The U.S. workplace is changing rapidly, and so are the tools and systems needed to manage it. Beyond the impact of increased diversity, flexible hours, and the ever-present mandate to control labor costs, employers are now confronting complex challenges that will fundamentally change human resource (HR) operations and metrics.

1. Employee Benefit Plan Review | March 2015 Reprinted with Permission
The ACA, Unpaid Leave and its
Impact on Workforce Planning
By Christopher Ryan and Sushma Tripathi
T
he U.S. workplace is changing rapidly, and so are the tools
and systems needed to manage it. Beyond the impact of
increased diversity, flexible hours, and the ever-present
mandate to control labor costs, employers are now confronting
complex compliance challenges that will fundamentally change
human resource (HR) operations and metrics.
Although the effects of the Affordable Care Act (ACA) on
employers are already well documented, the intricate relationship
between the ACA and the Family and Medical Leave Act (FMLA)
has received less attention, despite the daunting administrative
requirements and risk of financial penalties from both the
Internal Revenue Service (IRS) and the U.S. Department of Labor
(DOL). Arguably, the compliance risk associated with sloppy HR
recordkeeping has increased significantly. However, employers
can help mitigate this risk through thoughtful integration and data
flows of critical HR systems.
The ACA and FMLA Are Changing
Workforce Planning
The ACA laid out a framework for expanding affordable coverage to
more Americans, by increasing coverage options through employer
sponsored plans, private insurance, Medicare, and Medicaid. In this
new ACA world, employers retain pre-tax status for group health
plans, but the ACA mandates who must be considered “Full Time”
for purposes of offering health coverage to avoid employer Shared
Responsibility tax penalties. This new hours-of-service definition—
sometimes referred to as the 30-hour rule—has created shifts in
workforce planning.
Offering health benefits to part-time employees exceeding the 30
hours per week threshold can be expensive. Health benefits costs
may constitute 10 percent to 25 percent of the total labor cost
for part-time hourly workers. But limiting the hours of part-time
employees to less than 30 per week has its own challenges, and
employers must be mindful of potential legal violations based on
interference with any right to receive benefits. Employers need
to consider the trade-offs between higher benefits costs versus
higher costs for staffing, scheduling, training, and turnover. Rather
than cutting hours, some employers have converted a portion
of their part-time workforce to full-time status, or have dropped
health coverage for employees altogether.
The Role of Unpaid Leave in ACA Compliance
The ACA requires organizations to take into account three types
of special unpaid leaves—the Family and Medical Leave Act
(FMLA), jury duty, and the Uniformed Services Employment
and Reemployment Rights Act (USERRA)—in order to calculate
employees’ total hours of service. From a compliance perspective,
jury duty is well understood, and USERRA, while helping to
protect the reemployment rights of returning U.S. service
members, typically involves only a small part of the workforce.
FMLA compliance, however, is a different matter. Most employees
in your workforce will experience the birth or adoption of a child,
a personal illness or illness of a child, spouse, or parent. Most
employees will have a qualifying FMLA event at some point in
their lives.
Specifically, the FMLA provides up to 12 weeks of unpaid, job-
protected leave for qualified events related to personal and family
health and well-being. It also provides up to 26 weeks of unpaid job-
protected leave for military caregivers. Employers who interfere
or retaliate against a qualified leave may be subject to DOL inquiry,
with potential for litigation, fines and penalties. FMLA inquiries by
the DOL are at an all time high, and the DOL has a program to refer
uninvestigated cases to third party lawyers through a program with
the American Bar Association. In extreme cases, FMLA fines and
court settlements have reached millions of dollars.
Expanded Use of FMLA
Key demographic trends will likely drive higher usage of FMLA over
time. The number of single households in the United States has
grown significantly, while millions of baby boomers are reaching
retirement age. In the future, the average U.S. worker is more
likely to have family care obligations (elderly parents or children),
but less likely to have assistance from a family partner.
Also, the average age of part-time workers will increase as fewer
18 to 24 year olds join the workforce over the next decade, even as
demand for part-time employees increases. Part-time employment
may become more prevalent and permanent in the future. Older
experienced part-time workers may have increased expectations
for benefits, paid time off, and family accommodation.
The Importance of Tracking Unpaid Leave
Historically, FMLA tracking, especially for part-time and variable
hour positions, has not been an operational priority. Frontline
supervisors are focused on production and direct labor costs
and may be drawing their labor from a flexible pool. For the HR
department, unpaid leave tracking can be so labor-intensive that
some companies err on the side of leniency to ensure compliance
rather than through consistent tracking of eligibility and time off.
