FAQs for U.S. Organizations

The Employer Shared Responsibility Provisions, commonly referred to as the “Employer Mandate,” provides that applicable large employers with 50 or more full-time (including full-time equivalent) employees1 are subject to a potentially large tax penalty if they fail to offer qualified coverage to a certain percentage2 of their full-time employees and any full-time employee receives a premium tax credit or cost-sharing reduction to purchase coverage through a health insurance “exchange.”

1The ACA defines a full-time employee broadly to include any employee who, with respect to any month, is employed on average at least 30 (not 40) hours of service per week.

270% in 2015 and 95% for each following year.

The two penalties under the ACA are the 4980H(a) penalty for failing to offer qualified coverage to the required percentage of full-time employees and their dependents and the 4980H(b) penalty for failing to offer qualified coverage to full-time employees and their dependents that is “affordable”1 and provides “minimum value.”2

1A plan is generally not “affordable” if the employee’s premium contribution exceeds 9.5% of his/her household income.

2A plan with “minimum value” should cover, on average, at least 60% of the cost of all benefits.

  • 4980H(a):

In 2015, if a covered employer does not offer coverage to 70% of their full-time employees and their dependents, and one employee receives a premium tax credit, the annual penalty will be:

(Number of full-time employees – 80) x $2,000

In 2016 and beyond, if a covered employer does not offer coverage to 95% of their full-time employees and their dependents, and one employee receives a premium tax credit, the annual penalty will be:

(Number of full-time employees – 30) x $2,000

  • 4980H(b):   If a covered employer does offer coverage, but that coverage is not affordable or does not provide minimum value, and one employee received a premium tax credit, the annual penalty will be the lesser of:
    • The penalty calculated under 4980H(a); or
    • Number of full-time employees who receive subsidized coverage through an exchange x $3,000
    • In application, both penalties are calculated on a monthly basis

2015 Example: 2,500 full-time employees, employer fails

to offer coverage to 70% of those employees.

Penalty: 2,500 – 80 x $2,000 =

$4.84 million penalty

2016 and Beyond Example: 2,500 full-time employees, employer fails

to offer coverage to 95% of those employees.

Penalty: 2,500 – 30 x $2,000 =

$4.94 million annual penalty

  • A full-time employee will be eligible for a cost sharing subsidy if their household income does not exceed 400% of the federal poverty level, and:
    • Their employer does not offer its full-time employees (and their dependents) the opportunity to enroll in their health insurance plan; or
    • Their employer offers its full-time employees the opportunity to enroll but coverage is not affordable or does not provide minimum value
  • Pursuant to final regulations issued in March of 2014:
  • Large employers must file §6056 returns for 2015 with the IRS by February 28, 2016 (March 31 if filed electronically). Employers must also provide all full-time employees with a §6056 employee statement on or before January 31 of each year.
  • §6056 returns require a significant amount of information for each employee. While the final regulations provide several “streamlined” methods, we anticipate the reporting will be burdensome for large employers.
  1. Does the mandate apply to this business and if so, when?
  2. To whom must we offer coverage?
  3. Does the insurance coverage provide minimum value and is it affordable to employees?
  4. What is my liability for not providing appropriate coverage and how can I avoid liability?
  • The mandate applies to all large employers as defined below

 

How do You Determine if You are a Large Employer Under the ACA?

