Affordable Care Act Update - How to Make Determinations Regarding Employer Mandate and Part-time Employees

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Matt Stokely of our firm has written a timely article on how to make determinations regarding the Employer Mandate and Part-time employees.  Check out Matt's article below.

AFFORDABLE CARE ACT UPDATE - HOW TO MAKE DETERMINATIONS REGARDING EMPLOYER MANDATE AND PART-TIME EMPLOYEES

One of the biggest decisions for many companies this year will be what to do about their health benefits.  Major provisions of the Affordable Care Act (“ACA”) take effect on January 1, 2014, and certain employers could see health-related costs go up as a result of the law’s requirements.  Employers will have to determine if they are subject to the Employer Mandate, and if so, to whom they will be responsible for offering health insurance or paying penalties.  Specifically, the ACA requires Applicable Large Employers – those with 50 or more full-time-equivalent employees – to ether provide “qualified” health coverage for all of their employees, or pay an annual penalty of $2,000 per full-time employee (after the first 30) if they don’t provide such coverage.  If they do provide coverage but it’s not “affordable,” the penalty is $3,000 per employee who finds it “unaffordable” (with a cap at the penalty they’d pay for not offering coverage at all).  “Full-time” is defined as 30 hours or more per week, or 120 hours or more per month.  (“Affordable” is defined as less than 9.5% of the employee’s family income).  This article describes how employers are required to make these calculations.

Applicable Large Employers Subject to Employer Mandate

An employer is subject to the Affordable Care Act Employer Mandate as an Applicable Large Employer if it employed an average of at least 50 full-time employees (including full-time equivalent employees (FTEs)) on business days during the preceding calendar year.  This involves the calculation of Full-Time Employees that work on the average of 30 or more hours per week and “FTEs”.  In determining whether an employer is an Applicable Large Employer for the current calendar year, the employer is required to calculate the number of FTEs it employed during the preceding calendar year.  All employees (including seasonal employees) who were not full-time employees for any month in the preceding calendar year are included in calculating the employer’s FTEs for that month.  The number of FTEs for each calendar month in the preceding calendar year are determined using the following steps:

1)      Calculate the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not full-time employees for that month.

2)      Divide the total hours of service in step (1) by 120.  This is the number of FTEs for the calendar month.

In determining the number of FTEs for each calendar month, fractions would be taken into account.  For example, if in a calendar month employees who are not full-time employees work 1,260 hours, there would be 10.5 FTEs for that month.  Using this calculation, if the employer employs 50 or more FTEs in the prior calendar year, it is subject to the Employer Mandate, and must offer affordable health insurance to its full-time employees or pay penalties.

Determination of Part-Time Employee Status

The IRS has issued Notice 2012-58 to modify and expand on the safe harbor guidance previously provided concerning how to make determinations about full or part-time employees status.  If an employee is a part-time employee who works an average of less than 30 hours per week, the Applicable Large Employer will not have to offer health insurance or pay penalties on those part-time employees.

Notice 2012-58 defines three time periods- measurement periods, stability periods, and administrative periods.  New employees who are not expected to work full-time (variable hour or seasonal employees) can be employed without health insurance for an “initial measurement period” of between 3 and 12 months, as determined by the employer, during which the employees hours are tracked.  If at the end of that period it becomes clear that the employee has been working an average of 30 hours a week or more, the employer must offer health insurance to the employee for a “stability period” of at least 6 months or for the length of the initial measurement period, whichever is longer.

Alternatively, if the employee worked on average less than 30 hours a week, the employer can treat the employee as a part-time employee for a subsequent stability period and not offer insurance.  The employer can take up to 90 days for an “administrative period” before the stability period begins during which the employer can determine eligibility and add the employee to its health insurance program.  In no event, however, can the combined measurement period and administrative period extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date.

Ongoing employees with variable hours can also be made subject to measurement periods and stability periods, with the measurement periods lasting 3 to 12 months and the stability periods lasting for the same period of time but in no event less than 6 months.  If an ongoing employee is determined to be part-time during any measurement period, the employer can deny coverage to that employee without risking a penalty for the next stability period.  If the employee is determined to be full-time during the measurement period, the employer must insure the employee for the following stability period or risk paying a tax penalty.

Employers needing assistance in making these determinations or who wish to consider other issues under the ACA, can call Matt Stokely at Pickrel, Schaeffer & Ebeling at 937-223-1130 or mstokely@pselaw.com

AND ONE MORE THING.  The 2012 Taxpayer Relief Act will prevent many of the tax hikes that were scheduled to go into effect this year and retain many favorable tax breaks that were scheduled to expire, but will also increase income taxes for some high-income individuals and slightly increase transfer tax rates from 2012 levels. Further, the Act extends a host of expired and expiring tax breaks for businesses and individuals, and also adds a number of new provisions to the Code.  More about this will be coming out in a future blog.  Call me at Jsenney@pselaw.com or 937-223-1130 if you have questions and can’t wait.