You asked: “I’ve been hearing a lot in the news about the Affordable Care Act and how employers are going to be required to offer employees health care coverage. How do I know if my company is going to be affected?”
January 1, 2014, the date the Affordable Care Act (ACA) goes into effect, will be here before we know it. Employers are (understandably) anxious to know what health care reform means to them and their businesses. For the next several What’s Up Wednesday posts, we’ll discuss some of our clients’ most common questions about this complicated new law.
It’s true – all large employers in the United States will be affected in some way, shape or form by the ACA on January 1, 2014. The biggest change will be fines large employers face if they do not provide affordable, minimum-level health coverage to their full-time employees and employees’ dependents. This is often called the “Pay or Play” feature or the “Employer Mandate” of ACA. Basically employers get to choose whether they will “play” by offering affordable health coverage or “pay” the penalty.
So, to answer your question about whether or not your company falls under the employer mandate, you need to figure out if you are a large employer. Seems easy enough, right? Maybe not . . .
According to the law, large employers fall into one of the two categories below:
1. Have at least 50 full-time employees. But in this case, the employer does not set the standard for full-time hours. For the purposes of ACA, the government considers an employee to be full-time if they work at least 30 hours of service on average each week. When determining how many hours of service employees have, you must include hours paid as well as PTO, sick time, short and long term disability, layoff, jury duty, military duty and/or leave of absence.
2. Have at least 50 full-time equivalent (FTE) employees. Full-time equivalency is determined by a somewhat tricky formula. For any part-time, full-time or contracted worker, take the total number of paid hours during a designated period and divide it by the number of working hours in that period, Mondays through Fridays. For example, employees who work 30 or more hours per week will each count as one (1) FTE and employees who regularly work less than 30 hours/week will be counted as a fraction of one. So, an employee who works on average 24 hours per week is considered a part-time employee; however, when calculating your FTE count, that employee would be considered .8 FTEs. When adding up all of your FTEs, if your business has more than 50, the ACA mandates apply.
While it is time consuming to calculate FTEs, it is relatively straightforward when considering regular employees. Things really get wild, though, when trying to determine the FTE count of your seasonal employees and those employees who may not work a regular schedule.
In calculating how seasonal employees should be counted, there is really no clear guidance in the regulations. It requires a “good faith” interpretation by the employer and generally, employees who work less than 120 days during the calendar year are not to be included in the FTE count. For variable hour employees (those who truly have work schedules that vary week to week), starting in 2014, employers must regularly track employees’ status to determine full-time status eligibility, report each employee’s full-time status to the IRS and keep record of it. Then, employers can choose a prior period of time (called the “measurement period”) to analyze if employees met the 30 hours of service threshold. If employees are determined to be full-time, then they must be considered full-time for a determined amount of time (called a “stability period”).
And that’s it! I bet you didn’t think (and were hoping) that the answer to this straight-forward question was going to be so exhausting. The fact of the matter is that ACA is a very complex piece of legislation with procedural rules and clarification still being written! Nevertheless, if you haven’t started analyzing your workforce to determine your FTE count, you should do so immediately so that you have time to prepare for what lays ahead.
Stay tuned for more ACA help next week . . .
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CORRECTION: Please note a correction has been made to this posting. Our original post stated the “an employee who works on average 24 hours per week is considered a part-time employee; however, when calculating your FTE count, that employee would be considered .08 FTEs.” The correct calculation is “0.8 FTEs”.