Are You in Compliance with the Affordable Care Act?


Enacted in March 2010, the Affordable Care Act (“ACA”) has changed the landscape for employers regarding whether and what type of healthcare coverage should be offered to their employees. Beginning on January 1, 2015, employers who, under the ACA’s definition of “full-time,” employ 100 or more full-time employees or full-time equivalent employees (“FTEs”) must offer certain options or face play-or-pay penalties. The risk for not complying is steep! Annual excise taxes of $2,000 or $3,000 per each full-time employee may be imposed. For employers with 50 or more full-time employees, but less than 100 employees, the ACA excise tax is not effective until January 1, 2016.

What Are the Changes?

  1. For purposes of 2015 compliance, the ACA treats full-time employees as those who began work 90 or more days before January 1, 2015, and worked, on average, at least 30 hours per week (or 130 hours per month) in the preceding year (2014).
  2. The ACA also includes in the count of full-time employees a number that is the result of a calculation involving part-time employees. In this regard, the ACA calculates FTEs as the amount equal to the number of hours worked by part-time employees for a single employer in a year divided by 120. (For example, if a company has numerous part-time employees working a total of 1200 hours a year, 10 additional full-time employees are included in the count.)
  3. If the aggregate of the number of full-time employees plus FTEs equals 100 or more, the employer is classified as a “large” employer for 2015, and the ACA mandate to offer minimum value and affordable minimum value healthcare coverage to such full-time employees or face play-or-pay excise taxes is effective January 1, 2015.
  4. Under special transitional relief, if the aggregate number of the full-time employees and FTEs is 50 or more, but less than 100 in 2015, the minimum value and affordable healthcare rules are effective January 1, 2016.
  5. The ACA defines minimum value and affordable minimum healthcare coverage as any plan where the employer pays 60% or more of the cost of covered services and the employee’s portion of the payment is 9-½% or less of his or her household income. Under a “safe harbor” rule, Form W-2/Box 1 wages can be used as the base for this determination rather than household income.
  6. In 2015, if even a single full-time employee enrolls in an insurance exchange and receives a federal tax credit or cost-sharing subsidy, excise taxes of up to $2,000 per employee per year, where there is no healthcare coverage offered whatsoever, less a “deductible” of the first 80 full-time employees, may be charged to employers under the ACA. Therefore, in 2015, a large employer with 100 full-time employees would be required to pay an excise tax of $40,000 ($2,000 x 100-80) for failure to offer minimum value and affordable coverage as of January 1, 2015. (Note: In 2016, the “deductible” number of employees excluded from the calculation is reduced from 80 to 30). If health coverage is offered, but it is neither minimum value adequate nor affordable, a $3,000 excise tax applies with respect to each employee who enrolls in coverage under an insurance exchange and receives a federal tax credit or cost-sharing subsidy with no employee “deductible.”

Are You a Single or Joint Employer?

The ACA requires joint employers (for example, in situations involving leased employees) to coordinate their employee counts for purposes of determining large employer status under the ACA. In addition, ACA regulations provide that any group of employees considered a single employer, under Internal Revenue Code’s retirement plan common ownership controlled group rules, will be treated as a single employer for purposes of determining large employer status. If there are related entities to the employer, the controlled group rules may require the inclusion of employees at different locations to count towards the number of full-time employees.

What Do You Need To Do To Prepare for January 1, 2015?

  • Determine whether you meet the 100 full-time employee threshold using the ACA’s definition (see #s 1, 2 and 3 above).
  • Be thoughtful about the ratio of full-time to part-time employees in planning for the ideal balance between healthcare costs and employee productivity.
  • Review your health plans to determine if you meet the minimum value and affordable standard.

If you need to discuss a strategy for responding to the ACA’s requests, please contact Marjorie Obod or Matt Whitehorn at the numbers listed below to implement a plan to ensure compliance.