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What are the key provisions of the employer mandate?

On January 1, 2015, the Affordable Care Act’s (ACA) employer mandate provision established new shared responsibility for employers. The shared responsibility provision requires employers with 50 or more full-time employees, or full-time equivalent employees, to offer a group health plan that provides minimum value and is considered affordable. Employers that meet the full-time employee criteria must offer an acceptable plan to at least 95% of its full-time employees and their child dependents (to age 26).

Determining whether the employer mandate impacts your business

The key criteria for determining whether your company will be affected by the ACA’s employer mandate is the total number of full-time equivalent employees that work at your company. Be careful in this process, because full-time equivalent employees are not designated solely by assigning full-time status, but instead it is determined by several factors. The following represents the criteria for determining full-time equivalence:

  • A full-time employee is an employee who regularly works an average of 30 or more hours per week (or at least 130 hours of service in a given month). 
  • A part time employee an employee who works fewer than 30 hours per week, or less than 130 hours in a given month.
  • Part-time employees do count towards the threshold of full-time equivalence. Employers can determine this by calculating the average number of hours worked per week for all part-time employees and then dividing by 30 hours.
  • Example: John Smith owns a company that has 40 employees, and their hours are as follows:
    • 30 employees work an average of 40 hours per week
    • 5 employees work an average of 20 hours per week
    • 5 employees work an average of 15 hours per week
  • Calculating John Smith’s full-time equivalents:
    • Number of full-time employees = 30
    • Non full-time employee hours = (20+20+20+20+20+15+15+15+15+15) = 175 total part time hours
      Then we divide the total part time hours by 30 = 5.83 FTEs or 5 FTEs
      (always round down when calculating FTEs)
    • John Smith has 35 full-time equivalents

As you can see from the example and criteria description above, full-time equivalence is determined by accounting for the hours worked by both part time and full-time employees. Companies should carefully monitor the hours their employees work so they know if the employer mandate applies to their company.

Which companies are exempt from the ACA’s employer mandate?

The employer mandate applies to businesses with 50 or more Full-Time Equivalent employees. However, in order to ease the transition for employers, there are two effective dates to the employer mandate requirements:

Effective January 1, 2015:

Beginning on the first day of the company’s 2015 plan year, “large” employers with 100+ full-time or full-time equivalent (FTE) employees must provide affordable minimum essential health coverage to at least 70% of full-time employees and dependents to age 26.

If the employer reduces the number of their employees or employees’ hours in order to qualify for relief, then that employer may still be subject to the employer mandate.

Effective January 1, 2016 and beyond:

On the first day of their 2016 plan year, employers with 50+ full-time equivalent employees must offer affordable minimum essential health coverage to at least 95% of their full-time employees and dependents to age 26.

  • Although not subject to penalty until 2016, mid-sized businesses (50-99) employees must still report this coverage to  the IRS for the 2015 tax year.

Does your coverage provide minimum value?

A plan must cover, on average, at least 60% of the plan’s total cost of incurred benefits.

Is your coverage affordable?

If the full-time employee’s premium contribution exceeds 9.5% of their annual household income, coverage is considered to be unaffordable. Employees may be eligible to receive tax credits to purchase health insurance on their own through the exchange if the coverage they are offered does not meet the ACA’s affordability standards.

Failing to comply with the ACA’s employer mandate results in hefty fines

Employers who do not comply with these requirements, meaning they 1) do not offer coverage to at least 70% of their full-time employees, or 2) do not offer an affordable or minimum value plan may face fines of:

  • $2,000 per full-time employee (minus the first 30 employees) if minimum essential coverage is not offered.
  • The lesser of $2,000 per full-time employee (minus the first 30 employees) or $3,000 for each full-time employee who  is eligible to receive a premium tax credit or cost-sharing reduction because the coverage offered is not affordable.