Employment and Labor Laws

Federal

Affordable Care Act (ACA)

Health care law can present a challenge to employers, who seek to understand and comply with the complexities of the law. The Affordable Care Act (ACA), a.k.a. “Obamacare,” is the current governing healthcare law in the United States. Under the ACA, companies with more than 50 full-time equivalent employees (often referred to as applicable large employers or ALEs) are required to either provide health insurance to their employees or pay a tax penalty for not offering affordable health coverage. In 2017, Congress repealed the individual mandate that required individuals to carry valid health insurance, but the employer requirements for employers with more than 50 full-time equivalent employees are still on the books. Here is what you, as an employer, need to know about the ACA to make sure your company stays legal.

Full-Time Equivalent Employees

Under the ACA, the Internal Revenue Service (IRS) defines a full-time employee as an employee who works an average of either 1) 30 hours or more per workweek or 2) 130 hours during a month. Employers that have more than 50 employees who meet either of these full-time thresholds are required to comply with the ACA’s healthcare mandate, or pay a tax penalty instead of offering affordable health coverage.

But even if employers have fewer than 50 full-time employees, they may still be required to comply with the ACA. This is because the ACA relies on the concept of full-time equivalent employees.

According to the concept of full-time equivalent employees, employers must take the number of hours worked by part-time employees in a month and determine how many full-time employees working 30 hours per week it would take to work those same hours. Once employers determine how many full-time equivalent employees they have, they must combine that number with the number of their actual full-time employees to determine whether they meet the ACA’s 50 full-time employee threshold. Employers are not required to include seasonal workers or employees who have health coverage under TRICARE or a VA health program in the full-time equivalent calculation.

Examples:

Employer has 35 employees who work 30 or more hours per workweek. It also has 30 employees who work on average 20 hours per workweek for a total of about 2,400 hours in a month. To determine whether Employer meets the ACA minimum employee threshold, Employer must first determine how many full-time equivalent employees it has.

To determine how many full-time equivalent employees it has, Employer would take the total number of hours worked by its part-time employees in the month, 2,400, and divide it by the legally recognized number of hours a full-time employee works in a month, 120 hours. 2,400 divided by 120 equals 20. Thus, it would take 20 full-time employees to work the same number of hours actually worked by part-time employees. 20 is the number of full-time equivalent employees.

Once it has determined how many full-time equivalent employees it has, Employer combines this number with the number of its actual full-time employees. This would be 20 35 for a total of 55 full-time equivalent employees. With 55 full-time equivalent employees, Employer is covered by the ACA.

Employer has 35 employees who work 30 or more hours per workweek. It also has 20 employees who work on average 20 hours per workweek for a total of about 1,600 hours in a month. To determine whether Employer meets the ACA minimum employee threshold, Employer must first determine how many full-time equivalent employees it has.

Calculator

To see exactly where you stand, access the full-time equivalent employee calculator.

Minimum Requirements

Under the ACA, large employers (those with greater than 50 full-time equivalent employees) must pay a penalty for not offering affordable health coverage:

  • If they do not offer health insurance coverage to at least 95 percent of its full-time workers
  • If at least one full-time employee received a premium tax credit or cost-sharing subsidy in the federal or state Marketplace

Employers must pay a penalty for not offering coverage that is affordable and provides minimum value

  • If the insurance does not pay for at least 60 percent of the covered health care expenses for a standard population
  • If the employees have to pay more than 9.56 percent of their household income for the employer coverage

Penalties

  • The penalty for each month the employers fails to offer coverage is $2,320 divided by 12, times the number of full-time employees (minus up to 30).
  • The penalty for each month the employer fails to offer coverage that is affordable is $3,480 divided by 12, for each full-time employee receiving a premium tax credit that month (up to a maximum of $2,320 divided by 12, times the number of full-time employees (minus up to 30)).

ACA Requirements for Small Employers

If, after calculating the number of full-time equivalent employees your company has, you still find that you have fewer than 50 full-time employees, a different set of rules and responsibilities apply for reporting and taxes.

Businesses defined as small employers by the IRS also have access to special provisions under the ACA. These provisions include the ability to purchase health insurance through the Small Business Health Options Program (SHOP) and, potentially, access to the Small Business Health Care Tax Credit.

Health Coverage Requirements for Small Employers

  • Small employers are required to withhold and report an additional 0.9% on employee wages or compensation exceeding $200,000
  • Small employers must report the value of the health insurance coverage provided to each employee on their W-2 form
  • If you provide self-insured health coverage to employees, you must file an annual return reporting information on the health insurance benefits provided to those employees

Eligibility for the Small Business Health Care Tax Credit

Small businesses may be eligible for an IRS tax credit for providing their employees with affordable health insurance coverage, known as the Small Business Health Care Tax Credit. To be eligible for this tax credit, businesses must:

  • Have fewer than 25 full-time equivalent employees Pay average wages of less than $50,000 a year per full-time equivalent employee
  • Offer a qualified health plan to its employees through the Small Business Health Insurance Options Program (SHOP) Marketplace
  • Pay at least 50% of the cost of employee-only (not family or dependent) health care coverage for each employee

What is the premium tax credit?

The premium tax credit is a refundable tax credit that low and moderate income families can use to purchase health insurance through the Health Insurance Marketplace. It applies to individuals, rather than employers. This tax credit is designed to help families with low to moderate income afford health insurance coverage. The credit can either be applied to the individual’s monthly health insurance premium or to their annual taxes.

Tax credits are considered “refundable” when, if the credit is more than the amount of your tax liability, you can receive the difference as a refund from the IRS when you file your annual taxes. The premium tax credit under the ACA is a refundable tax credit.

In order for individuals to receive the premium tax credit under the ACA, they must not have access to affordable health coverage under an employer-sponsored plan and must not be eligible for coverage under Medicare or another government-sponsored program.

Eligibility for the Premium Tax Credit

You are eligible for the premium tax credit if:

  • Your household income is at least 100% but no more than 400% of the federal poverty line for your family size
  • You do not file a Married Filing Separately tax form (unless you file under a special rule for victims of domestic abuse or spousal abandonment)
  • You are not claimed as a dependent by any other person on their tax return
  • You cannot get minimum health coverage under an employer-sponsored health insurance plan
  • You are not eligible for government-sponsored health coverage under Medicare or another program
  • You enroll in Marketplace health coverage within the month you apply for the tax credit
  • You pay the share of your health insurance premiums that is not covered by the tax credit

Resources:

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