(This article was last updated on October 30, 2015)
Under the Affordable Care Act, most Americans have to obtain health insurance or face a fine referred to as a shared responsibility payment. If you own a business, then you may be wondering about a similar requirement for employers. Often referred to as the “employer mandate,” the employer shared responsibility payment works similarly to the individual version. If you employ a certain number of full-time or full-time equivalent workers, then you have to offer affordable health insurance to those workers.
The details of this provision can be and have been misinterpreted in the media and even by those who understand the basics of the ACA. To make matters worse, the government has delayed implementation of the employer mandate provision twice, leaving many employers throughout the United States somewhat confused about what their responsibilities are and when they need to fulfill them. In the following sections, we’ll outline the employer shared responsibility provision and what you can expect as an employer beginning in 2016.
The employer responsibility provision applies only to entities that employ more than 50 full-time equivalent or FTE employees. If your workforce comprises 49 or fewer FTE employees, then you don’t have to worry about the mandate. The U.S. Treasury Department notes that about 96 percent of employers in America are small businesses, which means that most employers will not have to offer coverage under the law. Fortunately, many mid-size to large employers already offer some type of insurance.
Not only must larger employers offer coverage, but the insurance plan must be of “minimum value.” We’ll define that phrase in another section. Also, there are certain time frames associated with an employer’s responsibility to provide coverage as follows:
- Companies with more than 100 FTE employees had to offer health insurance to at least 70 percent of their full-time staff beginning this year.
- In 2016, those same large employers must offer insurance to 95 percent of their FTE workforce.
- If a company has between 50 and 99 FTE employees, then it has to offer coverage to its full-time staff beginning in 2016.
- Coverage must be of minimum value, and insurance plans have to cover dependents of the full-time employees. Spouses do not have to be covered.
- To calculate whether a company has to abide by the employer responsibility provision, employers must look at their employment numbers for the previous year.
Keeping up with which company has to offer coverage by which year can be overwhelming, particularly for businesses that never had to provide insurance before. The Kaiser Family Foundation offers a handy flowchart for explaining the regulations and fees associated with this provision.
What is an FTE Employee?
How does a full-time employee differ from a full-time equivalent employee? According to the IRS guidelines on determining FTE status, “An employer identifies its full-time employees based on each employee’s hours of service.” The IRS goes on to define full-time work as follows:
- An employee is considered full time if she averages “at least 30 hours of service per week” in a month.
- Employees will also be considered full time if they work 130 hours in one calendar month, which is treated like the 30-hour provision outlined above.
- An “hour of service” refers to any hour in which an employee earns money according to federal wage laws, including job performance, vacation time or sick pay.
- Volunteer work, federal work-study programs and similar situations do not count toward a person’s full-time status.
The Treasury Department and the IRS understand that keeping tabs on FTE workers can be tough, especially in cases where an employee doesn’t work consistently or maintains irregular scheduling on a seasonal basis. Because of these factors, there are several relief provisions afforded by the new tax code that make it possible for employers to avoid penalty fees as long as they’ve made every reasonable effort to provide acceptable health insurance. You can read more about these relief provisions by following the link above to the IRS’s explanation of the employer shared responsibility payment. The Treasury Department fact sheet also offers an overview of “safe harbors” for businesses.
Understanding Minimum Value
Above, we mentioned that businesses must provide health insurance plans that meet “minimum value” standards. The federal marketplace defines minimum value as covering “at least 60% of the total cost of medical services for a standard population.” In addition, employer-sponsored plans have to include “substantial coverage” for “inpatient hospital and physician services.” As long as a company adheres to the minimum value requirement for its full-time staff, it won’t be charged a penalty fee.
Penalty Fee Breakdown
Companies that meet the above requirements must offer health insurance, but employees don’t have to sign up for it. However, an employer’s health insurance policy may not always be affordable. If the employer’s plan fails to meet the minimum value requirement or costs more than 9.5 percent of an employee’s annual income, then the company will have to pay penalties. There are also other guidelines:
- Companies that don’t offer affordable coverage will owe $3,000 for every FTE employee who gains coverage through the marketplace. The $3,000 penalty will be divided by 12 in order to calculate monthly penalty payments.
- If an employer fails to offer any type of health insurance, affordable or otherwise, then the employer will have to pay a flat $2,000 per FTE employee. This amount will always be greater than the penalty for offering unaffordable insurance.
- These penalties only come into play if an FTE employee enrolls in a subsidized health insurance plan on the marketplace.
- Companies are allowed to deduct the first 30 FTE employees from their calculations beginning in 2016.
The calculations can be extremely confusing, and it’s tough to determine how much of a penalty fee each business will pay. The IRS will send a notice to employers letting them know if they need to fulfill the mandate and whether they’ve taken appropriate actions.
Benefits for Small Employers
It’s true that small employers won’t have to worry about the provisions for shared responsibility. However, if you run a company with fewer than 25 FTE employees whose average salaries don’t exceed $50,000 annually, then you probably qualify for a federal tax credit, for which you’ll need to apply using a specific tax form. If your company has fewer than 50 FTE workers, you can also browse through insurance options on the Small Business Health Options Program or SHOP. Unlike the individual marketplace, the SHOP is open year round, so feel free to check it out if you don’t already have a health insurance policy in place.
