How an employer counts full-time employees for health care reform

Many of the Patient Protection and Affordable Care Act regulations apply differently to employers depending upon the number of employees.  For example, the coverage mandate does NOT apply to employers with < 50 full-time equivalents (FTEs).  Recently, guidance has been issued on how an employer is to count the number of full-time employees.  Below please find an unofficial guide* to how the government expects employers to calculate this number.

An Employer Defined:  Generally, “employer” would mean the entity that is the employer of an employee under the common-law test.  All employees of a controlled group under § 414(b) or (c), or an affiliated service group under § 414(m), are to be taken into account in determining whether any member of the controlled group or affiliated service group is an applicable large employer.

Full-Time Employee Defined:  A “full-time employee” is an employee who is employed on average at least 30 hours per week.  130 hours of service in a calendar month would be treated as the monthly equivalent of at least 30 hours of service per week.

An employee’s hours of service would include the following: (1) each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer; and (2) each hour for which an employee is paid, or entitled to payment by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence (except that it is contemplated that no more than 160 hours of service would be counted for an employee on account of any single continuous period during which the employee was paid or entitled to payment but performed no duties).

Steps to calculate the number of full-time employees:

•  Total the number of full-time employees (including seasonal workers) for each calendar month in the preceding calendar year;
•  Total the number of full-time equivalents (as defined below) for each calendar month in the preceding calendar year;
•  For each month, add the number of full-time employees and full-time equivalents; and
•  Total the 12 monthly numbers and divide by 12.

Seasonal Exemption

Seasonal employees: a worker who performs labor or services on a seasonal basis, as defined by the Secretary of Labor and retail workers employed exclusively during holiday seasons.

Under PPACA, an employer is not an applicable large employer if:

(1) its workforce exceeds 50 full-time employees for 120 days or less during the calendar year and
(2) the employees in excess of 50 during that period were seasonal workers.

What If There’s a Question of FT Status

Variable hour employees: based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.

Measurement Periods – Employers planning to use the Variable Hour Rule must make this decision NOW!

Initial Measurement Period – Between 3 – 12 months generally surrounding an employees’ date of hire during which the full-time determination is made.
Standard Measurement Period – Between 3 – 12 months generally surrounding the plan year during which the full-time determination is made. This is applicable to on-going employees.
Administrative Period – A period not exceeding 90 days, during which the full-time determination is made and the employee is subsequently enrolled if determined to be full-time (working an average of 30 or more hours per week)
Stability Period – The amount of time a Variable Hour employee must be on the health plan.

For calendar year plans, the twelve month Measurement Periods should have already begun.  For example: To be effective January 1, 2014 a standard measurement period = November 15, 2012 to November 14, 2013.

Large Employers (>50 FTE’s) -Shared Responsibility Penalty

•Penalty for not offering health coverage
•If an employer fails to provide its full-time employees (and their dependents) the opportunity to enroll in “minimum essential coverage,” and
•One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost-sharing reduction, then
•Employer penalty = $2,000 for each of its full-time employees in the workforce in excess of 30.
•This penalty is non-deductible.
•Penalty does not offset the cost of employee coverage.
•Although part-time workers are included in the FTE calculation, large employers are not required to cover part-time employees under the law.

Unaffordable Coverage
•If employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage, and
•One or more full-time employees enrolls for coverage in an exchange and qualifies for a premium tax credit or cost sharing reduction because:
•The employee’s share of the premium exceed 9.5% of income, or
•The actuarial value of the coverage was less than 60%, then
•Employer penalty = $3,000 for each full-time employee who receives a tax credit or cost-sharing reduction:

When Don’t Penalties Apply
•Employee is in their waiting period AND the waiting period is less than 90 days.
•Variable Hour employee is in their measurement period or worked an average of less than 30 hours per week.

 

*Courtesy of Ruthann Laswik, Blue Water Benefits
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