Will You Be Required to Provide Employee Health Insurance Coverage in 2015?The Affordable Care Act, also known as the Health Care Reform Law, contains a provision that is often referred to as the Employer Mandate. The Employer Mandate requires a large employer to offer health insurance coverage that meets certain standards to its full-time employees and their dependents. A large employer’s failure to offer such coverage could result in the assessment of a penalty payment against the employer.
Originally, the Employer Mandate was scheduled to become effective as of Jan. 1, 2014. Recent guidance, however, delays enforcement of the Mandate’s requirements until Jan. 1, 2015 (the “Delay”). This Delay offers an employer additional time to determine whether the employer is a “large employer” that is subject to the Mandate and, if so, additional time to evaluate its options for complying with the Mandate’s requirements. This article explains the steps that an employer should take to determine if it is a large employer that must comply with the Employer Mandate requirements beginning in 2015.
Definition of a Large EmployER A “large employer” is defined as “an employer that employed an average of at least 50 full-time employees (including full-time equivalent employees) on business days during the preceding calendar year.” This means that an employer must review its 2014 staffing figures to determine whether it will be a large employer during 2015 that is subject to the Mandate. This analysis must be conducted for each subsequent year to determine ongoing “large employer” status. (For example, the employer must review its 2015 staffing figures to determine whether it will be a large employer for 2016, and so on for each subsequent year.)
The Employer Mandate rules specify a formula that must be used to determine large employer status. That formula typically requires that the employer analyze its staffing figures on a “per month” basis for each month during the calendar year immediately preceding the calendar year for which the large employer determination is being evaluated.
Applicable guidance provides that an employer may utilize a special transition rule for purposes of determining large employer status for the first year during which the Mandate is effective. That transition rule permits an employer to analyze only six consecutive months (instead of 12 months) of staffing figures to determine large employer status. Since that transition rule was published before the Delay, it is unclear whether the rule will continue to be available to employers. However, further guidance regarding the continued applicability of this transition rule is anticipated.
Steps to Determine Large Employer Status
Set forth below are the steps that an employer should take to determine if it will be a large employer in 2015 that will be subject to the Employer Mandate. For purposes of this illustration, assume that hypothetical employer ABC Construction has decided to review its staffing figures for the six-month period beginning on Jan. 1, 2014 and ending on June 30, 2014. (This illustration assumes that the special transition rule that is discussed above will continue to apply, notwithstanding the Delay.)
Step 1 – Determine Number of Full-Time Employees for Relevant Months: ABC must count all full-time employees employed for the month of January. A full-time employee is an employee who averages 30 or more hours of service during each week in January (or works 130 or more total hours of service during January). ABC must count each hour for which the employee was paid or was entitled to payment for either work performed or paid vacation time, paid sick time, paid time off for jury duty or other paid absences.
Step 2 – Determine Number of Full-Time Equivalent Employees for Relevant Months: After ABC has completed Step 1, it must add together the hours of service that were worked by all part-time employees during January. (ABC is not required to count more than 120 hours of service per part-time employee for this purpose.) A part-time employee is any employee that is not a full-time employee, including a temporary or seasonal employee. ABC must divide the total number of hours worked by its part-time employees by 120. The result of that calculation is the number of “full-time equivalent employees” ABC employed during the month of January.
Step 3 – Calculate Total: ABC must add together its January full-time employee count from Step 1 and its full-time equivalent employee count from Step 2. The sum of these two figures is the number of full-time employees (including full-time equivalent employees) employed by ABC for the month of January. If the sum of those two figures contains a decimal point, ABC must keep the decimal point when performing the calculations discussed in Step 4. This calculation is illustrated by the example below.
Example: ABC reviewed its January 2013 staffing figures and determined that 22 of its employees were full-time employees because each had at least 130 hours of service during January. ABC also determined that its part-time employees worked a combined total of 1,450 hours during January. (See Figure 1)
Step 4 – Calculate Totals for Other Months: ABC now must perform the calculation that is outlined in Steps 1 through 3 above for each of the months of February, March, April, May and June of 2014 to determine if it will be considered a large employer during 2015.
Example-Continued: ABC reviewed its staffing figures for the months of February through June 2014, and determined the employee counts that appear in the chart below. (See Figure 2)
Step 5 – Calculate Average: ABC must calculate the average number of full-time employees (including full-time equivalent employees) that it employed during each month of the six-month period by (i) adding together each individual monthly total; and (ii) dividing that collective total number by 6 (the number of months that were reviewed). As illustrated, the collective total employee count is 238.10 for the six-month period that was reviewed. If ABC divides the collective total (238.10) by 6 (the number of months that ABC reviewed), ABC will have employed an average of 39.68 full-time employees during each month of the six-month review period. This final total number is rounded down to the nearest whole number. Therefore, ABC is considered to employ an average of 39 full-time employees (including full-time equivalent employees) during each month in calendar year 2014. ABC will not be considered a large employer during 2015 because it employed, on average, less than 50 full-time employees during each month in 2014. This means that ABC is not required to offer health insurance coverage to its full-time employees and their dependents during 2015.
An employer must perform the same employee review that is described above in 2015 to determine whether it will be considered a large employer for 2016. The 2015 review must include all 12 months of 2015 (even if the employer used only six months during its 2014 review). When performing these calculations, an employer should remember the items that are noted below.
All employees on staff during the month under review must be counted and will fall into either the full-time employee column or the full-time equivalent employee column. This is true even for seasonal employees who work only for a short time during the year.
If an employer appears to be a large employer because it hired numerous seasonal workers, a “seasonal worker exception” exists that may allow the employer to avoid being considered a large employer.
A large employer is required to offer health insurance coverage that meets certain standards only to its full-time employees and their dependents. The term “dependent” includes only the full-time employee’s child(ren) until the child attains age 26. There is no requirement to offer health insurance coverage to part-time employees, or to offer health insurance coverage to the full-time employee’s spouse.
When performing monthly hours of service counts, count only those hours of service for which an employee was paid or entitled to payment. Do not count the hours of an employee who is on an unpaid leave or who is otherwise absent from work on an unpaid basis.
Individuals who perform services for the employer but who come from a temporary staffing agency or employee leasing company typically will not be considered employees, and therefore, should not be included in the employee count for any month during the review period.
Revised and reprinted with permission from Constructor, July/August 2013, a publication of the Associated General Contractors of America.