Spotlight Series: The Employer Mandate 2015
Compliance with the employer mandate in the ACA isn’t hard with the right reporting system and technology. In this post, we’ll shine a light on what you need to know and do to comply. When you're done, get in touch with us and see how our solution can help. At Lumity, we’re all about helping you create a benefits program to meet your company goals and those of your employees. ACA compliance is just one facet of this.
WHAT IS AN APPLICABLE LARGE EMPLOYER (AND WHY DOES IT MATTER)?
The employer mandate requires that Applicable Large Employers, or ALEs, offer health insurance to a minimum portion of their employees. First, then, you need to determine whether or not you are an ALE.
For 2015, an ALE is an employer with 50 or more full-time equivalent employees in 2014. If you had more than 100 regular, full-time employees you can quickly make that determination. Congratulations! You are an ALE and can skip ahead. Others, keep reading.
While counting your employees might seem pretty simple, governmental regulation has rendered it a little murky. You’ll need to take a couple of counts into consideration.
Notice we have used the terms “regular, full-time” employees and “full-time equivalent” (or FTE) employees. For this purpose, they are different. How?
You probably have a definition of full-time employee already. Usually it is someone who works 40 hours per week, 52 weeks per year. An FTE, though, is anyone who works, on average, 30 hours or more per week or 130 hours or more per month. Count them like this:
35 employees regularly work 30 or more hours per week.
-> 35 FTEs
Now you need to account for your less-than-30-hours employees. Count them up, and then total their average weekly hours worked. Multiple the number of these employees by the average weekly hours, then divide the total by 30. This results in another FTE figure, like this:
-> 32 employees each regularly work 25 hours per week.
-> 32 x 25 / 30 = 26.6 (~26 FTEs)
Now add the two together for your total number of FTEs:
-> 61 Total FTEs
If your FTE count comes in under 50, you are not subject to the employer mandate. You can be excused – although you may want to read more if your company is growing and you expect to have at least 50 FTEs in coming years.
Those employers with 50 to 99 FTEs are ALEs. If you fall into this category, keep reading to find out if you qualify for transition relief in 2015.
If you had at least 100 FTEs in 2014, you are definitely an ALE. Keep reading!
MY COMPANY IS AN ALE. WHAT DO I DO NOW?
The ACA requires that ALEs offer health insurance to at least 70 percent of their full-time employees and their dependents up to the age of 26 in 2015. In 2016, that percentage rises to 95 percent. Furthermore, the coverage you offer must be affordable and it must provide minimum value. You’ll need to prove all of this to the IRS, too, by filing two new reporting forms, the 1094-C and 1095-C.
So how do you decide whether your coverage is affordable? The employee-only cost for the employee must not be more than 9.5 percent of the employee’s household income. You are likely not privy to the household income figures of your employees, and the IRS knows that. That’s why they have provided three safe harbor tests. If your coverage is deemed affordable based on one or more of these tests, you’re in good shape.
To meet one of the three safe harbors, the employee’s’ portion of self-only coverage for your lowest cost plan cannot exceed 9.5 percent of:
1. The employee’s W-2 wages from working for you for the calendar year;
2. The federal poverty level for a single person; or
3. An actual pay amount. This last safe harbor requires some explanation.
Actual pay amount is based upon the employee’s actual hourly rate or monthly salary. For hourly employees, it is their rate on the first day of the coverage period OR the lowest hourly rate during the calendar month, times 130. If the employee is salaried, use their monthly salary amount.
Here are some examples. For each example, we’ll assume your plan costs a total of $400 per employee per month, and you pay $300 for employee-only coverage. The employee’s cost is $100 per month.
Safe harbor #1: Employee’s W-2 shows $15,000 in wages for 2014.
15000 x 9.5% = 1425 annually
1425 / 12 = 118.75 monthly
Coverage for this employee meets the W-2 affordability test.
Safe harbor #2: Federal poverty level 2015, single person = $11,770
11770 / 12 = 981
981 x 9.5% = 93
Coverage does not meet this affordability test.
Safe harbor #3: Employee earns $15 per hour.
15 x 130 = 1950
1950 x 9.5% = 185.25
Coverage is affordable for this employee.
If you have determined that your lowest priced plan does offer affordable coverage, you also have to also make sure it provides a minimum level of coverage. The ACA refers to this as minimum value. Essentially, minimum value means that the plan covers at least 60 percent of the total allowed cost of benefits expected to be incurred. To determine whether or not your plan meets this test, you can enter the plan’s features, like co-pays and deductibles, into the IRS’ minimum value calculator, here.
WHAT IF WE ARE AN ALE AND DON’T MEET THE TESTS?
You must pay a penalty for 2015 if
· you don’t offer health insurance at all
· you don’t offer it to the minimum percentage of full-time employees required by the ACA,
· your coverage doesn’t meet the affordability tests, or
· it doesn’t meet the minimum value test.
