Press Room: Tax Release

March 07, 2013

Employers - Get Ready to Provide Healthcare to Full-time Employees or Pay a Penalty

Starting January 1, 2014, applicable large employer members must begin to provide full-time employees the opportunity to enroll in minimum essential coverage (employer group health plan) or pay an assessable payment (penalty). Determined on a controlled group basis, an employer is an applicable large employer if it, on average, employed 50 or more full-time and full-time equivalent employees in the prior calendar year. Thus, for the calendar year 2014, the determination year is 2013.

An applicable large employer member can be subject to one of the following two assessable payments.

No Coverage:

This payment relates to the failure to offer to at least 95% of its full-time employees (and their children under the age of 26) the opportunity to enroll in minimum essential coverage under the employer’s group health plan. However, the penalty only applies if a full-time employee is certified to have received an applicable premium credit or cost-sharing reduction on an Exchange. The monthly assessable payment is equal to 1/12 of $2,000 times the total number of full-time employees in excess of 30 (allocated among members of a controlled group).

  • For example, if an applicable large employer member had 100 full-time employees and did not provide minimum essential coverage to at least 95 full-time employees (95% of full-time employees) and one of those full-time employees was certified to have received an applicable premium credit or cost-sharing reduction on an Exchange, the employer would be subject to a monthly assessable payment of $11,667 for each month that a full-time employee is certified to have received an applicable premium credit or cost-sharing reduction on an Exchange.

Not Affordable:

If an applicable large employer member offers to at least 95% of its full-time employees the opportunity to enroll or decline to enroll in minimum essential coverage under the employer’s group health plan but such coverage is not affordable or did not provide minimum value, the applicable large employer member is subject to an assessable payment for each full-time employee who is certified to have received an applicable premium credit or cost-sharing reduction on an Exchange. The employer group health plan is not affordable if the employee’s cost for self-only coverage exceeds 9.5% of his/her household income (Box 1, Form W-2 can be used). The group health plan does not provide minimum value if the plan’s share of the total allowed costs is less than 60% of allowed costs. This penalty also applies to each full-time employee who is not eligible to enroll in the applicable large employer member’s group health plan as long as the applicable large employer member’s group health plan covered at least 95% of its full-time employees. The monthly assessable payment is equal to 1/12 of $3,000 times the total number of full-time employees who have been certified to have received an applicable premium credit or cost-sharing reduction on an Exchange.  The total monthly payment, however, cannot exceed the monthly payment the employer would have had to pay assuming it had not offered an employer’s group health plan to its full-time employees at all (the no coverage penalty described above).

  • For example, if an applicable large employer member sponsors a group health plan for at least 95% of its full-time employees but the plan is not affordable or did not provide minimum value, the employer would be subject to a monthly assessable payment of $250 per month for each full-time employee who is certified to have received an applicable premium credit or cost-sharing reduction on an Exchange.

It is very important for each employer to determine if it is an applicable large employer member. If it is determined that an employer is an applicable large employer member, it must accurately identify its full-time employees. In general, a full-time employee is an employee who works on average 30 or more hours per week. An employer needs to determine the correct number of full-time employees to ensure that its group health plan covers at least 95% of its full-time employees. In addition, if there are any penalties to be paid, the employer needs an accurate number of full-time employees to determine the amount of the penalty.

Among other guidance, the proposed regulations issued by the Treasury Department provide guidance for identifying full-time employees. To simplify the administration, the proposed regulations permit employers to use a safe harbor look-back measurement period of up to twelve months. In addition, employers have three methods for calculating hours for employees not paid on an hourly basis.

The proposed regulations are complex. If you have any questions regarding these assessable payments and the determination of full-time employees, please contact your WTAS advisor.