I frequently field questions about Health Care Reform and one question I hear employers asking almost every single day is, “Will I have to offer coverage to all of my employees under ACA or face a penalty? “ Well, that’s a good question. And the answer is simply, to know that, first you have to do the math.
Small employers will not need to worry about this issue as groups with less than 50 Full- Time Equivalent employees will not be subject to this provision of the law. However, an employer who qualifies as a small group today, may in fact be a large group under the ACA guidelines. Let’s take a look at how this works.
What is the Employer Mandate?
Beginning in 2014, large employers may be subject to an excise tax/penalty if the employer:
a) Offers coverage to full-time employees (and their dependents)
– That does not meet the law’s affordability standard (employee’s cost for self-only coverage must not exceed 9.5% of family income) or
– Coverage does not meet minimum value standards, or
b) Fails to offer any coverage to full-time employees and their dependents
The penalty is triggered under situation (a) or (b) if at least one full-time employee whose household income is between 100% and 400% of the federal poverty level is able to qualify for and receive a premium tax credit for Exchange coverage.
What defines a large employer?
The ACA defines a large employer as an employer who has 50 or more full-time/full-timeequivalent employees. Let’s break it down further.
· Full-time employee: Defined as an employee who works on average 30 hours per week or 130 hours of service per calendar month.
· Hour of service: Each hour for which an employee is paid or entitled to payment for the performance of duties, including vacation, leave, holiday, illness, incapacity, layoff, jury duty, military duty or other leave of absence.
· A full-time equivalent employee is actually two or more part-time employees whose combined hours per week add up to a single full-time employee. For example, Carl works an average of 20 hours per week and Jonas works an average of 10 hours per week. Together, Carl and Jonas work an average of 30 hours per week, which is equivalent to one full-time employee’s hours. Therefore, Carl and Jonas together equal one full-time employee.
NOTE: These calculations are only used to determine whether or not the employer is a large or small employer and are not used in calculating penalties or premium costs.
It should also be noted that large employers are not required to offer coverage to part-time employees (those who work less than 30 hours per week per month) even though they are part of the calculation to determine large group status.
How do I calculate how many full-time employees I have?
· Hourly employees: Count actual hours served
· Non-hourly employees: Select one of three methodologies that does not understate hours:
1. Count actual hours of service
2. Days worked equivalence: Count 8 hours for each day credited with at least one hour of service
3. Weeks worked equivalence: Count 40 hours of service for each week credited with at least one hour of service
To calculate the number of full-time employees: for each calendar month of the preceding calendar year, employers must:
1. Count the number of full-time employees (including seasonal employees) who work on average 30 hours per week per month.
2. Calculate the number of full-time equivalent employees (including seasonal employees) by aggregating the number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not employed on average at least 30 hours of service per week for that month and dividing by 120.
3. Add the number of full-time employees and full-time equivalents calculated in steps (1) and (2) for each of the 12 months in the preceding calendar year.
4. Add the monthly totals and divide by 12. If the average exceeds 50 full-timeequivalents, determine whether the seasonal employee exception applies.
Seasonal employee exception: The penalties do not apply to employers whose workforce exceeds 50 full-time equivalent employees for no more than 120 days or four calendar months during a calendar year if the employees in excess of 50 who were employed during that period were seasonal employees. The 120 days or four calendar months are not required to be consecutive.
Example: The ABC Company employs 81 people but only has a total of 28 full-time employees who work an average of 30 or more hours per business week. The other 53 people are part-time or seasonal employees whose combined work hours equal 24 full-timeequivalent employees. Therefore, according to the ACA, the ABC Company has a total of 52 full-time employees and is considered a large employer for the ACA.
For purposes of determining large employer status until further guidance is issued, employers may apply a reasonable, good-faith interpretation of the statutory definition of seasonal worker, including a reasonable, good-faith interpretation of the standard set forth under the DOL regulations at 29 CFR 500.20(s)(1).
Transition Relief for Smaller Employers
Employers can determine whether they are large employers based on a period of three to six consecutive calendar months in the 2013 calendar year as chosen by the employer, rather than based on the entire 2013 calendar year. The 2014, compliance deadline is not delayed for smaller employers determined to be large employers based on the three to six-month calculation.
One thing I should mention. When counting the number of full-time employees an employer has for purposes of calculating the penalty, all full-time equivalent employees within a Controlled Group or an Affiliated Service Group must be counted.
There is a lot more we could go into here, penalties/excise tax, etc., and there are many resources for all this information including the Warner Navigator. But the information supplied in this article is meant to be a first step in the process and should at least help an employer figure out the very basics of whether they are or are not, a large group under the ACA.
We will be getting into more detail about this and other provisions in the upcoming ACA news releases.