The ACA module allows you to proactively manage your ACA compliance strategy across your entire workforce. It gives you the tools to effectively manage regular- and variable-hour employees’ benefits compliance, along with applicable reporting. Once you determine the impact ACA will have on your bottom line and develop a strategy that fits your financial and business objectives, implementing, enforcing, and managing that strategy can be an even bigger challenge. Our ACA module can help you manage ACA administration with tools that execute your ACA strategy. It makes Affordable Care Act compliance simple!
Frequently Asked Questions
Effective January 1, 2015, employers that employ 100 (for 50-100 employees, it will go into effect on January 1, 2016) or more full-time employees including full-time equivalent employees ("FTEs") must offer group health plan coverage to their full-time employees (and their dependent children up to age 26) or potentially be liable for a penalty. A penalty will apply if the employer (A) fails to offer "minimum essential coverage" under an "eligible employer sponsored plan" to at least 95% of full-time employees, or (B) offers coverage that does not meet certain "minimum value" and "affordability" requirements, and at least one full-time employee receives a premium tax credit to help purchase coverage for himself or herself through an Exchange. Different penalties are imposed based on whether the employer is in category (A) or (B) above. Also, a smaller employer (fewer than 100 full-time employees) may satisfy (A) above as long as coverage is offered to all but 5 or fewer full-time employees. Note that full-time employees who are part of the 5% that are not offered coverage may trigger the penalty associated with category (B) above.
For these purposes, "dependent" means an employee's child under age 26, and includes natural, adopted, foster, and step-children. Starting in 2015, an employer must offer coverage to its full-time employees and their children up to age 26 to satisfy the Shared Responsibility requirements. However, an employer is not required to contribute toward the cost of dependent coverage, as coverage is "affordable" for purposes of the Shared Responsibility requirements based on the cost of employee-only coverage.
Note that employers are not required to offer spousal coverage, and the receipt of a premium tax credit by an employee's spouse or dependent will not result in a penalty on the employer.
Starting in 2014, the ACA mandates that most individuals maintain minimum essential coverage for themselves and their dependents or potentially be subject to an income tax penalty (this requirement is known as the “Individual Mandate”). Minimum essential coverage that is an employer-sponsored group health plan is not required to meet any affordability or minimum value requirements (unless the employer wishes to avoid a potential penalty for offering unaffordable coverage, which is $3,000 per subsidy-receiving full-time employee).
Any health insurance coverage offered by an employer to an employee that is available in the small or large group market, or a governmental plan. The term also includes self-insured group health plans. Note that while an individual must maintain minimum essential coverage to comply with the Individual Mandate, a large employer (see Applicable Large Employers below) must offer coverage under an “eligible employer-sponsored plan” that meets affordability and minimum value requirements to avoid a potential Shared Responsibility penalty.
The Shared Responsibility provisions were intended to be effective January 1, 2014; however, they have been delayed until January 1, 2015. For employers, this means that there will be no Shared Responsibility penalties assessed for 2014, and other employer reporting requirements have been suspended for 2014 as well. In anticipation of the application of the reporting requirements in 2015, however, the IRS encourages employers to voluntarily comply with these information-reporting provisions for 2014 (once the information reporting rules have been issued) and to maintain or expand health coverage to all full-time employees in 2014.
Applicable Large Employers
The Shared Responsibility requirements apply to what the proposed regulations refer to as “applicable large employers.” An employer is an applicable large employer for a calendar year if it employed an average of at least 50 full-time employees on the employer's business days during the preceding calendar year. Solely for purposes of determining applicable large employer status (but not for penalty purposes), the hours of service of full-time equivalent employees (e.g., part-time employees) are included in the calculation. The Shared Responsibility requirement applies to all common law employers, including tax exempt entities and government entities (such as Federal, State, local or Indian tribal government entities). For purposes of determining applicable large employer status and for penalty purposes, hours worked outside of the United States are disregarded, provided that the associated compensation constitutes foreign source income.
The proposed regulations require employers to look back at prior year to make the determination for the then current year.
