Employee Benefits Alert: Mass. DUA Issues Filing Instructions on FSC and HIRD Form Requirements

Massachusetts Division of Unemployment Assistance Issues Filing Instructions on the Fair Share Contribution and HIRD Form Requirements

The Massachusetts Division of Unemployment Assistance (DUA) recently issued additional guidance under the Fair Share Contribution (FSC) and HIRD Form Requirements of the Massachusetts Health Care Reform Act. Though modestly titled “Filing Instructions,” the document, which is organized into 11 separate topics or headings, provides a useful compliance roadmap. This client advisory summarizes the key topics of this DUA document. (Click here for a copy of the DUA document.)

The DUA’s filing instructions open with a general overview of the FSC requirement. Employers with 11 or more full-time equivalent (FTE) employees who do not make a “fair and reasonable contribution” to their employees’ health insurance, as defined in regulation, are required to pay a per-employee Fair Share Contribution of up to $295 annually. “Full-time equivalent” for this purpose means 2,000 payroll hours (not including workers employed less than one calendar month in the “applicable base period”)—i.e., 22,000 payroll hours. The “applicable base period” is the 12-month period from October 1st through September 30th. When employers file the first annual report between October 1 and November 15, 2007, they will be using employment and health insurance data for the applicable base period, from October 1, 2006 to September 30, 2007.

The balance of the DUA’s instructions flesh out the particulars of the FSC compliance steps and the information that needs to be filed in connection with the employer HIRD form. Set out below are some of the key features and highlights.

What Is the Difference between the Fair Share
Contribution Report and the Unemployment
Health Insurance Report Filed with DUA?

The DUA cautions employers not to confuse the FSC contribution with the Unemployment Health Insurance (UHI) contribution. Since 1990, DUA has been administering the state’s unemployment insurance program, which requires a contribution from employers with an average of at least six employees in a quarter. The UHI contribution is based on one of three tax rates, depending upon the length of time an employer has been in business. The assigned UHI tax rate is applied to the first $14,000 in wages paid to each employee during the calendar year. All employers in business for two years or more are subject to the DUI filing requirement.

In contrast, the FSC rules apply to employers who have at least 22,000 payroll hours during an applicable base period (October 1st to September 30th). Liability for FSC payments is determined by whether the employer has made a “fair and reasonable contribution” to employees’ health insurance coverage. These employers must file annually with DUA between October 1st and November 15th so that FSC liability can be determined.

FSC and HIRD filing is accomplished on-line via the DUA website. Employers who receive a notice to file for FSC from DUA must file an on-line report with DUA. DUA identifies these employers through their quarterly Unemployment Insurance (UI). A notification to file for FSC will be mailed by DUA to the employer’s legal address of record. Employers who receive a notice to file for FSC from DUA must file, even if they do not have 11 FTE employees, in order to avoid non-filer notices and potential tax assessments. (Employers with fewer than 11 FTE employees will find the filing process relatively easy, since only one data element will be required, i.e., the number of payroll hours of employees who worked at least one calendar month during the base year.) Not all employers will receive a notification to file. Any employer who has at least 11 full-time equivalent employees in the applicable base period is required to file the FSC/HIRD reports, even if they do not receive a notice to file from DUA.

The filing period is October 1st through November 15th for each year (although the on-line filing system is available all year). Determining whether an employer owes an FSC contribution is based on the period from October 1st through September 30th, with the filing for that base period due by November 15th. Liability is based on employment levels, payroll hours and health insurance coverage available to its employees.

Employers must be registered as a UI-subject employer with DUA and must have already received their 8-digit DUA number. The employer must use their unique DUA number each time they access this FSC filing system to initiate or continue their FSC filing process. Special rules apply to new employers and to employers involved in corporate reorganizations.

Employers will be asked to enter their DUA number at the beginning of the filing process and will be presented with the name and mailing addresses that they have previously provided to DUA. They are then asked a series of questions. Once the questions are answered, the employer will be asked to confirm its answers. If the employer cannot complete the filing process in one session, it can exit the system and return later to complete the filing. The DUA is providing on-line help with the filing process.

In connection with the determination of whether an employer satisfies the FSC requirement, there are two tests—a primary test and a secondary test. Whether the employer is subject to the FSC rules depends on the number of its full-time equivalent employees. But once it is determined that an employer is subject to the FSC rules, the FSC tests are applied based on “full-time” employees only. Irrespective of the test that an employer proposes to pass, the DUA is collecting data on both.

The DUA notes that the primary test has been changed from that which was originally specified in the Division of Health Care Finance and Policy regulations. Under the revised rules, the yearly average of the number of full-time employees enrolled in an employers group health plan is based on the last day of each calendar quarter. Quarter ending dates are December 31st, March 31st, June 30th and September 30th. For purposes of the primary test only, “full-time employees” are employees who worked “full time” a majority of their time during the calendar quarter ending on the date indicated. Full-time for this purpose is the lower of:

“Full-time health plan benefits” means the equivalent level of employer contribution to the employer’s health plan that is offered to full-time employees.

“Part-time employees” are employees who worked part time a majority of their time during the calendar quarter ending on the date indicated—i.e., less than the number of weekly payroll hours to be eligible for “full-time health plan benefits” and less than 35 payroll hours per week.

It is with respect to the secondary test that the DUA document makes some important changes. Under this test, the employer must offer to pay at least a portion of the cost of a health insurance premium under its group health plan for all full-time employees employed at least 90 days during the applicable 12-month base period. This offer must have been in effect by July 1, 2007.

Note

In a marked departure from the original Division of Health Care Finance and Policy regulation in the matter, for purposes of the secondary test, “full-time employee” means those employee positions that met the requirement to be considered full time by the employer and its health insurer when contracting for employer-sponsored health insurance.

Employers must submit the following in connection with their employer HIRD form:

Employers liable for the FSC contribution have a choice of payment schedule. They may choose to pay the full amount by November 15th, to pay semiannually or to pay quarterly.

DUA regulations require electronic payment of the FSC contribution using an ACH debit method that automatically debits the employer’s account. To ensure that employers are prepared for this debit activity, DUA will send the employer a reminder of the upcoming debit date and amount about two weeks before DUA debits the employer’s account on each prescheduled due date. Employers will need to provide DUA with their banking information for ACH debit purposes. This includes the bank routing number and their bank account number. When an employer fails to file timely, DUA may first send a reminder notice. If payment is not forthcoming, DUA will estimate the FSC contribution and issue a bill to the employer.

Many of the key filing and other compliance mandates of the Massachusetts Health Care Reform Act are now upon us. With its “Filing Instructions,” the DUA has endeavored to simplify the process and, provided that the on-line system that it has developed as part of the process works as advertised, it appears to be well on its way to successful implementation of its regulatory mandate. But there is still a learning curve that employers must traverse, and the filing deadlines are getting shorter by the day. Anecdotal evidence suggests that many employers are blissfully unaware of these and other requirements of the Massachusetts Health Care Reform Act. It’s a safe bet that the level of awareness will increase sharply once the DUA begins its compliance efforts in earnest.

If you have any questions concerning the information discussed in this advisory or any other employee benefits topic, please contact one of the attorneys listed below or your primary contact with the firm who can direct you to the right person. We would be delighted to work with you.

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