The Affordable Cart Act mandates that starting in 2015, the largest employers (those with at least 100 full-time equivalent employees) must offer coverage to their full-time equivalent employees to avoid the law’s penalties. However, the law’s formula is tricky. Under the Affordable Care Act’s (ACA) shared responsibility provision, a large employer (who employs at least 50 full-time equivalent employees on average) must offer affordable medical coverage to at least 95% of its full-time equivalent employees and their dependent children age 26 or younger — or face stiff penalties.
Before the employer mandate goes into effect on Jan. 1, 2015, here are four steps you should take to determine how many of your employees are considered full-time under the law and otherwise comply with the employer mandate:
1. 30+ hours per week
If an employee is expected to work 30 or more hours per week, he/she is classified as a full-time employee. You can immediately put all of these employees in one bucket.
2. Decide how you will track hours for variable-hour or seasonable employees
An employee is a variable-hour employee if his/her weekly schedule fluctuates above and below 30 hours, and it cannot be immediately determined whether the employee works an average of 30 hours per week.
An employee is considered a seasonal employee, and is allowed to be excluded from the full-time employee calculation, if employed on a seasonal basis (e.g., during the holidays) or works no more than 120 days. If, during the year, a seasonal workforce pushes you over the 50 full-time employee threshold, you’ll want to make sure your seasonal workers work less than 120 days if you want to avoid having to deal with the employer mandate.
The IRS has proposed a safe harbor method for employers to determine each employee’s full-time status by counting employee hours using a look-back/stability period. Under this safe harbor method, an employer can look back at a defined period (the “measurement period”) to determine whether the employee should be counted as a full-time employee. If the employer determines that the employee worked an average of 30 hours per week during the measurement period, the employee is then treated as a full-time employee during a subsequent “stability period,” no matter how many hours that employee actually works during the stability period.
3. Review your plan’s eligibility definition
The ACA full-time employee definition differs from the 40-hour per week full-time eligibility requirement that many companies currently use. A plan amendment, summary plan description update and employee communications may be needed to get your plan in compliance with the employer mandate.
4. Assess the potential impact to your company
What if the number of employees that will be considered full-time and eligible to elect your company’s benefits increases significantly? You may need additional resources during open enrollment to communicate with employees, answer questions and process new enrollments. Your company may also need to increase the amount of money budgeted to fund the company’s contribution towards healthcare benefits.
While you still have a little time, now may be a good time to review and adjust your company’s strategy to comply with the provisions of the ACA. A little forethought will help you keep your company’s benefits plan in compliance and potentially save you future headaches.