  • An employer with 50 or more full-time or full-time equivalent employees
  • Must be determined each year based on prior year’s actual hours of service
  • Transition Relief
    • For 2015: Employers with 50-99 full-time employees will not need to comply with the Employer Mandate
    • To be eligible for this relief the employer must:
      • Employ between 50 and 99 full-time equivalent employees during 2014
      • Take no action to reduce the size of the workforce or the overall hours of service of its employees to fall within relief
      • Not eliminate or materially reduce coverage offered as of 2/9/2014
      • Certify that it satisfies the above requirements
    • Applies to 2015 plus any calendar months of 2016 that fall within an employer’s 2015 plan year
  • An employer with 50 or more full-time or full-time equivalent employees
  • Must be determined each year based on prior year’s actual hours of service
  • Transition Relief
    • For 2015: Employers with 50-99 full-time employees will not need to comply with the Employer Mandate
    • To be eligible for this relief the employer must:
      • Employ between 50 and 99 full-time equivalent employees during 2014
      • Take no action to reduce the size of the workforce or the overall hours of service of its employees to fall within relief
      • Not eliminate or materially reduce coverage offered as of 2/9/2014
      • Certify that it satisfies the above requirements
    • Applies to 2015 plus any calendar months of 2016 that fall within an employer’s 2015 plan year
  • The ACA defines a full-time employee broadly to include any employee who, with respect to any month, is employed on average at least 30 (not 40) hours of service per week.
    • Any employee who, with respect to any month, is employed on average at least 30 hours of service per week and therefore considered as a full-time employee under the ACA. Remember that hours of service (defined in next question) differ from hours worked.
    • Regulations provide two methods for determining full-time employee status:
      • Monthly measurement method
      • Look-back measurement method
    • Full-time employee status is based on “hours of service”
    • Calculated on a monthly basis
      • Hourly employees: 30 hours of service per week. 130 hours of service per month is the equivalent of 30 hours of service per week. Employers must calculate actual hours of service from records of hours worked and hours for which payment is made or due
      • Non-hourly employees: Count actual hours of service or use daily (8 hours)/weekly equivalency (40 hours). The use of equivalencies is prohibited if the result is to substantially understate an employee’s hours of service in a manner that would cause that employee not to be treated as full time.
        • Hours of Service
          • Hours for which an employee is paid, or entitled to payment, for the performance of duties;
          • Hours for which an employee is paid, or entitled to payment, for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity, layoff, jury duty, military duty, or leave of absence
        • Exclusions:
          • Hours of service performed: as a bona fide volunteer, as part of a Federal Work-Study Program, outside the United States.
    • Employees with 130 hours of service in a month will be treated as full-time
    • Final regulations adopt an alternative “weekly rule” that permits employers to determine full-time employee status for an individual month based on the number of weeks in the particular month
    • Calendar months with 4 week periods
      • Employees with at least 120 hours of service are full-time
      • Calendar months with 5 week periods
        • Employees with at least 150 hours of service are full-time
This method allows employers to determine the status of an employee during a future period, based on the hours of service he/she worked in a prior period

      • Applies differently depending on whether you are dealing with ongoing employees or new employees
      • Types of employees
        • Ongoing employees
        • New employees (Full-Time, Variable Hour, Seasonal)
  • Employers may select a “look back” measurement period of between 3 – 12 months
  • If an employee was employed on average at least 30 hours per week during the measurement period, then he/she must be treated as full-time during a corresponding stability period, regardless of the number of hours of service actually worked in the stability period
  • The duration of the stability period must be the greater of 6 consecutive calendar months or the length of the look-back period
  • For new hires, if reasonably expected to be full-time employees at the start of employment, the employer must offer coverage by the first day of the month immediately after the employee’s first 3 months of employment.
  • For new Variable Hour and Seasonal employees, an employer may determine whether a new employee is full-time by using an initial measurement period of between 3 and 12 months that begins on any date between the employee’s start date and the first day of the calendar month following the start date.
    • New Variable Hour Employee:Based on the known facts and circumstances at the employee’s start date, it cannot be determined whether the employee is reasonably expected to work an average of at least 30 hours of service per week.
    • Seasonal Employee:An employee who is hired into a position for which the customary annual employment is 6 months or less
  • To avoid penalties under 4980H(b), a covered employer must offer self-only coverage that is “affordable” (Family coverage does not need to be “affordable”)
    • A plan is generally not affordable if the employee’s premium contribution exceeds 9.5% of his/her household income
      • Final rules adopt affordability safe harbors
    • Form W-2: Employee premium share does not exceed 9.5% of the amount in Box 1 (Wages, Tips and Other Compensation).
    • Rate of Pay: Employee premium share does not exceed 9.5% of the total of the employee’s hourly rate of pay multiplied by 130 hours per month
    • Federal poverty line: Employee premium share does not exceed 9.5% of the federal poverty line for one person
  • An employee may be eligible to receive a premium tax credit if the coverage offered by his/her employer fails to provide minimum value. An employee receipt of a premium tax credit triggers a 4980H(b) tax penalty to the employer.
  • An employer’s health plan will fail to meet minimum value standards if the total allowed costs of benefits provided is less than 60% of the cost of all benefits
  • There are several options available for determining minimum value
  • Minimum Value Calculator
  • HHS / IRS Safe Harbors
  • Actuarial Certification
  • Only for plans with nonstandard features
  • Meets requirements of any “metal level”
    • Only for plans in the small group market

