With the new Affordable Care Act guidelines in full swing, certain businesses are still questioning whether they meet the requirements for providing health insurance to their employees. This is especially true for startups that are in a process of expansion. Here is some valuable information for startups in regards to ACA requirements and penalties:
The basics
A company's health care requirements depend on the size and structure of its workforce. Certain benefits and stipulations apply to businesses with a specific number of full-time employees.
According to the Internal Revenue Service, large employers are obligated to provide minimum essential coverage to 95 percent of employees if they have 50 or more full-time workers on staff. A full-time employee is one who works at least 30 hours per week and 120 days of the year. Large businesses will have to file an annual return and are liable to the Shared Responsibility penalty if they don't offer health insurance to employees who don't already have it.
Small employers are those with fewer than 50 full-time employees and are not required to provide health insurance. However, if these businesses did offer coverage to their workers, they might be eligible to buy coverage through the Small Business Health Options Program, according to the IRS.
Small businesses with fewer than 25 employees could be qualified to receive a Small Business Health Care Tax Credit to help cover the cost of health insurance for their workers.
Does your startup offer health insurance?
Many small businesses will offer employee coverage as a means of employee retainment, a competitive edge above other employers and for attracting new talent. Since many health care plans are too expensive for startups to purchase, the government's SHOP exchanges offer an alternative. This type of insurance is normally less expensive than comparable plans companies can buy and is aimed at small businesses specifically, according to Inc. magazine.
Did your startup grow to include 50 employees in a year?
Company expansion can make ACA penalties more confusing. The important thing to remember is that coverage depends on the past calendar year, according to the IRS. For example, if your business has 30 employees in 2016 but grows to 55 in 2017, your company will not have to provide health insurance in 2017. In 2018, however, your company will have to change its status to a large employer and provide coverage.
How should HR prepare?
Human resources teams at both large and small employers need to be completely aware of the ACA's requirements and penalties. For all businesses, it is important that HR makes employees without coverage aware of the ACA's Individual Mandate. According to the IRS, all individuals must have MEC unless they meet a federal exemption. Without coverage, these people will be required to pay a fee for every month of noncompliance with the rule.
If your startup qualifies as a small business and doesn't plan to offer health insurance to employees, HR should not only make workers cognizant of the individual penalty, but also provide information on government health care plans. This way, employees can find coverage that works for them and their budgets with a helping hand from their employer.
If your small business decides to offer MEC to employees as an additional benefit, you will obligated to file a return to the IRS. Either situation will require communication between employers, their HR departments and employees.
Is your startup a large employer?
If your small business has more than 50 full-time employees, there are additional penalties to be mindful of.
Large employers need to make sure that they are providing MEC to at least 95 percent of their full-time employees. Those that do not will have to pay a Shared Responsibility penalty for every employee, which amounts to $2,000 for each employee after the company's first 30 workers, according to the IRS. In addition, HR needs to have record of which employees are taking advantage of the provided health care plan and which are not for IRS reporting reasons. A correctly filed return will need to made for every worker who is utilizing the provided coverage.
Most importantly, HR teams need to ensure their companies are up to ACA compliance standards and that employees are conscious of the guidelines and penalties that could affect them.
Adhering to ACA codes is important for startups that are hoping to expand over time. By understanding the regulations and communicating that information to its employees, small businesses can avoid monetary penalties and employee displeasure.