The penalties are known as Employer Shared Responsibility Payments, and we will refer to them as ESRPs. (That’s right, another acronym.)
To figure out how much your ESRP should be, you need two pieces of information: the number of your full-time employees, and the number of your full-time employees who got a premium tax credit from the federal government for purchasing individual coverage in the Health Insurance Marketplace. We’ve included a link on page 7 so you can learn more about premium tax credits – just in case you’re interested.
If you don’t offer coverage at all or if you offer coverage to fewer than 95 percent of your full-time employees and their dependents, your ESRP is generally* $2,000 for each full-time employee if at least one full-time employee received a premium tax credit.
If you offered affordable, minimum coverage to at least 95 percent of your full-time employees but one or more of them received a premium tax credit anyway, you must also pay an ESRP. In that case, your ESRP is calculated by the month for every month in which an employee received a credit. The monthly ESRP will be 1/12 of $3,000 for each employee who received a credit. This amount is capped so that it cannot be more than the amount you would owe if you didn’t offer coverage at all. You can read more about this in Question 25 of the IRS’ Q&A on the ESRP in the further reading section below.
You may be wondering how you will know whether or not one of your employees has claimed a premium tax credit. Don’t worry, the IRS plans to make sure you’re informed. Once the individual tax filing deadline has passed, they will notify employers of individuals claiming the credits. You will have an opportunity to respond at that time. If it is determined that you do owe an ESRP, the IRS will let you know how and where to make the payment.
*There are some exceptions. See "Further Reading" below for the IRS’ Q&A, and refer to question 24.
TRANSITION RELIEF FOR 2015
For 2015, the IRS has provided for transition relief for employers in some circumstances. You won’t have to make an ESRP payment if, in 2014, your workforce included fewer than 100 FTEs. You will not need to make ESRP payments if you reduced your workforce for a bona fide business reason – but not if you did so because you wanted to avoid being an ALE. And, if you did not reduce or eliminate health insurance during 2014, you won’t have to pay the ESRP.
One more thing: transition relief for 2015 includes the requirement that you offer coverage to at least 70 percent of your full-time employees and their dependents. The figure in the ACA is actually 95 percent, but was reduced for 2015 to 70 percent for the purpose of transition relief. This means that, for 2016 and based on 2015 figures, you must extend affordable, minimum value coverage to at least 95 percent of your full-time employees.
FORMS TO FILE
Now that you know you’re an ALE and therefore subject to the employer mandate, you’ll need to notify employees. While you’re at it, you need to let the IRS know, too.
First, you’ll need to issue either a 1095-C, Employer-Provided Health Insurance Offer and Coverage, or an equivalent form, to each employee. If you choose, you can substitute another form, as long as the form provides the required information. It can be combined with other tax forms like the W-2. This tax form provides information about the health insurance coverage you offered during the past year, such as the employee’s share of the monthly premium and whether or not a safe harbor was used during any month. Similar to a W-2, employees must receive their 1095-C no later than January 31, 2016.
Finally, you need to tell the IRS. You do that by filing a 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns, along with copies of the 1095-Cs. This form tells the IRS how many total employees you had, how many FTEs you had, information about your insurance coverage, and whether you used a safe harbor to meet the ACA requirements in any month. The 1094-C and accompanying 1095-Cs must be filed by February 28, 2016 if mailed, or March 31, 2016 if filed electronically.
KEEP EMPLOYEES (AND UNCLE SAM) HAPPY
The IRS understands that complying with some of the requirements of the employer mandate will take a little practice. As is often the case with new or complex laws, they are applying a good faith standard to compliance. How can you show that you made your best effort to file the right paperwork at the right time?
Keep meticulous track of employee time and attendance. Make sure your payroll system is detailed and accurate. And call us if you need expertise and assistance!
Remember that the ACA’s goal is to make sure that every American has proper health care by giving them access to affordable, quality health insurance. As an employer subject to the ACA, you must provide a minimal level of coverage to your full-time employees. But your goal as an employer is greater: you also want to make your employees healthy and happy at work, because you recognize how important that is to productivity and retention. Providing them excellent benefits is one way to do that.
Lumity’s specialty is in helping employers and employees choose and design better benefits through data insights. More than ever before, planning ahead requires looking at where you’ve been. Until now, a clear look at the data was only available to very large companies and their costly consultants. With our proprietary systems, Lumity delivers this same level of sophisticated data analysis to our clients that Fortune 100 companies have successfully used for years to optimize employee benefits and wellness. We bring better benefits and save you money. We make it simple, painless - and as your broker - at no additional cost to you. Contact us today and see how we can help you with ACA compliance and make your benefits shine.
Compliance with the employer mandate is within your reach. Still, it is part of the Internal Revenue Code and therefore filled with exceptions and legal jargon. Here are some other helpful resources from the IRS website.