Under the Employer Shared Responsibility provisions, if large employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees (and their dependents), the employer may be subject to an Employer Shared Responsibility payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges, also called a Health Insurance Marketplace. These rules are very complex so we suggest you seek guidance from a professional knowledgeable about the ACA requirements. We have summarized a few of the provisions below.
To be subject to the Employer Shared Responsibility provisions under the Affordable Care Act (ACA), an employer must have employed at least 50 full-time employees or a combination of full-time and part-time employees that total at least 50 full time equivalents during the previous calendar year (see transition relief for 2015 discussed below). If you are a small business and do not have 50 full time equivalent employees you are exempt from the Employer Shared Responsibility provisions.
An employer’s number of full-time employees matters for purposes of whether the Employer Shared Responsibility provisions apply to an employer, whether a payment is owed and the amount of that payment. So it’s important to understand how the Internal Revenue Service (IRS) identifies a full time employee for the purposes of Employer Shared Responsibility provisions.
Based on Hours of Service
An employer identifies its full-time employees based on each employee’s hours of service. For purposes of the Employer Shared Responsibility provisions, an employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week. For example, if a company employs 40 full-time employees and 20 employees averaging 15 hours per week it has the equivalent of 50 full-time employees, and would be considered an applicable large employer. It is important to point out that two or more companies that have common ownership may be treated as a single employer for purposes of determining whether they meet the 50 full time employee test.
The holiday season is here and many companies use seasonal workers. There are specific rules that apply to seasonal workers in determining whether an employer would be considered a large employer for purposes of the ACA rules. Again, it is important to discuss the guidelines with a professional to determine if you are exempt if you hire seasonal workers that cause your full time equivalent employees to exceed threshold.
The IRS has provided transitional relief in 2015 for employers that had more than 50 but less than 100 fulltime employees in 2014 (or any consecutive six month period during 2014). If the requirements are met, these companies will generally not be subject to an Employer Shared Responsibility provisions
Moving forward, employers will determine each year, based on their current number of employees, whether they will be considered an applicable large employer for the next year. For example, if an employer has at least 50 full-time employees (including full-time equivalents) for 2015, it will be considered an applicable large employer for 2016.
Beginning in 2016 (for the calendar year 2015) all applicable large employers are subject to filing requirements with the IRS and to its full time employees including information regarding the coverage offered and whether minimum value requirements were met.
The requirements of the ACA Employer Shared Responsibility provisions are complex. We touched only a few of the many provisions that will impact employers. It is important for businesses to seek professional advice to avoid penalties and taxes for failure to comply with the provisions of the ACA. For additional information and details regarding the ACA Employer Shared Responsibility provisions visit www.irs.gov.