written by Patti Stoner
At the heart of the Affordable Care Act is the large employer mandate to provide health coverage to its employees. Beginning January 1, 2014, applicable large employers will be penalized for failure to provide that affordable coverage.
Large employers are defined as having averaged 50 or more full-time equivalents (FTEs) during the prior calendar year. FTEs are any employees working an average of 30 hours per week (or 130 hours per month) for the prior year. Part-time and occasional employees’ average hours are aggregated and then divided by 1,560 hours (30 hours x 52 weeks) for a full-time equivalents number. Seasonal employees only count if they exceed 120 days per year. These are then added to the full-time employees (those working 30+ hours per week) to determine if the total FTE count exceeds 49.
The penalty is either $2,000 x full-time employees (equivalents are no longer used at this point in computations) less an exemption of 30 OR $3,000 for each full-time employee who buys health coverage through the Exchange and/or receives tax subsidies (premium tax credits). Remember that the penalty computation is computed both ways and the lesser amount is your fine.
You also need to know these penalties are not tax-deductible. If you consider pay vs. play, factor in your effective tax bracket before you compare the potential penalty directly with any insurance premium costs.
Types of Employees
Common law employees or contract labor workers are included, so clear up any independent contractor vs. employee issues now. Controlled groups of companies with common ownership will be aggregated to determine the single 50 employee count and they only get one 30 FTE exemption between them all.
Leased employees are exempt from the count of FTEs. Sole proprietors, partners in a partnership and 2% or more S corporation employees are also exempt.
The IRS has issued regulations you can rely on as a safe harbor to avoid the penalty. The employer must not charge the employee more than 9.5% of their W2 income for health coverage, if the employee falls between 100% and 400% of the federal poverty level (FPL). As an example, for 2012 the FPL for one person was $11,170, so 400% would be $44,680. You would multiply $44,680 x 9.5% = $4,244.60 divided by 12 months = $353.72 as the maximum “affordable” safe harbor premium you could charge your employee for health insurance coverage.
Now is the time to review your number of employees and see if you easily pass beneath this threshold of 50. If not, you need to plan offering coverage or facing a penalty. Contact your insurance professional for guidance on the adequate coverage that qualifies as affordable for your employees.
Contact us to help you determine your potential liability 417-881-0145.