshold. I’m Worried I May Cross the ESR Threshold without Knowing It.

The best practice would be to conduct a monthly review of paid and unpaid hours and average hours worked per month. Use these numbers to determine full-time and FTEs and develop projected numbers for the coming months based on your company's monthly schedules.
I Am an ALE, But Unsure Which Employees Should Be Offered Coverage to Avoid Assessments.
I Am an ALE, But Unsure Which Employees Should Be Offered Coverage to Avoid Assessments.

ALEs must offer affordable and adequate coverage to all full-time employees and their dependents to avoid the risk of an assessment under 4980H(a) and 4980H(b) if at least one full-time employee receives a premium tax credit.
You may need a more in-depth analysis of payroll and human resources data to determine the full-time status of your employees. There are two methods for identifying full-time employees: the look-back method, which uses a look-back period of 3 to 12 months, or the monthly measurement method.
For both methods, the critical data needed is the average hours of service per week. Determine the average weekly hours of service per month. If an employee works an average of 130 hours a month, that is treated the same as working 30 hours per week. Under the monthly measurement method, an employee with an average of 30 hours a week would qualify as full-time for that month. Under the look-back method, an employee’s average hours of service a week through a measurement period determines the employee’s status during a subsequent period.
I Am an ALE, But I Don’t Know if My Coverage Meets the Minimum Actuarial Value or Affordability Requirements.
I Am an ALE, But I Don’t Know if My Coverage Meets the Minimum Actuarial Value or Affordability Requirements.

Compiling the data needed here requires coordination between the payroll and benefits departments. In general, coverage is considered affordable if it does not exceed 9.5% of the employee's annual household income. You can use one of three safe harbor tests to determine coverage affordability. Minimum actuarial value means that the plan covers at least 60% of the total allowed cost of benefits expected to be incurred.