Exchange Notice

  • Employers must provide annual notices to employees regarding State and Federal Exchanges by October 1
  • September 2013: USDOL announced there would be no penalty for failure to distribute notices.
  • Two versions (one for employers who offer health plans, and one for employers who do not offer health plans)
    Revised USDOL Model COBRA Notice

FAQs for International Businesses with U.S. Operations

International companies and their subsidiaries may be subject to the ACA’s employer mandate if they, their subsidiaries, or other related companies have employees earning income in the U.S.
Related entities may be grouped together for determining if an international company with U.S. operations is an “applicable large employer.” If the aggregate number of employees working in the U.S. or receiving U.S. source income meets the 50-employee threshold2, then each related entity is considered an “applicable large employer” subject to the ACA. Only hours of service related to services for which the individual receives U.S. source income are counted. An international employer does not need to count employees living and working outside the U.S. who do not have U.S. source income.
Employee hours of service are the key to determining full-time employees for purposes of the 50-employee “large employer” threshold, as well as for identifying employees who must be offered coverage, and determining any assessable penalties. The ACA defines a full-time employee broadly to include any employee who, with respect to any month, is employed on average at least 30 (not 40) hours of service per week. Employees who do not receive U.S. source income are generally not deemed to be full-time employees under the ACA and consequently are not required to be offered coverage.
The U.S. Internal Revenue Service includes optional administrative safe harbors for identifying full-time employees. For example, under certain safe harbor methods, a short-term international business traveler in the U.S., including a nonresident alien, who does not average at least 30 hours a week during the measurement period, would not be considered a full-time employee during the subsequent stability period. International employers will need to track the hours of such employees and select an appropriate strategy so as to not inadvertently trigger penalties for failing to offer coverage. Special rules apply for employees who transfer between a U.S. entity and a foreign entity within the same international employer to avoid penalties.
The two penalties under the ACA are the 4980H(a) penalty for failing to offer qualified coverage to the required percentage of full-time employees and their dependents and the 4980H(b) penalty for failing to offer qualified coverage to full-time employees and their dependents that is “affordable”3 and provides “minimum value.”4
4980H(a): In 2015, if a covered employer does not offer coverage to 70% of their full-time employees and their dependents, and one employee receives a premium tax credit, the annual penalty will be: (Number of full-time employees – 80) x $2,000 In 2016 and beyond, if a covered employer does not offer coverage to 95% of their full-time employees and their dependents, and one employee receives a premium tax credit, the annual penalty will be: (Number of full-time employees – 30) x $2,000 4980H(b): If a covered employer does offer coverage, but that coverage is not affordable or does not provide minimum value, and one employee received a premium tax credit, the annual penalty will be the lesser of: • The penalty calculated under 4980H(a); or • Number of full-time employees who receive subsidized coverage through an exchange x $3,000 In application, both penalties are calculated on a monthly basis
A full-time employee will be eligible for a cost sharing subsidy if their household income does not exceed 400% of the federal poverty level, and: • Their employer does not offer its full-time employees (and their dependents) the opportunity to enroll in their health insurance plan; or • Their employer offers its full-time employees the opportunity
Pursuant to final regulations issued in March of 2014: • Large employers must file §6056 returns for 2015 with the IRS by February 28, 2016 (March 31 if filed electronically). Employers must also provide all full-time employees with a §6056 employee statement on or before January 31 of each year. • §6056 returns require a significant amount of information for each employee. While the final regulations provide several “streamlined” methods, we anticipate the reporting will be burdensome for large employers.
170% in 2015 and 95% for each following year.
2As 2015 is a transition year, the full-time equivalent employee threshold will be 100 employees. In 2016 and subsequent years, the threshold will be 50 full-time equivalent employees.
3A plan is generally not “affordable” if the employee’s premium contribution exceeds 9.5% of his/her household income.
4A plan with “minimum value” should cover, on average, at least 60% of the cost of all benefits.