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Under the Affordable Care Act (ACA), beginning in 2014, certain large employers risk paying a penalty to the federal government if they do not provide appropriate health care coverage to their employees. This is generally referred to as the “pay or play” provision.
The law does not actually require any employer to provide health care coverage to its employees. Failing to do so, however, can have repercussions in the form of a possible penalty.
Only “large” employers are subject to this provision. “Large” employers are those with at least 50 full-time (including full-time equivalent) employees in the previous calendar year. All employees of an entity are to be counted.
For purposes of this provision, full-time employees are those who work an average of at least 30 hours per week. To determine who full-time equivalent (FTE) employees are, you will need to prorate the part-time employees. You need to calculate the aggregate number of hours the employees worked per month and divide that by 120: If you have employee counts that fluctuate over the year, more math is required. You would need to take an aggregate:
Now you need to calculate the average over the year. For January through August, you had the 45 full-time employees only, while from September through December you had 48.75 FTEs:
Coverage. Once you have determined if you are a large employer, you need to determine whether you may be at risk of a penalty. This risk, and the amount of the penalty, depends upon if you offer any coverage to all full-time employees, or offer “minimum essential coverage,” and whether an employee obtains coverage in an exchange.
Employers need not extend coverage to part-time employees to avoid a penalty. These employees are included only in determining whether or not you are a “large” employee. If a part-time employee obtains a premium credit for coverage in an exchange, you won’t be subject to a penalty.
You could be subject to penalty if any full-time employee is certified to receive an applicable premium tax credit or cost-sharing reduction payment. Generally, this may occur where:
Penalties. If you do not offer minimum essential coverage, you would be assessed an annual penalty of $2,000 per full-time employee if at least one full-time employee obtains a premium tax credit to get coverage through a state exchange.
You would, however, subtract the first 30 full-time employees. For example, if you have 67 full-time employees, the penalty would be (67 – 30) x $2,000, or 37 x $2,000 = $74,000.
If you offer minimum essential coverage but at least one full-time employee obtains a premium tax credit to get coverage through a state exchange, you would be assessed the lesser of the following:
Exchanges. Employers will be subject to a penalty only if an employee (or possibly a dependent) receives a premium tax credit for coverage in a state exchange. If no employees obtain coverage through an exchange, there will be no penalty.
Employees generally cannot obtain a premium tax credit for exchange coverage unless they meet certain criteria. The exchanges will assess individuals to determine whether they are eligible for premium tax credits. If none of your employees obtain such credit, you will not be subject to a penalty.
To be eligible for a premium tax credit, an employee’s household income for family size for the year is between 100-400 percent of federal poverty level (FPL).
An individual is not eligible for a premium tax credit during the time enrolled in an employer-sponsored plan, regardless of its affordability or whether it meets the minimum value standard.