• Employer Shared Responsibility (51+ Employees)

    On February 12th, 2014, the administration published the final rule on Employer Shared Responsibility.

    Minimum coverage requirements

    Employers with 50 to 99 employees will receive an additional delay to meet the minimum coverage requirements until 2016. In order for an employer with 50-99 employees to qualify for this relief, it cannot reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition during the period beginning on February 9, 2014, and ending on December 31, 2014. There is an exception for a reduction in workforce size or overall hours of service made for bona fide business reasons. 

    Employers with 100 or more employees will still need to meet these requirements in 2015.

    Coverage requirements and offering

    Under the final rule, larger firms with 100 or more full-time employees must offer coverage to at least 70 percent of their full-time workers in 2015.   In 2016 and beyond, employers with 50 or more full-time employees must provide coverage to at least 95 percent of their full-time workers to avoid a penalty for failing to offer health coverage.  

    Transition relief for non-calendar year plans

    There will be transition relief in 2015 for certain employers with plan years that do not start on January 1.  These employers will be able to begin compliance with employer responsibility at the start of their plan years in 2015 rather than on January 1, 2015.

    Certain applicable large employers may be subject to a penalty tax for failing to offer the following:

    • Minimum essential coverage for all, or substantially all, full-time employees (FTEs) and FTE equivalents
    • Minimum essential coverage that is affordable
    • Minimum essential coverage that provides minimum value

    What this means: 

    Applicable large employers (i.e., an employer with at least 50 full-time equivalent employees) may be required to pay fees for providing no coverage or inadequate coverage if any employees buy subsidized exchange coverage.

    Coverage adequacy:

    • Does not require employees to pay more than 9.5% of their household income for self-only coverage
    • Allows employers to use the W-2 wages in determining affordability for employee
    • Has a minimum value of at least 60%
  • When will these penalties go into effect?

    Employers with 50 to 99 employees 

    These employers will receive an additional delay to meet the minimum coverage requirements until 2016. In order for an employer with 50-99 employees to qualify for this relief, it cannot reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition during the period beginning on February 9, 2014, and ending on December 31, 2014. There is an exception for a reduction in workforce size or overall hours of service made for bona fide business reasons.

    Employers with 100 or more employees 

    These employers will still need to meet these requirements in 2015.

    Groups are still encouraged to voluntarily comply when plans renew in 2014. Check the Healthcare Reform Timeline for deadlines.

    What is the potential financial impact of the federal tax penalty?

    No coverage 

    Employer fails to offer minimum essential coverage for all, or substantially all, full-time employees

    Penalty Calculation 

    $166.67 per month ($2,000 per year) X total full-time employees (minus the first 30) = employer penalty

    Unaffordable / minimum value coverage 

    Employer offers "minimum essential" coverage that is unaffordable or does not meet minimum value

    Penalty Calculation 

    $250 per month ($3,000 per year) X total full-time employees receiving premium tax credits or cost-sharing assistance = employer penalty

    Cap 

    $166.67 per month (1/12th of $2,000) X the employer’s total number of full-time employees (reduced by 30) = penalty cap amount

    For employer-shared responsibility determinations, how does the law define a full-time employee?

    • A full-time employee is an employee who was employed on average at least 30 hours of service per week (130 hours of service a month)
    • Hours of service include each hour for which an employee is paid, or entitled to payment, for the performance of duties and each hour for which no duties were performed due to vacation, illness, holiday, leave of absence, etc.

    For hourly workers, employers are permitted to calculate actual hours of service and hours of which payment is paid due to vacation, illness, holiday, leaves of absence, etc.

    For salaried employees, employers may calculate based on any of the following methods:

    1. Actual hours. counting worked performed and hours paid due to vacation, holiday, illness, leaves of absence, etc.
    2. Days worked equivalency. Employee is credited with eight hours of service for each day for which the employee would be required to be credited with at least one hour of service under these service crediting rules
    3. Weeks-worked equivalency. Using a weeks-worked equivalency of 40 hours of service per week for each week for which the employee would be required to be credited with at least one hour of service under these service crediting rules.

    A "seasonal worker" (as defined by the Secretary of Labor) is not considered a full-time employee if they are employed 120 days or fewer within a calendar year exclusively during holiday seasons.

    How does the law define an FTE equivalent?

    A combination of full and part time employees that is equivalent to 50 full-time employees (with at least 30 hours of service per week). For example, 40 full-time employees employed 30 hours a week on average plus 20 half-time employees employed 15 hours per week on average is equivalent to 50 full-time employees.

    How do I determine if the coverage my group offers is considered “affordable”?

    Affordability is all about employer contributions. You would need to consult with a tax adviser and/or legal counsel to determine if a plan meets the affordability criteria. Here are some guidelines to consider.

    • Employers have a safe harbor provision that allows them to use employee wages to test affordability, if household income is not available
    • Affordable plans do not require an employee to pay more than 9.5% of their household income for self-only coverage. (Employer may use W-2 wages (Box 1) instead of household income)
    • The condition for employee unaffordability (i.e. 9.5% of household income) is calculated based on the lowest cost plan at or above 60%. Employers may have plans above and below 60%, as long as at least one plan is a minimum of 60% and is affordable to eligible full time employees.
    • Premium subsidies and cost-sharing assistance on the exchanges will not be available to employees (and their dependents if able to purchase coverage on the employer plan) who have access to affordable self-only coverage.

    Example: You could determine whether the plan meets the proposed affordability safe harbor for 2014 for an employee by looking at that employee’s W-2 wages for 2014 and comparing 9.5 percent of that amount to the employee’s 2014 employee contribution.

    What communication am I required to provide the employee about the plan?

    There are three versions of Exhange Model Notices that must be sent out by the employer.

    1. Employer offering coverage
    2. Employer not offering coverage
    3. COBRA

    The applicable notice must be sent to the employee on the following dates:

    1. By 10/1/13 for plan year 2014 for current employees
    2. Within 14 days of hire date for new hire

    For more information on notices. To download these notice, go to www.dol.ebsa.gov.