The ACA Employer Mandate can be quite costly for large businesses who fail to comply with the regulations. For example, if a company with 10,000 full-time employees in 2015 does not offer coverage to at least 7,000 of their full-time employees and their dependents (9,500 in 2016), and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace, the company could be assessed a penalty of $20 million dollars!! Yikes! Plus, even if this company failed to offer coverage to at least 70% (95% in 2016) for just one month in 2015 they could receive a penalty of $1.6 million dollars! However, there are several best practices you can implement to ensure you and your business avoids fines and penalties from the IRS.
Terms like measurement period, 30 hours per week, and minimum value are often associated with ACA compliance. Having an understanding of these is critical to complying with the regulations, but how do you practically apply them to your business? We will start by reviewing some basic applications of the ACA regulations in your day-to-day business, and cover the penalties that could be imposed for failure to comply.
Correctly classifying an employee upon hire into the correct full-time or not full-time category is important to avoid paying benefits to someone that is not truly working full-time hours. Some things to consider for classifying an employee upon hire are:
- How are other individuals in the department in the same job classified?
- What was the status of the person who held the job prior to this person?
- Was the job was advertised as a full-time or a position that will offer fewer than 30 hours per week?
One of our clients had an approximate 6% increase in their benefit eligible population at the end of the 2014 measurement period. That may not sound like a lot but imagine that equated to 1,000 employees, which is a big unexpected addition to an annual medical coverage budget. To avoid this unexpected cost, make sure you correctly classify an employee at hire to help prevent surprises at open enrollment.
Some employers may decide that their solution to keep their non full-time employees from requiring an offer of coverage is to cut their hours. This is not advised unless that is a justified business reason that the nature of the position or the job itself has changed. Cutting hours just to avoid the large employer mandate can leave you exposed to lawsuits, so consult a legal advisor if you plan to reduce hours to ensure you are not going against the Department of Labor’s worker protection laws.
Forecasting tools can help prepare for increases in medical coverage costs. If you are actively tracking employee hours and able to identify trends of whom is on track to reach an average of 30 hours per week, you can anticipate those increased costs and plan ahead. The main topic with ACA regulations is the requirement to offer coverage to employees who average 30 hours or more per week, but the other side of the coin is full-time employees who are not actually working full time hours. The ability to track full-time employees to ensure they are working enough hours to remain eligible for coverage can help avoid unpleasant conversations at open enrollment. If an employee loses their medical coverage unexpectedly they may decide to look for another job instead of going on the health exchange or waiting until the next stability period.
Failure to comply with the ACA large employer mandate can result in costly fines. The IRS can impose two penalties, Penalty A and Penalty B. Penalty A is assessed if you fail to offer coverage to at least 95% of your full-time employees (70% in 2015) and their dependent children. This penalty is assessed at $2,000 per year multiplied by the total number of your full-time employee population – including those who did receive an offer of coverage. You are allowed to deduct 30 from your total full-time population that the penalty is applied to (80 in 2015), and the fine will only be assessed for the months you fail to comply at a fraction of the annual $2,000 penalty. Penalty B is assessed if the coverage you offer is not affordable and/or does not provide minimum value. This penalty can only be triggered by a full-time employee going to the insurance exchange and receiving a premium tax credit, and is applied to that employee only at $3,000 per year.
Ignoring the ACA regulations and your responsibility under the large employer mandate can result in costly fines, but preparation, policy and procedure changes and an understanding of your workforce can help ensure you are compliant.
Stay tuned for more information coming from me and Next Generation Enrollment regarding ACA compliance, tools and ideas for running your business within the confines of all of the various regulations. Should you determine that compliance is out of your reach, NGE has tools to help you.