Given that FMLA hours are now directly part of ACA full-time status
calculations, some employers may need to rethink their FMLA

2. Employee Benefit Plan Review | March 2015 Reprinted with Permission
The ACA, Unpaid Leave and its Impact on Workforce Planning Employee Benefit Plan Review
compliance policies. It is easy to envision a scenario under the
ACA in which careless or inaccurate tracking of unpaid leave could
place employers—and their employees—in a difficult situation.
Consider the following example:
Todd, an hourly employee, requests a schedule change to leave work
two hours early to care for or a family member on an as-needed basis.
Todd and his supervisor come to an undocumented understanding and
his supervisor clears his schedule as needed. When Todd clocks out
for the day, however, the employer does not consider Todd’s early leave
as qualifying unpaid leave. Prior to passage of the ACA, as long as both
Todd and his supervisor support the arrangement, there is a small
likelihood of negative consequences unless Todd’s peers are subject to a
different standard.
Under the FMLA and the ACA, Todd will not be compensated for the
hours he left work early, but the employer still needs to include these
hours in Todd’s total hours of service for calculating ACA full-time
eligibility. Although Todd was only paid for 28 hours of service this
week, under the ACA, his hours of service totaled 30, requiring Todd to
be offered health care coverage under the ACA.
Readers should note that the ACA has a precise definition for
variable hour employees. In circumstances in which an employee’s
work hours fluctuate with uncertainty around the 30-hour limit,
the recorded special leaves hours become a part of ACA eligibility
determination. Within a pool of variable hour employees, how
many employees are making adjustments to their schedules that
could be interpreted as a qualifying FMLA event?
Risk of Double Examination
Employer compliance with ACA Shared Responsibility
ultimately boils down to notices and tax filings, along with the
potential for IRS inquiries, audits, and reconciliations. The
employer is accountable for the accuracy and retention of all
relevant HR records to complete IRS Forms 1094-C and 1095-
C. These filings document the month-to-month ACA full-time
status and coverage status for each employee, and the employers’
compliance with Shared Responsibility requirements. In the event
of an IRS audit, the employer may be asked to demonstrate on a
case-by-case, month-by-month basis how they determined ACA
full-time eligibility, as well as proof that coverage was offered.
As part of the audit, the FMLA data and recordkeeping practices
may be exposed. Any irregularities uncovered by the IRS
investigation could trigger DOL inquiries as well as challenge the
integrity of the employer’s ACA tax filings. Conceivably, an employer
could wind up paying both ACA tax penalties and DOL penalties.
Similarly, a DOL-initiated inquiry into FMLA practices could trigger
an IRS audit. Noncompliance of either one could expose the other!
The Importance of Defensible Data
The myriad data elements required in filling out Forms 1094-C and
1095-C are no easy task. These data elements may reside in HR
systems that have traditionally been managed separately: payroll,
benefits, time and labor, and leaves tracking.
But proof of compliance requires defensible data. In the event
of an audit, the auditor will be looking for a trail of transactions,
events, and communications. The IRS also may ask the employer to
reconcile discrepancies on a per-person basis. Without consistent
information flow, the employer could be penalized for inaccurately
reporting hours of service. Some issues to consider:
• Where does the data originate?
• Where is the data housed?
• Is there one consistent master record or is key data contained
in multiple systems?
• Who in the organization will be responsible for responding to
IRS inquiries?
Keep in mind that assembling the required data may take weeks to
compile and organize a response.
ACA compliance demands that employers access their data easily
and accurately. Across the entity, consistency in recordkeeping is
also critical. Mapping all source data from each HR system into
the ultimate ACA tax filing process will uncover potential
compliance vulnerabilities.
Conclusion
ACA and FMLA compliance present unique challenges to
employers. An inquiry or audit of either statute creates risk
of exposure to the other, and poor FMLA recordkeeping can
challenge an employer’s ACA compliance accuracy, including
the fundamental integrity of an employer’s ACA tax filings. The
risk of double examination indicates that FMLA time-tracking is
increasingly critical as ACA goes into effect. It is imperative that
employers begin tracking unpaid leaves correctly now.
ACA compliance requires a multi-disciplinary approach, including a
more holistic view of HR data requirements. The most effective HR
systems provide:
• Transparency from data source to filing with full audit trail;
• The ability to compile all necessary information for a specific
employee case;
• Proactive notification of critical compliance thresholds; and
• Payroll, benefits, time, and leave information to be
administered consistently across traditional functional
boundaries.
In the new ACA world, HR can no longer operate in silos. HR
systems must be viewed through the lens of human capital
management, with interoperability across HR, benefits,
finance, and operations.
Christopher Ryan is Vice President of Strategic
Advisory Services at ADP. Sushma Tripathi is
Vice President, Workforce Planning and Benefits
Consulting of Strategic Advisory Services at ADP.