The proposed regulations provide that an employer’s status as an applicable large employer for a calendar year is determined based on full-time employees, including full-time equivalents (“FTEs”) in the prior calendar year. This is determined by taking the sum of the total number of full-time employees (those working 30 hours a week or more) (including any seasonal workers) for each calendar month in the preceding calendar year and the number derived by taking the total hours of all part-time employees (those working less than 30 hours a week) (including any seasonal workers) during each calendar month (not to exceed 120 hours per month for any employee) and dividing by 120, for each month in the preceding calendar year, and then dividing the total number by 12.
The result, if not a whole number, is then rounded to the next lowest whole number. If the result of this calculation for the prior year is less than 50, the employer is not an applicable large employer for the current calendar year. If the result of this calculation is 50 or more, the employer is an applicable large employer for the current calendar year, regardless of how many full-time employees the employer has in the current calendar year, unless the limited exception for seasonal workers applies.
Under this exception, seasonal employees may be excluded from the determination described in Q16 above if the employer exceeds 50 full-time employees and for no more than 120 days during the preceding calendar year, and the employees causing the employer to exceed the 50 full-time employee threshold are seasonal employees employed no more than 120 days during the preceding calendar year. However, once an employer is an “applicable large employer,” seasonal employees’ hours are measured along with the hours of other employees, and such seasonal employees may be considered “full-time” if they work, on average, at least 30 hours of service per week during a measurement period.
For purposes of determining whether an employer exceeds the 50 full-time employee and FTE threshold, all members of a tax controlled group are treated as a single employer. However, each member of a controlled group is treated as a separate entity for purposes of determining the liability for, or amount of, a Shared Responsibility penalty. Also note that the 30 full-time employee reduction (see Q34) is allocated across each member company (i.e., on an EIN-by-EIN basis) based on size.
Identifying Full-Time Employees
A full-time employee is an employee who works an average of at least 30 hours of service per week or 130 hours of service per month. Hours of service include paid time off due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. Hours of service also includes certain unpaid time if the employee is absent due to USERRA, FMLA, or jury duty. An employee's hours worked outside of the United States are disregarded, provided that the compensation for those hours of service constitutes foreign source income. Under the ACA, “employee” is defined by the common law standard and, as such, non-employee directors, sole proprietors, partners, 2-percent or more shareholders in an S corporation, and "leased employees” (as defined in Code Section 414(n)(2)) are not treated as employees. However, an employee who provides services as both an employee and non-employee (such as an individual serving as both an employee and a director) is an employee with respect to his or her hours of service as an employee.
To assist employers in identifying full-time employees and to ease the difficulties on employers, employees and the Exchanges that would be created by determining eligibility for coverage on a monthly basis, the Shared Responsibility rules provide an optional look-back measurement method so that an employer can assess its potential for liability under the Shared Responsibility mandate. Under the look-back measurement method, there is an "initial" measurement period for new variable hour or seasonal employees and a "standard" measurement period for "ongoing employees" (ongoing employees are employees who have worked for the employer for at least one "standard" measurement period). (Measurement periods are described in Q28 for ongoing employees and Q30 for new employees.)
If a new employee is reasonably expected to work full-time at date of hire and is not a seasonal employee, then the employer must offer coverage by the end of the third full calendar month following date of hire. This coordinates with the ACA’s rules on waiting periods. For plan years starting in 2014, a group health plan may not apply a waiting period greater than 90 days once the employee meets the plan's substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan's terms).
If, based on the facts and circumstances available at time of hire, an employer cannot reasonably determine whether a new employee will work an average of at least 30 hours of service per week (and therefore be considered a full-time employee), then the employee is considered a “variable hour” employee. In that case, the employer may use a safe harbor method for determining the status of its variable hour employees and designate an initial measurement period (which can be from 3 to 12 months long), plus an administrative period, to determine whether the employee is full-time. The administrative period and the measurement period combined cannot exceed 13 months from the employee’s date of hire, plus the days remaining until the first day of the next calendar month, if the employee’s start date is not the first day of a calendar month. (Measurement periods are described in Q28 for ongoing employees and Q30 for new employees.)
The hours of service for part-time employees (i.e., those who do not work an average of at least 30 hours of service per week) are included for purposes of determining whether the employer is an applicable large employer (i.e., whether the employer employs 50 or more full-time employees and FTEs); however, part-time employees cannot trigger a penalty on the employer if they receive a federal premium subsidy, because they are not “full-time employees.”
