The Patient Protection and Affordable Care Act (ACA) requires large employers offering healthcare programs in 2015 to either offer at least 70% of their full-time employees health coverage or pay a monthly penalty if at least one full-time employee who is not offered coverage receives a federal subsidy to help pay for coverage acquired through the insurance marketplace. If an employer is not large, it will not be subject to ACA.
Monthly penalty varies
An employer not offering coverage to at least 70% (95% in 2016) of its full-time employees pays a monthly penalty of $166.67 multiplied by the number of its full-time employees for that month (less the first 30).
An employer offering coverage that is deemed not affordable or not providing minimum value, pays a $250.00 monthly penalty for each full-time employee who purchases coverage through the insurance marketplace and receives the federal subsidy.
Who is a large employer?
For 2015, a large employer must employ at least 100 full-time employees or full-time employee equivalents (FTEEs). The number decreases to 50 in 2016. Large employer status for 2015 does not occur if the sum of full-time employees and FTEEs exceeds 100 for less than 121 days during 2014, and the employees in excess of 100 who were employed during that period are seasonal workers.
Full-time employee vs FTEE
A full-time employee means a common law employee (for tax purposes) who average 30 or more hours of service per week or, if the employer elects, had 130 or more hours of service per month. For hourly employees, hours of service will be based on records of hours worked and hours for which payment is made. For non-hourly employees, an employer may either use the above method or credit this type of employee with 8 hours of daily or 40 hours of weekly service. Non-employee directors, sole proprietors, partners, 2%-or-more shareholders in an S-corporation, and leased employees are not treated as employees.
The number of FTEEs is determined by calculating the aggregate number of monthly hours of service of all employees who worked less than full time (but not more than 120 hours for any employee) and dividing that number by 120.
Other rules go into this determination. For example, special rules exist for seasonal employees, new employees, employees on leaves of absence, and terminated employees. Plans for future growth must be considered. Companies should also consider independent contractors who might be reclassified as employees.
What should an employer do now?
Employers who do not believe they will be classified as large employers should still determine whether or not they are subject to ACA. If excluded, an employer will not need to change its current health benefits to satisfy ACA.
Employers should start obtaining payroll data right away because figuring the number of full-time employees and FTEEs can be difficult. An employee who is included in the FTEE count does not necessarily need to be offered health benefits. Only full-time employees, with certain exceptions, must be offered health benefits.
About the author: Ted Ginsburg is principal at Skoda Minotti, a CPA, business, and financial advisory firm. For more information about how ACA impacts your company, contact him at 440.449.6800 or firstname.lastname@example.org.