In just a couple of short weeks, real short weeks with the holidays included, we will be sitting right on top of the January 1, 2015 compliance deadline for large employers under the Affordable Care Act. Here at SBAM, we have received quite a few compliance questions from agents and members. Here are the seven most common.
This question is driven in large part by Zane Benefits and the program that they are pushing. Despite their efforts, basically, the answer to this question is NO… Businesses cannot avoid the employer mandate to offer coverage by reimbursing employees for coverage purchased and premiums paid through the exchange. This applies whether the reimbursement is pre-tax, post-tax or through a Section 105 plan. While it is still okay for an employer to offer cash in lieu of participation in a health plan under Section 125, it must be made available to all employees to avoid any potential discrimination issues. A violation here is extremely expensive: $36,500 per participant per year.
2. What is the Affordability test?
The affordability for coverage is measured based up on the employee-only (single) coverage of the lowest compliant plan. It is not based on family coverage, although coverage must be made available to dependents (excluding spouse). The “safe harbor” test for employers is that coverage cannot cost the employee more that 9.56% of W-2, Box 1 income for single only coverage. Remember that Box 1 isn’t gross compensation, but rather gross minus 401k/403b and Section 125 premium and FSA contributions.
3. The 95% rule – better known as the 70% rule for 2015…
To avoid a penalty payment for failing to meet the employer mandate of offering health insurance coverage, large employers (that’s 100 or more FTEs in 2015) need to offer coverage to 70% of their full-time employees (regularly scheduled to work 30 or more hours per week) in 2015. The 95% rule goes into effect in 2016. Remember though, that is only half of the story: Meeting the 70% rule only satisfies the $2,000 per employee penalty, not the $3,000 penalty, meaning that an employer with 100 or more full-time employees that offers coverage to at least 70% of its full-time employees in 2015 can still face a penalty if it has one or more full-time employees who go to the exchange and receive a premium tax credit for participation in the exchange.
4. What is the rule regarding Seasonal Workers?
Seasonal workers that work 120 days or fewer during all of 2014 are not counted for purposes of determining whether the company is a large employer. But if they exceed 120 days in the calendar year, they cannot be ignored for the full time equivalent count and should be added to your FTE calculation.
5. What are the rules around the Waiting Period?
Health insurance plan eligibility waiting periods cannot exceed 90 calendar days from the date of hire including holidays and weekends. If your customer has a bone fide orientation period, they may add up to an additional 30 days to the period. Further, the maximum length of time for an effective date of coverage including all measurement, administrative and waiting periods cannot exceed 13 months from the date of hire.
6. Why do I need to be aware of Control Groups?
To determine whether or not your customer is an applicable large employer, don’t forget to ask about at the controlled group rules, not just about the individual company. Section 414(c) of the IRS Code provides the rules for determining when a controlled group exists, the key consideration is commonality of ownership, which is not at all uncommon in the small business world. Employers with fewer than 100 FTEs may still be subject to the employer mandate and the “pay or play” penalties if they are part of a controlled group that has more than 100 FTEs (for 2015). The employee count of the ACA takes into consideration the entire controlled group for size, so if there is commonality of ownership between two (or more) companies, they should be carefully reviewed to see if there is a controlled group. To be safe, you might want to have your customer ask their CPA or legal adviser if they are a member of a controlled group.
7. Transitional Relief
If your customer has between 50 and 99 full-time employees, they may be eligible for transition relief. An employer with 50 to 99 FTEs may be exempt from penalties if three conditions are met, including:
- During 2014, if your customer can show that for any consecutive six-month period, they had fewer than 100 FTEs.
- If between Feb. 9, 2014 and Dec. 31, 2014, the employer can show that any reduction in hours or reduction in workforce was based on a legitimate business reason and not simply to avoid the compliance mandate.
- That from Feb. 9, 2014 through the last day of the plan year that begins in 2015, the employer must keep the same coverage and employer contribution toward the cost of self-only coverage that was in place on Feb. 9, 2014.
If your customer has between 50 and 99 FTEs, and meet these conditions, then they could avoid the pay-or-play penalties.
Have questions? Let us know how we can help.