(This article was last updated on October 3, 2014)
What is the Obamacare employer mandate exactly? What does it mean for every day Americans? How does it affect the number of insured persons in the country? How does it affect business? How does it fit into the scope of the Patient Protection and Affordable Care Act, more popularly known as Obamacare? Since the ACA roll out, there have been many questions. There are also literally thousands of answers, some just as confusing as the questions. We are here to answer your questions in plain English, so that more people will understand the issues. More people will then be able to apply the answers to their own situations in their own lives.
To begin with, the ACA was enacted in 2010. Some of the bugs in the system meant that the roll out would occur later than projected. When the bugs were worked out, the health care exchanges opened and enrollment began. Other bugs meant that people and business needed time to comply with the rules of the ACA. For the 2014 calendar year, people had until March 31, 2014 to sign up for healthcare or they would pay a penalty with their taxes. In some instances, certain people were given until April 15, 2014 to finish their application on the federal Marketplace to sign up for insurance. The open enrollment period for the 2015 calendar year starts on November 15, 2014 and ends on February 15, 2015.
Originally, businesses were given until 2014 to comply with the Act, but it has been put off until 2015-2016 year, so that business could better arrange circumstances for compliance with the Act because they too, would pay a penalty if they did not comply with the requirements of the Act.
So now that the Affordable Care Act has gotten under way, the question is who is cooperating with the ACA and who is not? What does this mean for the millions who get insurance through an employer? There are rumors going around about hours being cut, jobs being lost and people quitting outright. What is the truth? How will it affect workers across the country? The truth is that a Gallup poll shows that 49 percent of Americans got their insurance through another source than employers compared to 43 percent who did in the second quarter of 2014. The truth is that that figure includes Medicare, because more and more seniors find it necessary to work into their 60s and 70s. The truth is that more people are getting health insurance themselves rather than through an employer.
Definition Of The Obamacare Employer Mandate
The National Federation of Independent Businesses defines the Employer Mandate as a shared responsibility to insure all Americans. Indeed, the ACA was designed for all Americans to help all Americans become insured. That means the rich, the poor, business and non-profits, research and institutions alike. The Employer Mandate is just a provision for Americans to help Americans become insured.
Under the mandate, employers are categorized as large or small. A large employer is regarded as one employing 50 to 99 or more full-time employees or full-time equivalents. A small employer is regarded as employing 50 or less full-time employees or full-time equivalents. Seasonal help is considered as applying toward full-time employees for either category, but temporary help, contractors and business owners are not. Full-time employment is defined as 30 hours per week.
How Will The Employer Mandate Effect Every Day Americans?
Every day Americans work. What this mandate means for them is that employers must affordably cover at least 70% of their full-time workforce by 2015 and 95% by 2016. This means that the employer may elect to offer employee-only plans. To qualify as affordable, the premium the employee pays must be at 9.5 percent of the worker’s income on their W2. The plan must cover at least 60 percent of health care expenses. If the plan fails to meet these criteria, employees may seek government subsidies. If this happens, the employer pays a fine.
Workers will fall into two categories: full-time and full-time equivalent and part time. Full-time is defined as 30 hours per week. Full-time equivalent is defined as a fraction of all work hours. For instance, a company has three employees, and one works 40 hours per week, one works 35 hours per week, and the third works 25 hours per week. Add the total hours worked for the week, and divide by 40. The company then has one full-time worker and 2.5 full-time equivalents. Part-time is generally considered less than 30 hours, usually 28 hours.
How Does The Obamacare Employer Mandate Affect Businesses?
In a February 2014 article, the Washington Post reported changes to the Affordable Care Act. Volunteers would be exempt from the penalty, which lets off the hook volunteer firefighters and such first response personnel. Large employers already covering 70% of full-time employees are exempt from the penalty, but must comply with the 95% covered stipulation by 2016. Small businesses still have until 2016 to comply with the mandate, but they must prove that they have not dropped their roll of employees just so they could avoid paying for insurance.
If insurance isn’t offered, the company will pay a fine, also called the Employer Shared Responsibility Payment. This fine will be added on a monthly basis to the company’s taxes at tax time. The fine is $2,000 per uninsured employee, with the first 30 full-time employees being exempt. If the insurance offered doesn’t cover at least 60% of the employees’ health needs, or if the employee receives tax help to pay for their own insurance, the company will pay the lesser of $3,000 for each employee receiving tax help or $750 for each of its full-time employees total.
For medium sized enterprises employing between 50 and 99 persons, the fee will be 1/12 of the $2,000 or $3,000 per full-time equivalent. This will begin in 2015. Small businesses employing less than 50 persons have until 2016 to comply with the Employer Mandate.
How Does It Affect Insured Americans?
