The Affordable Care Act imposes various obligations on employers based on their number of “full-time equivalent” employees (FTE’s) for 2014. This PayDay will explain how employers are impacted based on the number of employees who are included in their workforce for 2014.
Counting Your Full-Time Equivalent Employees
A full-time employee (FT) is an employee who averages 30 or more hours of work per week (including paid time-off) during a one month period. A part-time employee (PT) is an employee who averages below 30 hours of work per week during a one month period (or in essence is an employee who does not work full-time). An employer’s “full-time equivalent” employees (FTE’s) are calculated every month by adding together the following 2 “counts”:
- Add the number of employees who, on average, worked 30 or more hours per week during the month; PLUS
- Total all hours worked by part-time employees during the month and divide by 120 hours
Add the two figures above to calculate your “full-time equivalent” employees for each month of the year. An employer’s FTE count for 2014 is calculated by adding all 12 months’ FTE counts and dividing by 12.
Three (3) Employer Sizes for 2014
The impact of the Affordable Care Act in 2015/2016 revolves around an employer’s FTE count for 2014, with 3 possible results:
- Below 50 FTE’s – You are not a “large” employer.
- 50 – below 100 FTE’s – You are a “large” employer in 2015, but most ACA requirements are delayed until 2016.
- 100+ FTE’s – You are a “large” employer with ACA requirements effective January 1, 2015.
ACA Impact – Under 50 FTE
Employers with fewer than 50 FTE’s for 2014 are not required to offer healthcare benefits AND cannot be penalized for not offering benefits. The “employer mandates” of the ACA do not apply to employers whose workforce is below 50 FTE’s. Employers with less than 50 FTE’s in 2014 should take the following action steps:
- Continue to monitor your FTE’s during 2015 for possible “large” employer status in 2016. This is especially important for employers who are close to the 50 FTE’s, and those employers who are increasing their employee counts.
- An employer with fewer than 50 FTE’s who provides healthcare benefits must make sure their benefit programs comply with the ACA as to coverages, waiting periods, and related ACA healthcare requirements. You are not required to offer healthcare benefits, but if you do, they must be ACA compliant.
- Many smaller employers have adopted programs in which they reimburse employees for their personal health insurance premiums. These employer-premium-reimbursements have been tax-exempt since 1961, but the ACA now requires that employer-reimbursements of employee insurance premiums are taxable compensation. Employers who wish to continue with employer-premium-reimbursement plans should carefully review the IRS Notice 2013-54 and subsequent IRS/DOL guidance to make sure they are not violating the ACA, and exposing themselves to possible massive penalties.
ACA Impact – 50-99 FTE’s
The ACA defines an employer with 50 or more FTE’s as a “large employer” which must provide healthcare benefits which meet “minimum value” and are “affordable” to their employees or pay ACA penalties for failure to provide benefits to employees. However, the “employer mandate” provisions of the ACA were delayed until January of 2016 for those “large” employers with 50-99 FTE’s in 2014.
Considerations if you are an employer with 50-99 FTE’s for 2014 are:
- As a “large employer,” you must maintain records of employee hours every month during 2015, identifying your “full-time employees” (30 + hours per week) and your “FTE’s” per month. You must file brand-new IRS forms 1094/1095 for year 2015 early in 2016. These 1094/1095 forms require information as to employee hours worked, by month, in 2015 as well as the cost of employees’ benefits during 2016. NOTE – The smaller “large” employers with 50-99 FTE’s must still track and report monthly employee counts during 2015 even though the requirement to provide healthcare benefits or pay penalties was delayed from 2015 to 2016.
- Large employers with 50-99 FTE’s should use 2015 as an opportunity to develop their ACA benefits and workforce management strategies for implementation/rollout in January of 2016. These smaller “large employers” should make sure their ACA employee tracking system is in place, and also review their benefits design and strategy with benefit consultants during 2015.
- Employers with 50-99 FTE’s who offer existing employee benefits plans must make sure their existing benefit plans are ACA compliant during 2015.
ACA Impact – 100+ FTE’s
Employers who have correctly counted their FTE’s for 2014 as 100 or more FTE’s, have the following obligations effective January 1, 2015:
- “Large” employers must have a system in place which tracks employee’s hours every month during 2015, identifying each month’s full-time employees, part-time employees, and those whose status as full or part-time is not known when they are hired. (These “can’t tell whether full-time or part-time” employees are called “variable hour employees.”)
