Smart Benefits: Counting Employees Right For Healthcare Compliance
Monday, February 04, 2013
That’s because employer size determines what healthcare reform rules apply.
- Small employers. Those with less than 50 full-time and full-time equivalent employees are not required to offer insurance.
- Large employers. Employers who have more than 50 full-time and full-time equivalent employees will face "pay or play" penalties. That means they’ll pay a penalty if they decide not to offer coverage and another one if the coverage they do offer isn’t affordable or doesn’t provide minimum value based on “shared responsibility rules” set under the Patient Protection and Affordable Care Act (PPACA).
For many employers who teeter between sometimes having slightly below or above 50 employees, this calculation is critical.
Large versus Small
In any calendar year, an employer is a “large employer” if it employs an average of at least 50 full-time and full-time equivalent employees on business days during the preceding calendar year. Keep in mind that companies of commonly owned groups are added together for these calculations and will count toward large employer status.
Full-time employees are those who work an average of 30 hours per week or 130 hours per calendar month. If an employee is paid hourly, their hours must be used in determining their status for the month. If an employee is not hourly (i.e. salaried), an employer can use one of three methods to determine hours worked:
1. Count the actual hours worked by the employee
2. Credit 8 hours of service for any day that the employee would work at least one hour
3. Credit 40 hours for each week that the employee would be credited with at least one hour of service
Seasonal Employees Count…
An employer who exceeds the 50 full-time employee threshold for a period of 120 days or less because of increased seasonal employees would not be considered large; however, if seasonal employees cause a business to swell to over 50 employees for more than 120 days, the employer would be. Employers concerned about the impact of seasonal employees should use 2013 to manage the workflow of these staffers.
…But Other Employees Don’t
Sole proprietors, partners in a partnership, members of LLCs taxed as a partnership and shareholders who own two percent or more in an S corporation don’t need to be counted as employees. Nor do any individuals paid by a staffing agency (even if they provide services to an employer on an equivalent full-time basis) or leased employees.
Tracking is Key
Employers must track all employees (including seasonal employees) each month to determine who is full-time and who isn’t.
- The employer must calculate the aggregate number of hours of service (not more than 120 hours for any employee) for all employees who were not employed an average of at least 30 hours of service per week for that month.
The total hours for the month for all such non-full-time employees is divided by 120. Fractions are included in determining the monthly FTE count but are disregarded in determining if the employer is a large employer.
Once the employer has the number of full-time employees and FTEs it employs each month during the prior calendar year (e.g. 2013), it totals these monthly numbers and divides by 12 months to get the average. If the result is 50 or more employees, the employer is deemed “large.” Employers are allowed to round down, so 49.5 could be 49, making it “small.”
When Do Employer Starting Counting?
The biggest question employees have about this determination is when and how they start counting employees.
For 2014, an employer may determine its “size” by using a period of at least six consecutive months in 2013 rather than the full 2013 calendar year. This transition rule allows an employer who is close to the 50 full-time threshold to count employees between February and July 2013 and then decide how it need to change its health plan (or implement a new one) before January 1, 2014.
The “pay or play” rules apply to every type of employer, including for-profit, non-profits and governmental entities. It’s time they start tracking employee time either by working with their payroll vendor to collect this information or tracking the data internally. At some point in 2015, employers are likely to have to report this information to the federal government.
Some other key issues employers need to consider now?
- Which six-month transition period they will use to start counting employees.
- If small employers offer coverage now, but will be impacted by additional employees being eligible for coverage, what will the additional costs be or how can they manage work flow so that additional employees are not eligible?
- Some small employers may want to drop coverage altogether and pay the penalty. But remember that the $2,000 penalty is not tax-deductible, and will be subject to the employer’s corporate tax rate. Insurance premiums, on the other hand, are tax-deductible, so employers will need to understand the cost differences between offering coverage and dropping it. Depending on employer contributions, some small employers may be better off capping their expenses, or offering less costly plans, then stopping insurance.
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