FAQ: Determining Employer Size and Employees Eligible for Coverage Under the Federal Patient Protection and Affordable Care Act

FAQ: Determining Employer Size and Employees Eligible for Coverage Under the Federal Patient Protection and Affordable Care Act https://wahospitality.org/wp-content/uploads/2011/08/healthcare-stack-273.jpg

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The Washington Restaurant Association has retained the services of healthcare expert Donna Steward to help educate the restaurant industry and individually answer member questions. Every week, we will conduct a toll-free conference call where members will be able to ask questions relating to the healthcare issue and receive a response on the spot. This is a member-only benefit to WRA members.

The sessions take place every Friday through the end of April and begin at 10am and will end at 11am. The next conference call is this Friday, March 29 at 10am PST. The call-in number is 1-800-582-3014, participant access code is 699019287.

To read other FAQs or listen to recordings from previous calls click here.

The federal Patient Protection and Affordable Care Act (ACA) requires employers with 50 or more full-time equivalent employees to provide health care coverage to their full-time employees.  Employers that fail to provide such coverage are subject to a potential federal IRS penalty if one of their full-time employees is awarded a federal premium subsidy to help them purchase coverage in a health insurance exchange.  The penalty is $2,000 times the number of full-time employees, minus the first 30.

In addition, federal rules require employers to extend coverage to variable hour employees that work on average 130 hours per month.  Employers are also required to retain these employees on their health plans for either 6, 9, or 12 months, regardless of the number of hours the employees work during those months.

The following are frequently asked questions regarding these requirements:

How do I determine whether I am subject to this requirement?

Determining your employer size is a fairly simple process.  Count the number of employees working 30 or more hours per week – do not include variable hour employees that sometimes work 30 or more hours in this calculation, but do include salaried employees that are considered full-time.  This will be bucket one.

The second step is to add up the hours worked by all other employees during the calendar month.  This is where you will add-in hours worked by variable hour employees as well as temporary employees and seasonal employees that worked more than 120 days in the year.  Once you add up the hours, the law directs you to divide the total hours by 120.  The result is your number of full-time equivalent employees and is bucket two.  Add bucket one and bucket two to determine your final employer size.                                 

Which month should I use to determine my size?

If you are a stable employer, one in which the size of your workforce has little fluctuation and the hours  your employees work throughout the year are consistent, you may be able to choose just one month from which to calculate your size.  However, the federal rules recommend that you evaluate your employer size using a consecutive six-month period of time and use the average from those six months to determine whether you must comply.

How do I count seasonal employees?

The law and rules allow employers to exclude hours worked by seasonal employees from the calculation of employer size when those seasonal employees work fewer than 120 days during the calendar year.                                                                                                                     

Who specifically must I provide coverage to?

Employers with more than 50 full-time equivalent employees must offer coverage to all full-time employees (all those counted in bucket one above) and their dependents (which does not include spouses), as well as all variable hour employees that work on average 130 hours per month.

Is it true that I do not have to keep variable hour employees on my health plan for the full year?

Potentially. Once an employer has identified that a variable hour employee is eligible for coverage, the employer must guarantee that employee access to coverage for at least 6 months.  This “stability” period which is determined by the employer can either be 6, 9 or 12 months depending on the employer’s preference. A variable hour employee will remain eligible for coverage if they consistently work 130 hours per month.  An employer would not be able to remove a variable hour employee from their health plan at the end of the chosen stability period if the employee remained eligible for coverage based on the number of hours they worked.  However, if the variable employee’s hours dropped substantively during the stability period, the employer would be able to disenroll the employee from their plan at the end of the stability period as they would no longer be eligible for coverage.

What if a variable hour employee can no longer afford premium payments during the stability period? 

If a variable hour employee notifies their employer they are no longer able to pay their share of premium contributions and would like to drop their coverage, the employer may drop them from their plan.  However, the employer may not assume an employee is unable to make these payments just because the employee’s hours have dropped or because the employee does not have enough wages for a payroll deduction.  The employee must affirmatively identify they are unable to afford the coverage and ask to be disenrolled from the plan.

Is it true that even though I am subject to this requirement, I may not be assessed a penalty if I fail to provide coverage to my full-time employees?

Yes. Employers are required to provide health care coverage only for full-time employees and their dependents, as well as variable hour employees that work on average 130 or more hours per month.  Even though the employer’s size may exceed 50 full-time equivalents, the penalty is assessed based on the employer’s number of full-time employees.  When determining the penalty, the law allows a set-aside of the first 30 full-time employees before issuing a penalty.  If an employer has fewer than 30 full-time employees, no penalty can be assessed on the employer at this time.

How do I know if a variable hour employee is eligible for coverage?

The rules direct employers in 2013 to evaluate the hours of variable hour employees for at least three months to determine whether those employees are eligible for coverage beginning on January 1, 2014.  Employers may choose a longer period of review, known as a “look-back” period, if they choose.  Beginning in 2014, employers must evaluate variable hour employee hours for at least six months.

Evaluating the hours of variable hour employees is a fairly simple process – take all hours worked by the employee during a calendar month and divide by 130.  The result will either be greater or less than 1.  Repeat this process for the number of desired months.  If the result is greater than 1 in the majority of months evaluated, then the employee must be offered coverage in the upcoming coverage year.

Additional Resources

**Please include link to previous FAQs – Large Employer Responsibility Under the ACA

ACA Responsibility Requirements

IRS Rules (proposed):  http://www.irs.gov/pub/newsroom/reg-138006-12.pdf

IRS Q and A: http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act

IRS FAQs Employer Responsibility:  http://www.irs.gov/pub/irs-drop/n-12-17.pdf

IRS Safe Harbor Guidelines for Determining Eligible Employees: http://www.irs.gov/pub/irs-drop/n-12-58.pdf

Donna Steward, President, Kiawe Public Affairs

This publication is intended to inform employers about provisions of the Patient Protection and Affordable Care Act and how those provisions may affect them.  This information should not be construed as legal or tax advice, and readers should not act upon the information contained therein without professional counsel.

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