Under the Employer Shared Responsibility provision of the Affordable Care Act, large employers must begin offering affordable health care coverage to full-time employees, or face certain penalties.
At this time, we do have proposed regulations released by the Obama administration on Dec. 28th. While nothing is finalized yet, employers can begin to get an idea of how these proposed regulations may affect their business beginning January 1, 2014.
The first step is determining whether the law applies to you.
Under the proposed regulations, the provision only applies to “large” employers. Large employers are those who employ the equivalent of 50 or more full-time employees. Keep in mind; this does include both temporary employees and your internal staff. The proposed regulations consider full-time to be 30 hours/week or the equivalent 130 hours/month. To determine if you will be considered a large employer, you’ll take the number of employees who worked 130+ hours in each calendar month, and then create an average for the year. This will be recalculated each year to determine whether you will be considered a large employer the following year.
This means in January 2014, you’ll look at each individual month in 2013 and determine how many employees you had who worked at least 130 hours. You’ll take that figure and create an average for the calendar year.
You’ll also need to determine how many full-time equivalent employees you had. To get this figure, take the total hours of service of non-full-time employees in a month and divide by 130. If the number of full-time employees plus the number of full-time equivalent employees is 50 or more, the Employer Shared Responsibility provision applies.
Okay, so you have determined the law does apply to you. What sort of penalties could you be facing?Well, that depends whether you are offering coverage to your employees. Employers have the option to “pay or play”; you can choose to offer coverage to employees or you can opt not to offer coverage and pay the penalties.
According to the proposed regulations, if an employer does not offer coverage, they will be fined $2000/year for each full time employee over the first 30 employees. This comes out to about $167/month per employee.
A different penalty may apply to those employers who are offering coverage if that coverage is considered “unaffordable.” If the required employee contribution is more than 9.5% of an employee’s wages, the coverage is considered unaffordable. Under the proposed regulations, these employees can then choose to buy coverage at a state Exchange and receive a premium tax credit. If an employer has even one employee who buys coverage in an Exchange, they will be fined $3,000/year for each full-time employee receiving a tax credit, up to a max of $2,000/year for each full time employee after the first 30.
If I decide to play, who am I offering coverage to? Your ongoing full-time employees. Simple, right? First we need to define ongoing and variable employees. Before we can do that, we should talk about the Safe Harbor Method and the look-back period.
The Safe Harbor method uses the look-back rule to determine full-time employees. Employers can use a “look-back” period from 3-12 months; this is what is being called the standard measurement period. After the standard measurement period comes the stability period. If an employee is considered to be full-time during the standard measurement period, they will be considered a full-time employee throughout the following stability period. The proposed regulations say your stability period must be at least 6 calendar months, but cannot be shorter than your standard measurement period.
So let’s say during your 12 month standard measurement period, employee John Smith was considered to be full-time. For the next 12 months, during the stability period, John Smith will still be considered a full-time employee. There is one key exception to this rule, which is referred to as a “break in service.” An employee who goes 26 weeks with zero hours of service or has a break of at least 4 weeks and the break is longer than the assignment before the break meets the “break in service” rule criteria. In these cases, the employee will be considered a new employee and is subject to a new measurement period. So if John Smith worked on an assignment for 3 weeks, and then does not work at all for the next 4 weeks, he can be considered a new employee.
You also have what is called an initial measurement period; this is the same length as your standard measurement period, but is used for new employees to determine whether they are full-time.
Still with me? Okay, on to the different types of employees. First, you have your ongoing employees. These employees have generally been employed for one full standard measurement period, and average 30 hours/week. Next, you have your variable hour employees. According to the proposed regulations, these are the employees who, when hired, you could not reasonably expect to work an average of 30 hours/week. The proposed regulations also say new employees who are expected to work an average of 30 hours/week, but cannot be expected to continue working this number of hours over the initial measurement period are to be considered variable hour employees.
At this point, it is not entirely clear what this means for staffing companies. It could be interpreted that the majority of temporary employees of staffing companies would fit the definition of variable hour employees; but keep in mind these regulations are not set in stone just yet.
What does this mean for companies with multiple entities?According to the proposed regulations, companies that have a common owner are combined together for the “large employer” test. If the total combined number of full-time equivalent employees meets the threshold, the Shared Responsibility Provision applies. However, each individual company can then make the decision to “pay or play”. This means that if your 4 companies are separated for legitimate business reasons, then each company can determine whether to offer coverage to employees or pay the penalty. These penalties will only be forced upon the company opting out of offering coverage or those whose employees receive it from the state.
Here at ABD, our development team has begun looking at these regulations and the reporting tools our clients will likely need in order to track all of this information. Though these regulations are not yet finalized, we are working towards creating solutions to help our clients with this transition.
Have more questions about the Affordable Car Act? Contact ABD
Katie Guthrie is a Systems Engineer at Automated Business Designs, Inc., software developer of Ultra-Staff software for the staffing and direct hire industry. Ultra-Staff is a staffing software business solution with components for front office, back office, mobile and web portal. For more information on Ultra-Staff go to www.abd.net.