Employers with an average of 50 full-time equivalent employees (FTE) in the preceding calendar year must provide minimum essential coverage, which meets minimum value and is considered “affordable”, to “substantially” all its full-time employees or be subject to penalties. Although some employers may have less than 50 full-time employees, they may be subject to this mandate if they have enough other employees. Additionally all employees of a controlled group or affiliated service group must be considered in the equation.
Employer groups who cannot easily determine whether they are subject to the mandate in 2014 have the option to use 6 consecutive months (or more) in 2013 to determine if they employed an average of at least 50 FTEs. For example an employer may choose to measure FTEs based on January 1st through June 30th employee hours and use the last 6 months of 2013 for planning purposes. See this FTE Calculation Tool for assistance in determining the employer’s status.
A plan is determined to meet minimum value if its share of the total allowed costs of benefits provided under the plan meets or exceeds 60% of those costs. Although the long anticipated regulations needed to confirm how calculations will be determined have still not been released, most employer sponsored major medical plans offered today are expected to exceed minimum value.
A plan is considered affordable to a particular employee if the employee contribution to the single premium for the lowest cost option meeting minimum value does not exceed 9.5% of the employee’s household income. However for employers who offer minimum value coverage there are several safe harbors employers can use to ensure their plan is affordable.
- W-2 Safe Harbor
- Rate of Pay Safe Harbor
- Federal Poverty Level Safe Harbor
Starting this year employers who are subject to the employer mandate will need to pay special attention to all categories of employees and carefully determine their eligibility in order to avoid penalties. It is particularly important to pay attention to variable hour, temporary, and seasonal employees and offer coverage timely to eligible employees who work an average of at least 30 hours per week or 130 hours a month. IRS/Treasury recently released look-back safe harbor rules to assist employers in measuring an employee’s service hours over a number of months rather than on a monthly basis. If an employer is prepared, and properly executes the look-back safe harbor measurements the employer can reduce/eliminate penalty liability.
For more information on how the employer penalty is calculated, see this Penalty Flow Chart.
Your advisors at Business Benefits Insurance Solutions are available to guide you through these very complex rules and regulations, help you determine the best strategy for your company, and assist you in compliance.