For Large Employers

Employers Must Track Employee Hours

You will need to track monthly hours to determine qualification as a large business employer and, determine which employees will qualify for health insurance coverage.

Hours to be tracked include:

  • Time for which an employee is paid for work and
  • Time that is paid, but for which the employee may not work, such as paid time off, disability, military duty, jury duty and other leaves of absence.

For hourly employees employers must use actual hours. For salaried employees employers can use one of three different methods to calculate hours.

  1. Counting actual hours.
  2. Using a days-worked equivalency method, the employer would credit the employee with eight hours of service for each day of service.
  3. Using a weeks-worked equivalency method, the employer would credit the employee with at least 40 hours of service for each week of service.

Employers cannot use the days-worked or weeks-worked equivalency method if it would substantially understate an employee's hours of service and cause a full-time employee to be classified as a part-time employee.

The employer is not required to use the same method for all non-hourly employees and may apply different methods for different classifications of non-hourly employees as long as the classifications are reasonable and consistent.

All entities with Common Ownership, as in a controlled group, are taken into account when determining if an employer is an applicable large employer. Clients should work with their tax and legal consultants for clarification on how this provision applies to their particular businesses.

Health Coverage Must Be Adequate and Affordable

Coverage is considered adequate if it pays for at least 60% of covered health care expenses for a typical population. Coverage is considered affordable if the employees' required premium contribution for self-only coverage does not exceed 9.5 percent of the employee's income. Employers may use one of three methods (affordability safe harbors) to help them determine if the coverage they are providing employees is affordable:

  • Form W-2 Safe Harbor: Use employee's Form W-2 wages shown in Box 1.
  • Rate of Pay Safe Harbor: Multiply an employee's hourly rate by 130 to determine monthly wages, or use a salaried employee's monthly pay.
  • Federal Poverty Line Safe Harbor: Use the federal poverty line for a single individual.

Penalty Assessments

Applicable large business employers may be assessed one of the following fees, depending on which circumstance applies:

  • If a large employer does not offer health coverage, and at least one employee receives a premium subsidy through a health insurance exchange, the employer may be assessed an annual fee of $2,000 per full-time employee above the first 30 full-time employees.
  • If a large employer does offer health coverage, but at least one of the non-covered full-time employees obtains a premium subsidy through a health insurance exchange, the employer may be subject to a fee of $3,000 for each non-covered full-time employee who receives a subsidy. The fee cannot exceed the fee that would be assessed for not offering any health coverage.
  • If an applicable large employer offers health coverage but it is determined to be either, (1) not adequate, or (2) not affordable, then the employer may be assessed a fee of $3,000 for each employee receiving a subsidy. The fee cannot exceed the fee that would be assessed for not offering health coverage at all.

Determining Status of Employees

Employers can use a safe harbor method to determine if employees qualify for health insurance. Employers can use this method to confirm the status of existing employees, and determine the status of both new employees as well as seasonal and variable employees. If an employer hires an employee and is not sure that the employee will work full-time, the employee will be considered a variable employee.

The safe harbor method consists of a look-back measurement period, administrative period, and subsequent stability period. Employers can select a look-back standard measurement period of three to 12 months to calculate employee hours and determine if ongoing, newly hired, variable hour, or seasonal employees need to be offered coverage beginning January 1, 2015.

Employers then have the option to follow this with an administrative period of up to 90 days to identify, notify, and enroll eligible employees in health coverage.

The administrative period is followed by a stability period during which the enrolled employees are provided coverage. At the end of this period, the employer can review employee hours to determine if the employees still meet the eligibility requirement of working full-time. For employees determined to be full-time employees, the stability period must last at least six months and be no shorter than the look-back period of up to a year. If any of these employees are determined not to be full-time employees, employers are not required to offer them health insurance for the next plan period. For employees determined to be non-full-time employees, the stability period cannot be longer than the look-back measurement period.

There are specific methods set up to determine whether newly hired employees should be considered full-time or non-full-time employees and if they must be offered health coverage. Clients should Click [HERE] for IRS guideance to the Federal Register and speak with their tax advisor for additional information.

Employers can impose a maximum waiting period of 90 days before qualified employees can begin coverage.
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