For employees compensated on an hourly basis, employers must track hours of service for purposes of determining full-time status. With respect to employees whose hours are not tracked because they are not compensated on an hourly basis (e.g., salaried employees), the employer must either start tracking actual hours worked, or use one of two available "equivalency methods" identified in the proposed regulations to estimate an employee's hours of service. Under the equivalency methods, an employer may either credit 8 hours of service per day if an employee works at least one hour, or credit 40 hours of service per week if an employee works at least 1 hour per week, provided that the hours credited generally reflect the actual hours worked. However, the proposed regulations prohibit use of the days-worked or weeks-worked equivalency methods if the result would be to substantially understate an employee's hours of service in a manner that would cause that employee not to be treated as a full-time employee. For example, an employee who worked 12 hours per day for 3 days one week could be credited with 40 hours that week, but could not be credited with only 8 hours of service per day under an equivalency method (because that would make it look like the employee only worked 24 hours during that week).
Once an employer meets the 50 full-time employee threshold and is an applicable large employer, seasonal employees are generally treated as variable hour employees and are evaluated under the employer’s measurement/stability periods. (Measurement periods are described in Q28 for ongoing employees and Q30 for new employees.) Many seasonal employees will not be full-time employees if the employer uses a 12-month measurement period, because the employees will not have worked, on average, 30 or more hours during the 12-month measurement period. However, if an employer uses a shorter measurement period (e.g., 3 months), it is possible that a seasonal employee could be considered a full-time employee based on that measurement period.
Yes, starting in 2016 (for the 2015 calendar year), it is expected that employers subject to the Shared Responsibility requirements will need to report annually to the IRS and to full-time employees certain information regarding their health insurance plan, if offered. The employer's report to the IRS will include information identifying the employer, a certification of whether the employer offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan (see Q12 and Q13), and information identifying the full-time employees and their coverage status.
No, the look-back measurement and stability periods do not apply to full-time employees, only variable hour or seasonal employees.
Using “Look-Back” Measurement and Stability Periods to Identify Full-Time Employees
“Ongoing” employees have worked for their employer for one full standard measurement period. An employer may determine whether an ongoing employee worked an average of at least 30 hours of service per week or 130 hours of service per month by looking back at a defined period of 3 to 12 consecutive calendar months, as chosen by the employer (the "standard measurement period"). If an employee is have worked full-time during a standard measurement period, then the employee is treated as full-time during the "standard stability period" so long as he or she remains employed during that period and regardless of the hours actually worked. In general, the standard stability period must be at least six consecutive months, but no shorter than the standard measurement period, taking into account any applicable "administrative period." (Administrative periods are described in Q29 for ongoing employees and Q31 for new employees.)
An administrative period is available to accommodate employers that might need some time between the standard measurement period and the standard stability period in order to determine which employees are eligible for coverage and for other administrative purposes. The administrative safe harbor is a period of not more than 90 days between the end of the standard measurement period and the start of the standard stability period and may neither reduce nor lengthen the measurement period or the stability period.
To prevent an administrative period from creating a potential gap in coverage, it must overlap with the prior stability period, so that ongoing full-time employees will continue to be offered coverage during the administrative period. For example, an employee entitled to coverage for a stability period that is calendar year 2015 will be covered during any administrative period in 2015.
"New" variable hour and seasonal employees have not yet worked for their employer for one full standard measurement period. An employer may determine whether a new employee worked an average of at least 30 hours of service per week or 130 hours of service per month by looking back at period of 3 to 12 consecutive calendar months, as chosen by the employer (the "initial measurement period"). If an employee is determined to work full-time during the initial measurement period, then the employee is treated as full-time during the "initial stability period" so long as he remains employed during that period and regardless of the hours actually worked. In general, the initial stability period must be the same length as the stability period for ongoing employees, taking into account any applicable administrative period for new employees..
