The Affordable Care Act (ACA), signed into law by President Barack Obama on March 23 2010, offers growth opportunity for companies like ADP (NASDAQ:ADP) and Paychex (NASDAQ:PAYX). The Employer Shared Responsibility (ESR) provision of the ACA is of primary importance to these companies since it impacts businesses in the U.S. Both ADP and Paychex have rolled out solutions for small, medium and large sized businesses to deal with the complexities behind compliance with the ACA. We believe that businesses will very soon start purchasing these solutions in order to avoid being penalized due to non-compliance with the ACA.
Overview of the ESR provision of the ACA
- ADP’s Long-Term Growth To Be Driven By Demand In The PEO Space
- ADP Earnings: PEO Services Drive Q4 And Full Year Results
- ADP Earnings Preview: HR Services, International Business To Drive Results
- What Will Drive ADP’s Revenue And EBITDA Growth In 2016?
- ADP Earnings: HR Services Continue Growth Spree
- Why ADP’s Payroll Processing Business Can Be Key To Its Long Term Growth?
The ESR provision of the ACA requires businesses with 50 or more full-time employees, including full-time equivalent employees, to provide health insurance to their employees.  Failure to comply with the provision will lead to heavy penalties. On February 10 2014, the Treasury Department announced that the ESR provision will be effective from January 2016, instead of January 2014, for businesses with 50 to 99 employees.  Businesses with 100 or more employees need to comply with the ESR provision from January 1 2015.
Products introduced by ADP and Paychex will help clients remain compliant with the ESR provision
ADP and Paychex have been actively involved in increasing awareness about the impact of the ACA on businesses. They have put up many articles and videos on their websites to educate clients and potential clients about the importance of being compliant with the ESR provision. They have also introduced products that will help businesses remain compliant with the provision.
Paychex’s Employer Shared Responsibility Services help businesses identify whether the ESR provision is applicable to them or not.  It also helps determine what actions need to be taken to be compliant with the provision. As a part of its basic service, Paychex will help business with the data required in calculating their number of full-time employees by analyzing how many hours each employee worked. The ESR Complete Analysis and Monitoring service is a more comprehensive solution that provides continual monitoring and analysis to determine the employer size and identify whether the ESR provision applies to them or not. It also identifies full-time employees and their adequate health coverage requirements, and monitors and alerts the employer when an employee is on the threshold of becoming a full-time employee.
ADP also offers similar services as a part of its existing solutions platform. ADP offers ADP Total Source for small businesses, ADP WorkForce Now for midsized businesses and ADP Vantage HCM for large business to help manage a variety of payroll and human resource functions and maintain compliance with the ESR provision. 
Large untapped demand will help drive sales for ADP and Paychex’s ESR related products
Though ADP and Paychex’s ESR related products have been available since 2013, their adoption has been slow due to the lack of awareness around the ESR provision and uncertainty of the timeline for implementation. The complexities behind adherence to the ESR and the delay in implementation dates have kept potential clients at bay. Both ADP and Paychex expect sales of their products to gain momentum since the implementation dates of the ESR provision are nearing.
Separate surveys conducted by ADP and Paychex reveal that only around half of the small, midsized and large businesses in the U.S. are aware of the impact of the ESR provisions and are prepared for them.   This leaves a huge market of potential clients who are looking for solutions that will help maintain compliance with the provisions. ADP and Paychex are well positioned to cater to these clients given their existing presence in the Payroll and Human Resources outsourcing industry and readily available services designed for the ESR provision.Notes:
- Affordable Care Act, www.hhs.gov [↩]
- White House delays health insurance mandate for medium-size employers until 2016, February 10 2014, www.washingtonpost.com [↩]
- Paychex Announces Health Care Reform Solutions and Resources to Help Ease the Burden on America’s Businesses, June 19 2013, www.paychex.com [↩]
- ADP offers comprehensive Health Care Reform solutions, www.adp.com [↩]
- Health Care Reform Is The Big HR Compliance Challenge, www.adp.com [↩]
- Roughly Half of Small Business Owners Understand, are Prepared for Changes Under the Affordable Care Act, April 24 2014, www.paychex.com [↩]