Last July, when the Obama administration announced the one-year delay, until Jan. 1, 2015, in imposing the employer-shared-responsibility penalties of the Patient Protection and Affordable Care Act, many Idaho employers slammed the brakes on their compliance efforts.
Even though 2015 is still nearly a year away, Idaho employers should immediately start (or restart) those efforts. In particular, employers should focus on identifying their full-time employees. Some employers whose health-insurance plans are based on a fiscal year rather than a calendar year may even need to become compliant with the shared-responsibility requirements before Jan. 1.
Companies with 50 or more full-time employees (including full-time equivalents) must offer health care coverage to those employees or face significant penalties under the health care reform law, often referred to as the ACA.
To comply with the shared-responsibility requirements, or to calculate penalties for noncompliance, companies must identify all of their full-time employees. For many companies, identifying full-time employees for shared-responsibility purposes will be a significant new administrative burden, because the Internal Revenue Service rules for determining full-time employees are complex and may be unfamiliar.
Employers should take a close look at their workforce to confirm that they identify all common-law employees, focusing on independent contractors, leased employees, and other workers that they do not currently treat as employees. Employers should confirm that these types of workers are not common-law employees as defined by the IRS. Employers often misclassify such workers, and misclassification can result in significant shared-responsibility penalties.
For example, a company could have 90 full-time employees who are
offered health coverage and 10 additional workers who have traditionally been classified as independent contractors and not offered coverage. If the IRS audits the company and determines that the 10 workers classified as independent contractors were actually full-time employees, the company could be subject to a shared-responsibility penalty of $140,000.
Companies also must comply with IRS rules for determining whether employees are full-time or part-time.
In the past, many employers have offered health coverage to employees expected to work 40 hours per week. For shared-responsibility purposes, the threshold for full-time status is 30 hours per week, and full-time status must be determined based on actual hours worked, rather than expected hours worked.
Companies should carefully review and put into practice procedures for determining the full-time status of employees in compliance with IRS-provided requirements. These requirements may be particularly burdensome for employers with a significant variable-hour or seasonal workforce.
Companies need to document that each employee not offered health coverage is not a full-time employee under the IRS rules for determining full-time status. Otherwise, the employer could be subject to a penalty of $40,000 for its first 50 employees and an additional $2,000 for each employee thereafter. As in the example above, if an employer has 100 employees, the penalty is $140,000.
In many circumstances, the measurement periods required under the IRS rules for determining whether employees will be full-time for 2015 have started already. As a result, employers need to establish their procedures now and start counting employee hours as soon as possible.
Employers whose health insurance plans are on the fiscal rather than the calendar year may have to bring their plans into compliance even before 2015.
If a company’s plan year begins in 2014 and extends into 2015, the employer will generally need to ensure the plan complies with IRS minimum value and affordability requirements and covers all full-time employees as of the first day of the plan year. Otherwise, the plan will have to be changed midyear to comply with the shared-responsibility requirements as of Jan. 1, 2015, and midyear changes to health plans can be problematic.
Bret Clark, an attorney at Hawley Troxell, provides legal services to the firm’s employee-benefits and executive-compensation clients. He can be reached at firstname.lastname@example.org.