As is permitted for ongoing employees, an employer may use an administrative period before the start of the initial stability period following an employee's initial measurement period. The administrative period must not exceed 90 days in total, and includes all periods between the new employee's date of hire and the employee's eligibility date, other than the initial measurement period. Thus, for example, if the employer begins the initial measurement period on the first day of the month following a new variable hour or seasonal employee's date of hire, the period between the employee's start date and the first day of the next month must be taken into account in applying the 90-day limit on the administrative period. Similarly, if there is a period between the end of the initial measurement period and the date the employee is first offered coverage under the plan, that period must be taken into account in applying the 90-day limit on the administrative period. In addition, the initial measurement period and administrative period together cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee's date of hire. For example, if an employer uses a 12-month initial measurement period for a new variable hour employee, and begins that initial measurement period on the first day of the first calendar month following the employee's start date, the period between the end of the initial measurement period and the offer of coverage must not exceed one month (assuming the variable hour employee works full-time during the initial measurement period).
Possibly. The frequency with which an employer will need to enroll eligible employees depends on the length of the measurement period selected by the employer. In general, a 12-month measurement period (and a 12-month stability period that corresponds to the plan year) may be easiest administratively for the employer. In addition, ongoing employees (employees who have worked for their employer for at least one standard measurement period) will all be evaluated under the employer’s standard measurement period; however, new variable hour and seasonal employees have “initial” measurement periods that are based on each new employee’s date of hire, which means that new employees may become eligible for coverage at various times during the plan year.
An employer may use an initial stability period that is one month longer than the initial measurement period, as long as it does not exceed the remainder of the standard measurement period (plus any associated administrative period) in which the initial measurement period ends. This is intended to give additional flexibility to employers that wish to use a 12-month stability period for new variable hour and seasonal employees and an administrative period that exceeds one month. To that end, such an employer could use an 11-month initial measurement period (in lieu of the 12-month initial measurement period that would otherwise be required) and still comply with the general rule that the initial measurement period and administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date.
Shared Responsibility Penalties
The annual penalty for failing to offer coverage to at least 95% of full-time employees is equal to the number of full-time employees (minus 30 full-time employees) multiplied by $2,000, if at least one full-time employee receives a federal premium tax credit to help pay for coverage purchased for himself or herself through an Exchange. The annual penalty for an employer that fails to offer coverage that is “affordable” and that provides “minimum value” is equal to the number of full-time employees who receive a premium tax credit, multiplied by $3,000. The $3,000 penalty that applies based on each full-time employee who receives a federal premium subsidy cannot exceed the $2,000 penalty. In other words, the payment for an employer that offers coverage can never exceed the payment that employer would owe if it did not offer any coverage. Penalties are calculated on a monthly basis, and will be indexed for inflation in future years.
Yes, an employer must track a variable hour employee’s hours of service on a monthly basis; however, eligibility for health insurance benefits is not required to be determined on a monthly basis. To ease the administrative burden on employees, employers, and the Exchanges of potentially having to determine eligibility on a monthly basis, the proposed regulations permit employers to use “look-back” measurement periods of up to 12 months to determine an employee’s full-time status for purposes of health plan eligibility (see Q28 and Q30 for details on the measurement periods). However, even when using a 12-month measurement period, the penalties are still calculated monthly (e.g., an employee who receives a federal premium subsidy in one month but not another will only trigger a penalty on the employer for the month in which a premium subsidy is received).
An employer’s group health plan provides “minimum value” if its share of the total allowed costs of benefits provided under the plan is at least 60 percent of those costs. Employer contributions to a Health Savings Account (HSA) and amounts newly made available under a Health Reimbursement Arrangement (HRA) may be taken into account in determining minimum value. Minimum value is an actuarial determination that cannot be determined based on the proportion of the premium paid by the employer. Generally, for fully-insured group health plans, the insurance carrier will inform the employer as to whether the plan provides “minimum value.”
An employer’s group health plan is “affordable” with respect to an employee if the employee's required contribution for lowest cost employee-only coverage that provides minimum value does not exceed 9.5 percent of the employee's household income for the year (three “safe harbor” alternatives to household income are available to employers, one of which permits an employer to substitute an employee's annual wages, as reported in box 1 of Form W-2, in lieu of household income). Note that even if a full-time employee enrolls in family coverage, coverage is “affordable” based on the employee-only contribution.
