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Your Small Business and the Obamacare Employer Shared Responsibility Payment

by EINSURANCE

Another year of the Affordable Care Act (ACA) is almost behind us. Another year of new provisions are about to kick in, along with some delays in previously mandated deadlines. One of those delays is the Employer Shared Responsibility Payment, or employer mandate. What’s that? Well, once upon a time, the ACA required employers with 50 or more full-time-equivalent (FTE) employees to offer a “defined level of coverage to full-time employees and their child dependents (up to age 26) or face potential tax penalties.” It was set to go into effect January 1, 2014. But, things have changed.

On February 10, 2014, the Obama Administration announced that it would delay the insurance provision and employer responsibility payment provisions until 2016 for businesses with 50 to 99 FTE employees. Businesses with more than 100 FTEs, however, will have to provide qualifying coverage for at least 70% of their full-time employees beginning January 1, 2015 to avoid a penalty. And, if you have fewer than 50 employees, you are off the hook -- the law has never applied to you.[1] You can provide healthcare coverage to your employees (you can get group health insurance quotes online here), but you aren’t required to do so by law.

Calculating FTEs

The IRS, which is tasked with enforcing penalties for individual and business ACA non-compliance, defines a full-time employee as any person employed an average of at least 30 hours per week. Under IRS provisions, someone working 130 hours in a calendar month satisfies the 30-hours-of-work-per-week requirement. As an employer, you can use one of three different methods to determine if a non-hourly employee qualifies:

  • Count the actual hours of service in the calendar month.
  • Use a days-worked equivalency with every eight hours of service counting as a day
  • Use a weeks-worked equivalency with every 40 hours of service per week counting as a week.

Just be aware that you have to apply the same standard for all non-hourly employees; you can’t mix and match or understate hours just to get under 50 or 100 FTEs.[2]

Paperwork

If the ACA provisions for 2015 and beyond impact your business, prepare for extra paperwork. You may be required to do the following:

  • Give the IRS detailed reports on the number of FTEs in your company
  • Identify all the FTEs you offer coverage to
  • Document all personnel changes that may put you over the 50+ FTE threshold.[3]

Fees and Penalties

Just for the record, if you decide to blow off the January 1, 2015 employer mandate for companies with 100 or more FTEs, here’s what you may face in penalties for failure to comply:

  • 100 full-time employees: $40,000 per year
  • 200 full-time employees: $240,000 per year
  • 500 full-time employees: $840,000 per year[4]

For more detailed information about the employer shared responsibility provisions, penalties and FTE calculations, see this  IRS.gov Questions and Answers page.

Remember, if you have 50 to 99 full-time employees, you won’t face any potential penalties until 2016. But you may want to start planning now and tracking your employee hours so you’ll be ready next year.


[1] “Understanding employer shared responsibility,” http://info.kaiserpermanente.org/html/hcr_ca/employer-shared-responsibility.html

[3] “Employer Shared Responsibility,” http://www.paychex.com/health-reform/esr/

[4] Ibid

 

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