Understand the role of short-term disability in protecting you from income loss during illness or injury, and how the benefits are calculated.
Pay or Play and the Employer Mandate
Large employers will decide whether to Pay or Play under the Employer Responsibility provision of the ACA. Pay or Play is effective January 1, 2015.
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Start Preparing Now
Recently a major provision of the Patient Protection and Affordable Care Act (PPACA), the Employer Shared Responsibility Mandate, has been delayed. The delay of this provision, commonly known as Pay or Play, means that employers have another year to prepare for compliance. This likely means that the IRS is going to be less lenient on employers when this provision is in effect starting in January of 2015, so it is important that business owners act now to assess their workforce, understand what their responsibilities will be, and make decisions for the future of their employees and business.
Determine whether your company will Pay or Play
If you have 2 employees or 1,000, you may already have a clear sense of how the Employer Shared Responsibility mandate, or Pay or Play, will apply to you. However, for "threshold" companies with around 50 employees or with a large variable hour workforce, it may not be so easy to determine if the company will be responsible under Pay or Play. If you believe your company is a "threshold" company, ISIhr is happy to meet with you and assist with strategy development.
Remember, while focusing on reducing liability for coverage may seem like the biggest priority, that sole focus may have a negative impact on staff retention and morale. It's important to take aspects like culture and branding into consideration when making final determinations about Pay or Play.
Pay or Play in a Nutshell
Beginning in 2015, the PPACA will require "applicable large employers" to make available certain "qualifying" health coverage that is "affordable" and provides "minimum value" to certain full-time employees (and their children up to age 26), or pay a financial penalty. In other words, either Pay (be assessed a financial penalty based on not providing coverage at all, or by providing coverage that is neither affordable nor provides minimum value) or Play (offer full-time employees qualified, affordable, valuable health coverage). If it is determined that your company is not an "applicable large employer," you will not fall under this mandate and will neither have to Pay nor Play.
Let's define a few terms:
Applicable Large Employers - An employer that, during the preceding calendar year, employed an average of 50 full-time employees, inclusive of full-time equivalents (FTE). The employer must consider not only its own employees, but also employees of any employers within its same controlled group. See Controlled Groups below.
Full-Time Employees - Employees who work 130 hours a month, or an average of 30 hours a week, or more. If the employer is considered a large employer by the PPACA, either qualifying health coverage must be offered to at least 95% of these full-time employees, or a financial penalty will be assessed per full-time employee. A 5% leniency will be granted based on variable hour employees who straddle the line between full and part time hours.
Full-Time Equivalents (FTE) - FTE is a ratio of total part-time hours worked by a set number of hours in the month, calculated along with full-time employees to determine if the employer is applicably large for the PPACA's purposes. All part-time hours worked (less than 130/month/employee) are added together and divided by 120. This will create Full-Time Equivalents. For instance, say you employ a total of 60 workers. Thirty of the workers are considered full-time (30+/week), and 30 are part-time. The total monthly hours worked by all 30 part-time employees is 2520. To calculate FTEs, divide 2520/120, which equals 21. The 30 full-time employees plus the 21 FTEs equals 51, so the employer is determined to be an Applicable Large Employer. However, if the employer chooses to pay the penalty rather than play (offer health coverage), the first 30 full-time employees are exempt from the penalty.
Qualifying Coverage - Starting in 2015, applicable large employers that don't offer qualifying coverage that is "affordable" and provides "minimum value" face a penalty of $2000 per full-time employee, excluding the first 30, if at least one of those employees qualifies for and secures government subsidized individual insurance through a public exchange. Employers that offer coverage to employees may still face a "free rider" penalty if the coverage is deemed unaffordable or low in value. If an employer offers coverage, but a full-time employee receives a premium credit subsidy through an exchange, the employer must pay an assessment equal to the lesser of:
- $3,000 for each employee that receives a subsidy
- $2,000 for each full-time employee after the first 30
The monetary penalties listed above are annual figures and may be pro-rated to the number of months for which the penalty applies. Also note that the penalties are not tax-deductible, so your actual cost will be higher.
Affordable Coverage - According to the PPACA, health coverage is deemed affordable if its costs do not exceed 9.5% of an employee's gross household income. Because it can be difficult to determine your employees' total household income, the IRS has recognized an "affordability safe harbor" for employers whose lowest-cost, self-only coverage that provides minimum value is offered to employees at a contribution rate that does not exceed 9.5% of an employee's W-2 wages for the calendar year.
Minimum Value - Most employer-sponsored plans provide Minimum Essential Coverage. Minimum value is provided by an employer's health plan if the plan covers at least 60% of the total allowed costs.
Lookbacks - Measurement, Administrative and Stability Periods - Lookbacks are used to determine the average number of hours worked by variable hour or seasonal employees. Utilizing measurement, administrative and stability periods is a safe harbor to ensure that qualifying employees are accounted for in the Pay or Play provision.
Controlled Groups - Generally, the controlled group rules (IRC Sections 414(b), (c), (m), and (o)) provide that if two or more entities share a common ownership or control (typically 80%) these entities are treated as part of the same control group. The controlled group rules are complex, include a host of very nuanced provisions, and require highly fact-specific determinations. If your company is commonly owned, or you are unsure how to apply these rules to pay or play provisions in the PPACA, we advise you to meet with your tax advisers as well.
What do I have to do and by when do I have to do it?
- Determine if you are an applicable large employer - use lookback measurements, ISIhr reports using data already tracked by ISIhr, and controlled groups to help make this determination.
- Calculate your costs both to Pay or Play (remembering that the cost of your health plan is tax deductible and the financial penalties are not).
- If you currently offer a health plan that runs calendar year, and you have determined that you are an applicable large employer, you will be expected to comply with the Employer Shared Responsibility provision on January 1, 2015. If your plan year does not coincide with the calendar year, you will be expected to comply by the first effective day of your plan in 2015. So, if the renewal date is June 1st, applicable large employers will be held accountable starting on June 1, 2015.
Remember that the employer mandate is not just a math problem, it is a talent problem. This is why ISIhr is in a great position to assist you in both assessing employer's ability to attract and retain talented employees, and the role offering benefits plays in that strategy. Lean on ISIhr for education and guidance to comply with the PPACA. We are happy to schedule a meeting with you to help predict health costs, determine what your responsibilities will be in 2015 under the PPACA, and come up with a strategy for compliance.