As you gear up for year-end and all the important reporting requirement hoops through which you’ll need to jump, now is the perfect time to start getting prepared for compliance in 2018! Time spent preparing now will make year-end 2018 a breeze. In the meantime, we still have 2017 to consider. Over the next several weeks, we’ll post helpful articles to aid you in the process. First up, the Affordable Care Act. One of the biggest reporting and compliance demands comes courtesy of the ACA. As we head into year two of the full reporting requirements, one of the first items you’ll need to determine is if your business qualifies as an Applicable Large Employer (ALE). Two of the ACA provisions apply only to ALEs:
- The Employer Shared Responsibility Provisions; and
- The employer information reporting provisions for offers of minimum essential coverage (MEC).
Your determination as an ALE happens yearly and depends on the average size of your workforce during the prior year. If you had fewer than 50 full-time employees, including full-time equivalent employees (FTEs), on average, during 2016, you wouldn’t be considered a ALE for the 2017. If you had more than 50 full-time employees, including full-time equivalent employees (FTEs), on average, during 2016, you would be considered a ALE for 2017 and be subject to the Employer Shared Responsibility Provisions and the employer information reporting provision.
To determine your workforce size for 2016, add your total number of full-time employees (30+ hours per week on average or at least 130 hours for the calendar month) for each month of 2016 to the total number of FTEs for each calendar month of 2016. Divide this total by 12. If you were only in business for part of 2016, use those months during the calculation and divide by the total number of months you were in business.
An FTE is a combination of part-time employees who, in combination, are equivalent to a full-time employee. To determine your number of FTEs for a month, combine the number of hours for all non-full-time employees for the month but do not include more than 120 hours per employee. Divide the total by 120. The resulting number is your FTE count. It should be noted that FTEs are only relevant in determining if you’re an ALE. If you’re determined to be an ALE, you DO NOT need to offer MEC to part-time employees.
Example 1 – Employer is Not an ALE
- Company X has 40 full-time employees for each calendar month during 2016.
- Company X also has 15 part-time employees for each calendar month during 2016 each of whom have 60 hours of service per month.
- When combined, the hours of service of the part-time employees for a month totals 900 [15 x 60 = 900].
- Dividing the combined hours of service of the part-time employees by 120 equals 7.5 [900 / 120 = 7.5]. This number, 7.5, represents the number of Company X’s full-time equivalent employees for each month during 2016.
- Employer X adds up the total number of full-time employees for each calendar month of 2016, which is 480 [40 x 12 = 480].
- Employer X adds up the total number of full-time equivalent employees for each calendar month of 2016, which is 90 [7.5 x 12 = 90].
- Employer X adds those two numbers together and divides the total by 12, which equals 47.5 [(480 + 90 = 570)/12 = 47.5].
- Because the result is not a whole number, it is rounded to the next lowest whole number, so 47 is the result.
- So, although Company X has 55 employees in total [40 full-time and 15 part-time] for each month of 2016, it has 47 full-time employees (including full-time equivalent employees) for purposes of ALE determination.
- Because 47 is less than 50, Company X is not an ALE for 2017.
Example 2 – Employer is an ALE
- Company Y has 40 full-time employees for each calendar month during 2016.
- Company Y also has 20 part-time employees for each calendar month during 2016, each of whom has 60 hours of service per month.
- When combined, the hours of service of the part-time employees for a month totals 1,200 [20 x 60 = 1,200].
- Dividing the combined hours of service of the part-time employees by 120 equals 10 [1,200 / 120 = 10]. This number, 10, represents the number of Company Y’s full-time equivalent employees for each month during 2016.
- Employer Y adds up the total number of full-time employees for each calendar month of 2016, which is 480 [40 x 12 = 480].
- Employer Y adds up the total number of full-time equivalent employees for each calendar month of 2016, which is 120 [10 x 12 = 120].
- Employer Y adds those two numbers together and divides the total by 12, which equals 50 [(480 + 120 = 600)/12 = 50].
- So, although Company Y only has 40 full-time employees, it is an ALE for 2017 due to the hours of service of its full-time equivalent employees.
Employer Aggregation Rules
You should also be mindful of the Employer Aggregation Rules. If your company is part of a larger organization or a collective of companies with common ownership and/or functioning under the same management, then the combined number of full-time employees and FTEs for the group are considered when determining ALE status.
If you’re a new employer and weren’t in business on any day in 2016, you should use the 2017 calendar year to determine if you’re an ALE. Consider if you reasonably expect to employ or actually have employed at least 50 full-time employees or FTEs.
Failure to Provide Coverage
What if you qualify as an ALE but fail to offer any MEC to at least 95% of full-time employees?
If you fail to offer MEC to at least 95% of your full-time employees (and their dependents) and at least one full-time employee receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace, you will be required to pay a shared responsibility penalty. This payment is equal to $2,000 for each full-time employee, with the first 30 employees excluded from the calculation. This calculation is based on ALL full-time employees (minus 30), including full-time employees who have MEC under your offered plan. Example: You employ 62 full-time employees. One employee receives the premium tax credit when purchasing coverage. Your fine would be 62 total employees- the first 30= 32 employees for which the penalty applies. 32 x $2000= $64,000.
If you do offer MEC to at least 95% of your full-time employees (and their dependents), you may still be liable for the second type of employer shared responsibility payment if at least one full-time employee receives the premium tax credit for purchasing coverage through the Marketplace. This penalty is equal to $3,000 but only for each full-time employee who receives the premium tax credit.
Minimum Essential Coverage
A plan meets the standards for minimum value if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. Since you likely do not know the household income of your employees, you can rely on affordability safe harbors. These are Form W-2 wages, an employee’s rate of pay, or the federal poverty line. If you have questions concerning if the coverage you offer meets the MEC standards, consult your insurance broker.
Tax Credits for Small Employers
If you have fewer than 25 full-time employees, including FTEs, you may be eligible for a Small Business Health Care Tax Credit to cover the cost of providing non-mandatory coverage. Learn more here.
All ALEs are required to file Forms 1095-C and 1094-C. Employers who are not ALEs but chose to provide MEC to full-time employees are required to file Forms 1095-B and 1094-B. Reporting requirements and deadlines will be discussed in detail in our next article.
Interest in learning more about how GYM HQ can help keep you compliant and take some work off of your plate? Contact us today: firstname.lastname@example.org or 404-921-2269.