As 2015 kicks off and tax season approaches, businesses need to be intimately familiar with new recordkeeping requirements and penalties presented under the Affordable Care Act.
What are full-time employees?
A full-time employee is defined by the Internal Revenue Service as any worker who puts in 30 hours or more each week. This is calculated on a monthly basis, which should equate to 130 hours per month. New employees hired an full-time team members must be given a health coverage option by the first day of the fourth month of employment. The date of hire should be used as a benchmark during this calculation.
What is an applicable large employer?
The ACA considers any enterprise employing an average of at least 50 full-time workers over the course of the calendar year.
What is minimum value?
Minimum value is a term applied to a health coverage plan that pays for at least 60 percent of total medical costs.
What is an affordable plan?
An affordable plan, as defined by the Society for Human Resources Management, is considered a health care plan that provides minimum value and does not ask the employee to contribute more than 9.5 percent of his or her Form W-2 earnings from the employer during the calendar year. It also doesn't require salaried employees to pay more than 9.5 percent of their monthly wages or hourly workers to pay an amount that equates to 130 hours of work. Finally, individual contributions should not exceed 9.5 percent of the federal poverty level for a single person.
Section 4980H – "Play or pay mandate"
This mandate, as outlined by SHRM, states that employers with 50 or more full-time workers must offer health coverage to all of these full-time employees and their dependents. If the business cannot or does not fulfill this requirement, it will have to pay an additional fee. Companies with 50 to 99 full-time employees must offer minimum value, affordable plans to their workers by 2016.
It's essential to note that the IRS altered many of the provisions this year to make it easier for businesses to transition into the ACA. Many of the requirements for 2015 are different than those of 2016 and beyond. Businesses need to pay particular attention to these details. This is why those companies with 50 to 99 full-time workers do not need to provide health coverage until 2016.
In 2015, companies with 100 or more full-time employees have to provide health care coverage to 70 percent of their workers. During and after 2016, the percentage rises to 95.
Section 4980H(a) and (b) – Penalties
There are several different penalties a company will incur should it fail to provide adequate coverage to its full-time employees. Littler, a law firm that specializes in employment and labor legal issues, states that penalties are calculated for each calendar month.
Section 4980H(a) states that if a full-time employee uses a federal subsidy to buy insurance and is not offered coverage by the business, the employer must pay a fee. In 2015, after the first 80 full-time employees without coverage, the employer pays $2,000 per uncovered worker. In 2016, this penalty will apply after the first 30 uncovered employees.
Section 4980H(b) fines businesses if full-time employees must use premium tax credits to provide themselves insurance. Whether an employer must pay the fee is determined by evaluating whether the plan was affordable, provided minimum value or if the employee was not included in the 70 percent of employees covered in 2015 (or 95 percent in 2016).
These are just a few of the new mandates and requirements crucial to operating a healthy business. Human resources professionals should familiarize themselves with these regulations and utilize the services provided by HR software to help track and monitor employee coverage over time.