The latest information we have on this question is from a September 2013 article, in which the Tampa Bay Times’ PolitiFact.com checked the facts behind a statement made by Rep. Chris Van Hollen (D-Md) in an interview with the host of Fox News Sunday. His statement was that the mandate would affect only five percent of the country’s businesses, a relatively small amount by comparison. PolitiFact.com checked with several sources of information, the most consistent and respected of which was the U. S. Census Bureau. According to the Bureau, around 72% of workers work in the 90% of businesses with considerably more than 50 employees, which are businesses that typically offer insurance anyway. There is only a tiny amount of businesses not large enough, meaning they only have one or two employees, to offer insurance. Of the businesses that have between 50 and 99 employees, many are scrambling to offer their employees affordable insurance. All this means that several millions of Americans have insurance through their employers.
How Does The Employer Mandate Fit Into The Scope Of The Affordable Care Act?
The object of the ACA is to help get uninsured persons affordable health care insurance. Big business and some medium enterprise businesses already offer employees insurance. The object is to help the businesses with less than 50 full-time employees with either insurance or tax breaks. These won’t have to pay the fine for not offering insurance. Those businesses employing less than 25 full-time employees will see tax breaks of up to half of their employees’ premiums by using their States’ Health Insurance Marketplace.
Just like individuals searching for health insurance, a company only has to compare plans and prices on their state’s health insurance marketplace. They must be careful that the plan offers minimum coverage, or 60% of the plan’s actual value.
There are six million registered companies in the country, 5.8 million of which only employee 50 persons or less. Ninety-six percent of these companies already offer insurance to their employees. That leaves .2 percent who needs to insure their employees. That translates to millions of workers insured through the workplace.
The wording of some documents is a little confusing. Companies with 50 employees or less will not pay the Employer Shared Responsibility Payment. That’s true. What people don’t realize is that these companies will receive help to cover their employees. These companies will pay 50% of their employees’ insurance as long as the employees’ average wages aren’t more than $50,000 per year. Then the company receives up to 50% in credits to help them afford insurance.
What Businesses Are Complying With The Obamacare Mandate On Businesses And Which Are Not?
Since companies have until the 2015-2016 enrollment period to comply with the Employer Mandate, there won’t be many accurate accounts on who is in compliance. However, there are already plenty who are taking the mandate to heart and are beginning to cut full-time employees back to part-time hours. One such list includes local, county and state offices such as school districts, universities and the like. Also included on the list are large employers with stores in particular states such as restaurant franchises that are cutting back. Other sources such as BuzzFeed have noted big hitters like Staples, Regal Theaters and the company that owns Olive Garden and Red Lobster have circulated memos to their management teams instructing them to cut back hours. These have done so as late as September of 2013, two to three years before the implementation of the Employer Mandate.
About The Mandate And The Effect On Job Creation
The point of the Employer Mandate is to help the smaller guys pay for employee insurance, not to let the bigger guys get around paying for theirs. To that end, a few of the bigger guys have cut hours, laid off employees and generally done what they could to get around it. They can afford to pay the penalty. A large employer like Safeway or Target wouldn’t miss the tax break on their first 30 employees, who are exempt. A smaller employer, with only 30 to 40 full-time equivalents, however, would find that tax break a lifeline. The employer mandate is a way to hold the feet of the big guys to the fire and get them to play an honest game.
There are options, though. If employees have their hours cut, they can look to their state exchanges for health insurance. There are a couple things about that that people need to know. Employer health insurance is figured at 9.5% of the employees’ income on their W2 to be considered affordable. If an employee has hours cut and working at minimum wage, s/he will be working 25 hours per week with two weeks off for vacation. That cuts his/her yearly income to a little less than $10,000 per year. Of course it won’t be affordable. Add to that the fact that employers are only constrained to offer employee-only coverage, not family coverage. So the employee has recourse to the state exchanges.
Now keep in mind that under the ACA, companies have until the 2015-2016 enrollment period to comply with the mandate. However, many businesses are jumping the gun and cutting hours now in an effort to save some money come crunch time. Companies had until October 2013 to notify their employees whether or no their insurance was considered affordable. Another caveat is that the insurance has to cover 60% of the plan’s expenses. If the company insurance doesn’t do either of these, the employee may consider options.
If an employee has just been notified that their premiums will be unaffordable, the employee may investigate their state exchange. In which case, there will be family plans, including dental and vision. Since the employee’s self and children are covered on employer plans, their spouse is not. The spouse might, if not covered by his or her own employer, shop on the exchange and obtain family coverage and get the tax break.
Another option employees have is if the employer decides to not deal with insurance at all and goes with a private exchange. In this case, the employer would give the employee a pre-considered amount of money with which to shop for insurance at the exchange of choice. This could include dozens of plans, benefits and premiums from dozens of insurance companies. Employees won’t pay income taxes on such an idea.
We hope this explanation of the Employer Mandate helps not only employers but employees figure out what it’s all about and where they stand. The extension of the mandate will put some employees in the soup, with no insurance presently and maybe with no insurance in a couple years. We hope this information helps everyone, but especially those who need insurance the most.