As you’re probably aware, 2015 is when the delayed ACA employer mandate kicks in for companies that have a total of at least 100 employees and full-time equivalents (FTEs). Full-time is defined as 30 hours per week, or 130 hours per month.
Here’s an example of how you do the math, based on average weekly hours worked: Let’s say you have 35 employees working ten hours a week, and another 34 who each work 25 hours per week. You combine total hours (35 X 10 + 34 X 25 = 350 + 850 = 1,200), then divide the total by 30 (that is, minimum weekly hours qualifying as “full time”) to determine total FTEs, 1,200 / 30 = 40.
Using those calculations, if you have at least 60 employees working 30 or more hours a week, plus the 40 FTEs as determined above, you are deemed to have 100 employees. On that basis, you are in the size category which subjects you to the mandate next year.
You need to count employees at all the companies that fall under the same “control group,” meaning those that are essentially owned by the same people. (Consult a professional for the finer points of controlled group determination, as it applies to your company.)
In the real world, of course, the math won’t be that simple, since you’ll probably be dealing with some employees with variable work hours, which will need to be averaged. Using an electronic employee timeclock, such as TimeVision, makes this part of the equation much easier.
Who Must be Covered?
Note: In the example above, you will still only be required to provide health benefits to the 60 full-timers. The FTE number must be calculated and used to determine whether you hit that magic 100 number. In 2016, the size threshold for the mandate is scheduled to drop to 50 employees plus FTEs. Also, technically, the Affordable Care Act (ACA) requires that coverage be offered to at least 95 percent of full-time employees, not 100.
So at what point is your employee count made to determine your mandate status, and what happens next?
There are three time periods that come into play:
- The “measurement” period: This can be any time segment you choose that’s at least 30 days, but not more than a year. Calculations are based on average full-time plus FTEs during the measurement period.
- The “administrative” period: This follows the measurement period, and is the time you take to do your calculations based on the census. If you hit or exceed the 100 threshold, it is also when you inform full-timers of their eligibility for health benefit coverage, and get open enrollment up and running.
- The “stability” period: This only matters if you are covered by the mandate. It’s the time when employees deemed to be full-time must be allowed to keep their benefits, even if their hours drop below the 30-hour minimum. The duration of the stability period can’t be less than six months. If you chose a longer period, it needs to be the length of the measurement period.
There are exceptions to these rules, so be sure to consult with a professional regarding the specifics of your company before proceeding on the basis of this summary.
Avoid Work Hour Manipulation
Many employers hope to game the system by cutting some workers to part-time status merely for the sake of avoiding the mandate. But a decision to cut workers to part-time must be backed up by a valid business rationale, according to Section 510 of ERISA. Employers who are proven to have violated the rules could be subject to penalties.
If you have legitimate reasons for making personnel changes that would impact your mandate status, the time to make this assessment is now. This is particularly true if you are currently at the cusp of mandate status.
Assume that after your calculations, you realize you do fall under the employer mandate. What will determine whether your health plan passes muster with the ACA? As a reminder, you’ll face two tests, each which has its own penalty if violated. One may contain a quasi-loophole you might consider using.
Test Number One
The first test and penalty — if you fail it — is the most critical:
You must offer coverage which meets ACA’s “minimum essential benefit” guidelines to at least 95 percent of your full-time employees. Flunk that, and you’ll face a fine equal to $2,000 per full-time employee on your payroll, minus 30.
So, for example, if you have 100 full-timers and didn’t offer health coverage to at least 95 of them, you’ll pay 100 minus 30 equals 70 times $2,000, equals $140,000. Clearly that is a test you don’t want to fail.
Test Number Two
The other test is somewhat less consequential, depending on the particulars. Here’s what is tested:
- Is the plan affordable? That’s defined as costing the employee no more than 9.5 percent of his W-2 wages, based on the least expensive plan available (known as the bronze plan).
- Minimum value: The plan needs to cover at least 60 percent of the employee’s total out-of-pocket costs.
Suppose at least one employee decides not to enroll in your plan, because your plan doesn’t meet the standards mentioned above. Instead, he opts to purchase coverage on a public exchange. If he is eligible for tax subsidies to help buy coverage on the public exchange, you’ll pay a $3,000 penalty — multiplied by the number of employees who go that route.
This is bound to be a much less severe penalty than the coverage requirement test, since it isn’t based on your entire full-time workforce. In fact, if providing the coverage to the employees who went to a public exchange instead would have cost you more than $3,000, you’re actually ahead of the game. Still, check with a professional before you consider structuring a plan with the intention of flunking the value and affordability test for lower paid workers. The ramifications could be more costly in employee morale and dollars than you might expect.
PayVision Online has a wealth of resources to help businesses through the ACA challenges. Call us at 214-442-5888 to learn more.