The IRS has provided three safe harbors that employers can use instead of household income for purposes of determining whether the cost of employee-only coverage is affordable:
1: Form W-2: Coverage is affordable under this safe harbor if the cost of the lowest cost employee-only coverage that provides minimum value does not exceed 9.5% of the employee’s Form W-2 wages, as reflected in box 1 for the current year.
2: Rate of Pay: Coverage is affordable under this safe harbor if the required monthly contribution for the lowest cost employee-only coverage that provides minimum value does not exceed 9.5% of an amount equal to 130 hours multiplied by the employee's hourly rate of pay as of the first day of the coverage period. For salaried employees, monthly salary is used instead of 130 multiplied by the hourly rate of pay. To rely on this safe harbor, an employer cannot decrease the employee’s rate of pay during the year.
3: Federal Poverty Line: Coverage is affordable under this safe harbor if the required monthly contribution for the lowest cost employee-only coverage that provides minimum value does not exceed 9.5% of a monthly amount determined as the federal poverty line (FPL) for a single individual (for the state in which the individual is employed) for the applicable calendar year, divided by 12.
The IRS will contact employers after the end of each calendar year to inform them of their potential liability and provide an opportunity for a response. The IRS has indicated that employers will not be notified until after employees’ individual tax returns are due for that year and after the due date for applicable large employers to file information returns as described below.
Starting in 2016 (for coverage offered on or after January 1, 2015), applicable large employers will be required to file information returns identifying their full-time employees and describing the coverage offered, if any.
Miscellaneous Shared Responsibility Questions
To avoid potential liability for a Shared Responsibility penalty, an employer must permit employees to enroll (or decline coverage) at least once each plan year. The employer may not render an employee ineligible for a federal premium subsidy by requiring employees to enroll in coverage that is not “affordable.” However, an employer will not be treated as failing to offer coverage if that coverage is terminated due to the employee's failure to timely pay the employee portion of the premium.
An individual health insurance policy is not an “eligible employer-sponsored plan.” (See Q13 for a definition of “eligible employer-sponsored plan
There is no blanket exemption for not-for-profit employers, although the non-tax deductible nature of the Shared Responsibility excise tax penalty may not affect not-for-profit employers.
There is no blanket exemption for staffing companies – their employees are evaluated similarly to other employers (e.g., a staffing company cannot simply assume that all of its employees are variable hour, as an employee on a long-term assignment might reasonably be expected to work, on average, 30 or more hours per week as of his date of hire).
The IRS declined to provide any blanket exclusions in the proposed regulations for union employees who are covered under a multiemployer plan that is maintained pursuant to a collective bargaining agreement. Instead, the proposed regulations offer transition relief while the IRS continues to seek comments on the application of the Shared Responsibility rules to employers participating in multiemployer plans.
It appears that at least initially, employers that make contributions to a multiemployer plan pursuant to a collective bargaining agreement under which coverage is offered to full-time employees and their dependents are not liable for a penalty if the coverage satisfies the affordability and minimum value requirements. (See Q36 and Q37 for definitions of “minimum value” and “affordability”.)
Possibly. While this may be a viable strategy, an employer should consult directly with legal counsel before engaging in a workforce realignment, as there are a number of issues to consider.
No. This type of arrangement is known as an “opt-out” benefit, which is a taxable cash payment provided by the employer in lieu of the employee electing health coverage. As long as the employer offers affordable, minimum value coverage, it is free to encourage employees not to enroll in the employer’s plan and it will not be exposed to a Shared Responsibility penalty with respect to an employee that chooses the opt-out payment. Note that an “opt-out” payment must be part of an employer’s written cafeteria plan document. If the employer does not offer affordable coverage, then providing a cash opt-out payment will not insulate them from assessment of the Shared Responsibility penalty, if it applies.
No. An employer is not required to pay for an employee’s Exchange coverage should the employee choose to enroll in an Exchange plan.
Affordable Care Act (ACA)
IPS online is intending to provide a series of articles to help our client’s understand the provisions of the ACA Effective January 1, 2015, employers that employ 100 (for 50-100 employees, went into effect on January 1, 2016) or more full-time employees including full-time equivalent employees.