Enacted in 2010, the Affordable Care Act (ACA) or “Obamacare” is a comprehensive reform law that extends health care coverage to millions of people who were previously uninsured. The ACA includes a requirement that most “large employers” must offer health insurance to their employees.
Large employers are defined under the ACA as those with 50 or more full-time or full-time equivalent (FTE) employees. Learn more about compliance under the ACA for larger employers with answers to these frequently asked questions.
Compliance For Full-Time Employees
Large employers are required under the ACA to offer health insurance that is both affordable and provides minimum value to 95 percent of their full-time employees, as well as their children up until they turn age 26. This requirement is known as the employer mandate.
Coverage is considered “affordable” if employee contributions for employee-only health insurance coverage do not exceed a specified percentage of the employee’s household income. On August 30, 2021, the Internal Revenue Service (IRS) decreased the affordability percentage index from 9.83 percent in 2021 to 9.61 percent for the 2022 calendar year.
What Constitutes A Full-Time Employee?
The ACA defines a full-time employee as a person who works an average of 30 hours per week during the calendar month or a minimum of 130 hours during the calendar month. Businesses may have employees who do not work full-time, but who, when combined, is equivalent to a full-time employee.
A full-time equivalent employee is a combination of employees, each of whom is not individually a full-time employee, but when combined are equivalent to a full-time employee. Part-time employees are counted using the full-time equivalent method that involves adding the total number of hours worked by all part-time employees in a month, and then dividing that number by 120.
ACA Requirements For Full-Time Employees
If a business has full-time employees, it must perform the following steps to achieve compliance:
- Evaluate the grandfather clause in the company’s group health plan
- Determine if benefits outlined in the plan documents require modifications
- Identify potential tax-advantaged arrangements
- Deliver the appropriate notices to workers and their dependents
- Meet compliance under ACA pay-or-play responsibilities
- Comply with information sharing requirements
Compliance For Part-Time Employees
The legal requirements under the ACA only pertain to full-time employees. Businesses are not required to offer health benefits to part-time staff. However, this does not mean that companies should overlook this important benefit for part-timers. In addition to attracting and retaining talent, offering health insurance to part-time workers can help ensure that the business remains in compliance if some employees move from part-time to full-time.
What Constitutes A Variable-Hour Employee?
The ACA defines a variable-hour employee as an employee in which an employer cannot determine whether the employee is reasonably expected to work at least 30 hours per week based on the circumstances of the employee’s start date and because the employee’s hours are uncertain or “variable.”
Several factors can help employers determine if an employee is a variable-hour employee, such as if the employee is replacing a different employee and whether the job was advertised as requiring hours of service that will average 30 or more hours per week.
ACA Requirements For Variable Hour Employees
Some components of the ACA state that benefits are mandatory for all employees, regardless of the number of hours worked. ACA mandates include unemployment benefits, workers’ compensation benefits, and overtime payments to both full-time and part-time employees.
Under the ACA, a variable hour employee must be offered affordable health insurance if the employee is determined to be full-time. This is determined by reviewing a measurement period in which the employer will look at a given time period and average the number of hours during that time frame to determine if they are equal to or greater than full-time hours. If the employee is determined to be full-time, the employee must be offered health coverage.
Compliance For Seasonal Employees
Businesses often struggle to navigate the complexity of complying with the ACA in regards to seasonal workers. While the ACA requires all applicable large employers (ALEs) to offer health insurance to their full-time staff, there is an exception for seasonal employees. If a workforce has 50 or more FTE employees for less than 120 days per year and the workers during that period in excess of 50 are seasonal workers, the organization may not be considered an ALE.
What Constitutes A Seasonal Employee?
An employee is considered a seasonal worker if their expected duration of employment is six months or less during the calendar year, and if the job generally starts and ends at approximately the same time each year. This is some flexibility when determining if an employee is a seasonal worker as some businesses may alter their opening and closing dates based on weather and other factors.
ACA Requirements For Seasonal Employees
ALEs may use the look-back measurement method to avoid potential penalties due to the ACA employer-shared responsibility if a business does not offer health coverage to seasonal workers during the initial measurement period. An ALE will generally use the initial measurement period even if seasonal employees are hired that work more than 30 hours per week.
With the look-back measurement method, the employer can determine the number of hours that an employee worked in the preceding period. This method cannot be used to determine whether a worker is full-time for defining ALE status. It also informs employers on when to offer or extend coverage to employees who are considered full-time under the ACA.
Temporary And Short-Term Employees
The ACA refers to temporary or short-term employees as workers that accept job positions that are less than 12 months in length. Temporary or short-term employees are often hired by employers to help meet temporary business needs while allowing the employer to avoid the costs associated with hiring regular full-time or part-time staff. A temporary employee may also be hired from a Professional Employer Organization (PEO) or other staffing agency to help work on assignments or special projects.
ACA Requirements For Temporary Employees
A temporary or short-term employee may fall under the classification of a full-time employee if they do not meet the requirements for a seasonal employee and work more than 30 hours per week. If both requirements are met, the temporary employee may be eligible for benefits under the ACA.
How Do I Calculate Employees’ Hours?
Employers are responsible for determining full-time employment hours using one of several methods, such as the monthly method or look-back measurement method. Under the monthly method, the employer can calculate the employee’s hours on a month-to-month basis. An employee is considered full-time if they work at least 130 hours a month or at least 30 hours per week in a calendar month.
What Happens If I Don’t Report Employee Hours Correctly?
Under the ACA, ALEs could face significant penalties if they fail to offer Minimum Essential Coverage (MEC) to eligible employees. Organizations could face penalties if they do not offer health insurance to at least 95 percent of their full-time employees or if at least one full-time employee received a cost-sharing subsidy in the state or federal marketplace.
ACA Compliance Questions? — Reach Out To New City Insurance
The Affordable Care Act has transformed the way that employers purchase and offer health insurance to employees. Larger employers must meet a number of requirements to avoid hefty penalties that could be financially devastating to their business. For more information about ACA compliance for larger employees, contact the experts at New City Insurance today.