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The Affordable Care Act in 2015: The employer mandate "gets real"

May 12, 2015 / 6 min read

Few Americans remain on the fence about the Affordable Care Act (ACA). Regardless of the politics that surround the law, 2015 is the year that employers who cross the 50-employee threshold must track and report the coverage that they provide to employees. Those who fail to count and offer coverage to employees as the law requires may face significant penalties. Even employers who have performed this count before can benefit from taking some time to review records, determine whether or not their businesses are subject to the mandate and, if so, which employees they’re required to cover. 

First, count

Every year, a business must determine if it has 50 or more full-time and full-time-equivalent (FTE) employees. The rules require that the business look back to the prior year. An employer is subject to the “employer shared responsibility” provisions of the ACA (also known as the “employer mandate”) in 2015 if the business had 50 or more full-time and FTE employees at the end of 2014. A full-time employee is one who averages 30 hours per week or 130 hours per month. The FTE calculation is a two-step process.

 A business that begins operation in 2015 will be subject to the mandate if it reasonably expects to employ an average of at least 50 full-time and FTE employees on business days during the calendar year and it actually does employ an average of at least 50 full-time and FTE employees during the calendar year.

Second, if the count is 50 or greater, cover

Once a business crosses the 50-employee threshold, it’s considered an “applicable large employer” (ALE). The law requires that an ALE offer “affordable coverage” that meets certain “minimum value” requirements to “substantially all” “full-time employees.” To understand what the law requires an ALE to do, an employer must understand how the four terms in quotes are defined by the ACA and related guidance.

Third, if you’re an ALE and you don’t offer qualifying coverage, pay

The ACA imposes two types of penalties on employers:

Effect of ACA on service companies

Prior to the ACA, many businesses in the service sector didn’t offer healthcare benefits to those working as few as 30 hours per week. Those businesses that did offer such coverage typically required a contribution from the employee that wouldn’t be considered “affordable” under the new law. It seems likely that many businesses in this part of the economy will face some significant changes as the new law comes into effect.
 
From a practical standpoint, most service employers won’t be able to develop and maintain a strategy that keeps them below 50 employees. It takes a certain number of labor hours to operate a business at a particular volume and, if the business is growing, it will eventually cross the 50-employee threshold and be treated as an ALE. However, the law does offer some flexibility in calculating which employees must be offered coverage.
 
Seasonal businesses, such as resort-based establishments that employ significantly more people in summer than the rest of the year, can use the look-back method to limit the number of short-term employees who qualify for coverage. Businesses with a more steady year-round volume can increase the percentage of their work done by part-time employees who work fewer than 30 hours per week. Their hours will still count toward the 50-employee threshold as full-time-equivalents, but the individuals won’t qualify when it comes to determining the full-time employees who qualify to receive an offer of affordable coverage from the employer.
 
Much of the data reporting to be done this year isn’t required until after the end of the plan year, but ALEs should be collecting data already. These businesses should also know whether they’re using the look-back or monthly method in order to determine which employees qualify for an offer of coverage. Employers who aren’t clear on the details surrounding implementation of the ACA and the requirements they need to meet should contact a compensation and benefits professional who is familiar with the changes as soon as possible.
 

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