Part 1 of our series on the Affordable Care Act explained that businesses with 50 or more employees now have an extra year to fulfill the employer mandate of the ACA. That means these businesses now must meet a Jan. 1, 2015 deadline to offer affordable health insurance or pay a penalty. Below, we explain the best ways for companies—especially those with seasonal workers—to figure out how to account for employee hours under the new law, and how affordability is defined.
CBG Benefits principal and founder Chris Costello says the employer mandate delay gives businesses more time to plan, but he warns against procrastination. “This is especially true for companies that are approaching the 50 full-time employee threshold or that hire a lot of seasonal workers,” Costello says. “I would strongly advise them to start taking action now.”
Employers in seasonal businesses have a complicated road ahead as they try to account for employee hours under the new law. They should start tracking now, because FTEs are counted by hours, not individuals. Seasonal hours are accrued, adding up to equivalents of full-time employees. If that number reaches 50, the company is subject to the pay-or-play mandate. The IRS has compiled a guide to determining FTEs, along with answers to other frequently asked questions about the health care tax credit for small businesses.
The FTE formulas can also help firms with 25 or fewer employees to determine if they qualify for a tax credit available to employers that pay a portion of their workers’ health insurance premiums.
Michael Taggart, president of Empyrean Benefits Solutions in Houston, says employers should start measuring hours for variable hour employees as early as October 3, 2013. That will allow them a full 12-month measuring period plus the full 90-day administrative period allowed under the law’s “safe harbors” provision for the pay-or-play rules.
The next steps Costello recommends for employers include contacting their benefits broker, attending webinars and seminars on the ACA, and making use of tools that allow them to track employee hours.
To ensure employers don’t try to avoid complying with the mandate, the law stipulates that if even one employee buys a government-subsidized individual policy on one of the state or federal exchanges, the company they work for will be subject to escalating tax penalties.
The government is encouraging employers to make voluntary reports to the IRS in 2014 and 2015 about their health coverage, says Heidi Savage, a former human resources professional who counsels small businesses on health care reform and also blogs about it. To avoid penalties, employers with more than 50 workers must offer a plan that meets two criteria:
- Affordable: The employee’s share of the annual premium for self-only coverage is no greater than 9.5 percent of annual household income.
- Minimum value: A plan that pays at least 60 percent of the total cost of medical services for a standard population.
If their plan does not meet those standards, then employees may qualify for government subsidies on the health care exchanges, or marketplace. Savage notes that people who decide to shop on the exchanges will have to supply their employer’s tax ID number, and this is how the government will be able to check whether the employee is eligible for subsidized coverage, or whether they should be covered instead under the plan they’re offered at work.
Savage posts a four-question test for employers on her blog to help them stop ineligible employees from applying on the exchanges.
There’s a chicken-and-egg quality to the employer mandate delay, because some employers are looking to the insurance exchanges for guidance on what health plans will cost. However, a business that is already offering insurance is welcome to shop around for something better on the exchanges. That will help them decide which makes more financial sense for their firm: to pay for coverage, or pay the government $2,000 per employee.
The extension until 2015 is meant to give businesses a chance to better prepare for implementing the ACA’s rules. And Taggart warns employers not to squander this time, but to use it wisely by making necessary changes to their record-keeping systems. He and Savage note that by 2016, the IRS will require reporting about the employer-provided coverage, and to whom it’s offered, under sections 6055 and 6056 of the tax code.
“Your accountants will need this information,” Savage said. “Ultimately, it’s a risk management decision for the company.”
Disclaimer: Since the details of your situation are unique, you should always seek the services of a professional for advice specific to your business.