- “Large” employers are required to complete and submit IRS forms 1094/1095 early 2016 to the IRS/DOL. Large employers should make sure they have systems in place to track employee hours and benefit costs so they can accurately complete these new ACA reports for 2015.
- Large employers with 100 or more FTE’s in 2014 must offer healthcare insurance/benefits to their “full-time employees” during 2015 or pay ACA penalties! The ACA imposes a “two-tiered” system of fines as follows:
- The “A” penalty is imposed on employers who do not “offer” benefits. The penalty amount is $2,000 for every “full-time employee,” but the “first 30” full-time employees are exempt from the “A” penalty. NOTE – for year 2015 only, the “first 80” full-time employees are penalty-free.
- The “B” penalty is imposed on employers who offer healthcare benefits but the benefits do not provide “minimum value” or are not “affordable” for some of the full-time employees. This “B” penalty is $3,000 per full-time employee but only applies to the employees who received premium tax credits or cost subsidies on the government exchanges.
- Large employers with 100 or more FTE’s should have an “ACA strategy” in place for January of 2015 which includes the following components:
- What is our exposure in dollars, to either the “A” or “B” penalties in 2015? What is the cost of benefits to us which will avoid the ACA penalties?
- Most large employers will wish to avoid the potentially very large “A” penalties for a “non-offer,” but may wish to review a benefits program which exposes itself to the “B” penalty only. (The “B” penalty only applies to offered benefits which do not provide “minimum value” or “affordability” to a select group of “full-time employees” not the entire full-time employee group to which the “A” penalty applies. KEY NOTE: Large employers are only required to offer healthcare benefits to their “full-time employees” – those employees who on average work 30 or more hours per week. Employees who work less than 30 hours per week are not required to be offered healthcare benefits by “large” employers. Employers should be able to track their employee hours in “real time” with consideration given to scheduling hours below 30 per week (determined monthly) to avoid payment of benefits or penalties.
- Large employers should classify their “new hires” as full-time, part-time, or “I don’t know for sure” (variable hour) employees. A “variable hour employee” is not required to be offered benefits (nor do penalties apply) during their “initial measurement period” (in essence, a “let’s test how many hours they work on average to determine their statuses as full or part-time”) Most employers who hire several part-timers (restaurants and retail) need to establish their “measurement periods” for classification of “variable hour employees.” As a general rule, a 12-month, 52-week measurement period will be adopted by an employer since it does generally reduce the number of variable hour employees who will later be classified as “full-time” after the initial measurement period.
What About Controlled Groups?
The Affordable Care Act treats employers who are under “common control” (similar ownership) as a simple employer for employee counting and employer obligations. A “controlled group” for ACA purposes is defined in the same manner as a “controlled group” for retirement plan purposes (IRS Section 414). You must be very careful in reviewing common ownership of separate legal entities to determine if the separate entities will be treated as a single employer for ACA purposes.
How AccuPay Can Help
AccuPay combines software technology with ACA expertise to help our employer-clients determine how the Affordable Care Act pertains to them, and how to implement systems to meet objectives for compliance with the ACA. AccuPay has also partnered with local benefits consulting firms who specialize in designing benefit plans which are intended to be ACA-compliant at minimum benefit cost. AccuPay’s owner, Larry Shaub, CPA, is a “Certified Healthcare Reform Specialist,” who has studied curriculum and passed an exam to become certified in the ACA. Larry has already conducted dozens of “ACA Reviews” for employer-clients of AccuPay, and our benefits consultants have also been discussing benefit plans with many of our clients. We also have licensed software resources which track employee hours, and calculate FTE’s and full-time employees on a monthly basis. If you are currently an AccuPay client, we can provide you with monthly “FTE” reports for year 2014. Additionally, AccuPay has recently licensed software from Kronos which helps large employers manage employees’ hours and which alerts employers to those employees (including variable hour employees) who are nearing “full-time employee” status.
Larry can be reached at 317-885-7600 or firstname.lastname@example.org. You can also ask your processor to have Larry contact you.by