Anabelle Davidow / Article / 3 Mar 2026

Affordable Care Act (ACA) filing season is not just a compliance deadline - it’s a cross-functional stress test. For Applicable Large Employers (ALEs), the accurate preparation and submission of Forms 1094-C and 1095-C requires precise coordination between Human Resources and Payroll. When these departments operate in silos, errors multiply, deadlines tighten, and the risk of IRS penalties increases significantly.

Strong HR and Payroll alignment is not simply a best practice during ACA reporting season - it is essential.

The ACA Reporting Framework: Shared Responsibility

Under the ACA’s Employer Shared Responsibility provisions, ALEs must:

• Offer affordable, minimum value coverage to full-time employees
• Track employee eligibility and hours of service
• Report coverage details accurately to the IRS
• Provide Form 1095-C to employees by the annual deadline

Forms are filed with the Internal Revenue Service (IRS), which uses the data to enforce employer mandate penalties and verify individual coverage requirements.

The challenge? HR and Payroll each hold different pieces of the compliance puzzle.

What HR Controls

HR teams typically manage:

• Employee classifications (full-time, part-time, variable-hour, seasonal)
• Benefit eligibility and enrollment data
• Offer of coverage details
• Waivers and declinations
• Termination dates
• Measurement and stability periods

In short, they understand who was offered coverage and when.

What Payroll Controls

Payroll teams oversee:

• Hours worked
• Wages and compensation
• Deduction amounts for employee premiums
• Hire dates
• Rehires
• Leave tracking (FMLA, unpaid leave, etc.)

They maintain the compensation and hour-tracking data used to determine full-time status under ACA rules.

Where Misalignment Causes Risk

When HR and Payroll data are not synchronized, reporting inaccuracies follow. Common breakdowns include:

1. Incorrect Full-Time Determinations

ACA full-time status is based on averaging 30+ hours per week (or 130 hours per month). If Payroll hour tracking does not align with HR’s classification records, an employee may be:

• Reported as part-time when they qualify as full-time
• Omitted from an offer of coverage
• Incorrectly coded on Form 1095-C

This can trigger IRS Letter 226J penalty assessments.

2. Inconsistent Offer of Coverage Codes

Form 1095-C requires specific Line 14 and Line 16 codes. If HR records show an offer was made, but Payroll deductions do not reflect enrollment (or vice versa), reporting codes may contradict each other.

The IRS systems cross-check these inconsistencies automatically.

3. Premium Affordability Errors

Employers must meet affordability thresholds based on IRS-defined safe harbors. Payroll provides wage data used to determine affordability under:

• W-2 Safe Harbor
• Rate of Pay Safe Harbor
• Federal Poverty Line Safe Harbor

If Payroll compensation data is outdated or misapplied, affordability calculations can fail - even if coverage was offered.

4. Termination & COBRA Reporting Gaps

Termination dates often sit in HR systems, while Payroll processes final wages separately. A misaligned termination date can:

• Extend coverage reporting incorrectly
• Trigger incorrect Line 16 codes
• Create perceived non-compliance

Accuracy depends on both systems reflecting the same employment timeline.

IRS Enforcement Is Increasing

With increased funding and improved data analytics capabilities, the Internal Revenue Service continues expanding enforcement efforts. ACA penalty notices are becoming more common, and response windows are tight.

Penalty exposure includes:

• Section 4980H(a) penalties (failure to offer coverage)
• Section 4980H(b) penalties (coverage unaffordable or not minimum value)
• Per-form reporting penalties for inaccurate or late filings

Even small reporting errors can snowball into substantial financial exposure.

Alignment between HR and Payroll significantly reduces this risk.

The Cost of Siloed Systems

Many organizations operate with:

• Separate HRIS and Payroll platforms
• Manual data exports
• Spreadsheets for ACA tracking
• Limited real-time integration

When systems do not “speak” to each other, manual reconciliation becomes necessary - increasing the chance of:

• Duplicate records
• Missing Social Security Numbers
• Incorrect coverage start dates
• Inaccurate coding

ACA reporting is unforgiving. Even minor discrepancies can generate IRS correspondence months after filing.

The Benefits of Alignment

When HR and Payroll work collaboratively throughout the year - not just at filing time - organizations gain:

• ✔ Greater Accuracy: Consistent employment and coverage data ensures correct 1095-C coding.
• ✔ Faster Filing: Aligned systems reduce reconciliation time during crunch periods.
• ✔ Reduced Penalty Risk: Data integrity prevents mismatches that trigger IRS notices.
• ✔ Improved Audit Readiness: Documentation is centralized and defensible.
• ✔ Better Employee Experience: Employees receive accurate forms on time, reducing confusion and internal inquiries.

Best Practices for HR & Payroll Alignment During ACA Season

1. Conduct a Pre-Filing Data Audit

Before generating forms, reconcile:

• Employee classifications
• Hire and termination dates
• Hours worked vs. eligibility status
• Benefit enrollment records
• Payroll deductions

Discrepancies should be resolved before forms are produced.

2. Establish Shared Ownership

ACA compliance should not “belong” solely to HR or Payroll. Designate a cross-functional compliance lead or protocol responsible for:

• Data validation
• Timeline tracking
• Vendor coordination
• IRS correspondence management

3. Standardize Definitions

Ensure both departments use consistent definitions for:

• Full-time status
• Measurement periods
• Waiting periods
• Affordability methodology

Internal inconsistencies often lead to reporting errors.

4. Maintain Year-Round Communication

Waiting until January to reconcile data creates unnecessary pressure. Instead:

• Schedule quarterly check-ins
• Review eligibility reports regularly
• Confirm safe harbor strategies annually
• Track workforce fluctuations

Proactive communication eliminates last-minute surprises.

Filing Season Is a Deadline - But Compliance Is Ongoing

ACA compliance does not begin in January and end in March. The reporting season simply reflects the accuracy - or inaccuracy - of the prior year’s processes.

Organizations that treat HR and Payroll as collaborative partners rather than separate functions experience:

• Fewer IRS notices
• Lower penalty exposure
• Greater operational efficiency
• Increased executive confidence

Conversely, those that operate in silos often learn about misalignment only after receiving IRS correspondence.

Final Thoughts

ACA reporting is technical, deadline-driven, and heavily regulated. It requires precision across employment classification, coverage eligibility, affordability calculations, and IRS coding standards.

No single department holds all the necessary data.

HR understands eligibility and benefits. Payroll controls compensation and hours. Only when these functions operate in alignment can an organization confidently meet its ACA obligations.

As filing season intensifies and IRS enforcement continues evolving, employers should view HR-Payroll alignment not as administrative coordination - but as a core compliance strategy.

Because when it comes to ACA reporting, accuracy isn’t optional. And alignment is the foundation that makes accuracy possible.