Employer Shared Responsibility
One of the major provisions of the Affordable Care Act is the responsibility employers have to provide affordable health coverage to their employees, which is called the Employer Shared Responsibility or ESR. This provision is also referred to as the "Pay or Play" employer mandate.
Beginning January 1, 2015, employers with 100 or more full-time equivalent employees who have at least one employee receiving a premium subsidy for coverage will face penalties under the following scenarios:
- The employer doesn’t offer minimum essential coverage to full-time employees and child dependents
- The coverage offered does not provide minimum value of 60% of medical expenses or is found to be unaffordable (exceeds 9.5% of employee’s household income)
In 2015, large employers may be assessed a penalty if they do not offer coverage to at least 70% of their full-time employees. In 2016, this threshold increases to covering 95% of full-time employees. To comply with the Employer Shared Responsibility and avoid penalties, employers must keep track of employee hours in 2014 to figure out how many full-time equivalent employees are on staff.
For more information about the updated guidelines for ESR, please visit the Department of Labor’s informational page.
- 1 Employment Status
- 2 Employee Hours of Service
- 3 Full-Time Equivalent (FTE) Employees
- 4 Minimum Essential Coverage (MEC)
- 5 Penalties for Non-Compliance
- 6 Reporting and Monitoring
Employers need to determine an employee's status to decide if health coverage should be offered for the next plan period. A safe harbor method can be used to determine employment status, which can be classified as ongoing, new, variable, and seasonal. The safe harbor consists of a look-back measurement period, administrative period, and stability period to determine the status of an employee.
Look-Back Measurement Period
For ongoing employees, employers choose a timeframe between 3 and 12 months to use as a standard "look-back" measurement period to determine hours worked for employees. The look-back measurement period can be flexible between different employee classes, but the period must be consistent for all employees in the same class.
Following the look-back period, employers have the option to use an administrative period to identify all full-time employees and notify them of coverage options. The administrative period can be no longer than 90 days before the stability period begins.
Employees that average at least 30 hours per week during the look-back period are considered full-time for the subsequent stability period. During the stability period, which must be at least 6 months but no longer than the look-back period of 12 months, employees are provided health coverage. At the end of the stability period, employers can review employee hours to ensure that employees are still considered full-time.
Employees that are not considered full-time do not need to be offered coverage. Also, the stability period cannot be longer than the look-back period if an employee is not full-time.
While there are no specific methods for choosing a look-back period, the IRS has provided guidelines about using a safe harbor. If you are unsure about how to determine employment status, refer to your payroll company or tax adviser for clarification.
Employee Hours of Service
To determine if the Employer Shared Responsibility applies to your business, employers must track their employees’ monthly hours of service in 2014 to find out which employees should be offered coverage. Companies that are determined to be applicable large employers (100 or more employees in 2015, 50 or more in 2016) must offer health coverage to full-time employees or face penalties under ESR.
The following points can be used to determine an employee’s hours of service:
- Each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer and
- Each hour an employee is paid for a period of time when no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.
The guidelines above are designed for employees that are paid hourly. For salaried or non-hourly employees, one of the three methods below can be used to track hours:
- Record actual hours of service using the methods mentioned above
- Utilize a days-worked method, where an employee is credited with 8 hours of service for each day the employee worked
- Utilize a weeks-worked method, where an employee is credited with 40 hours of service for each week the employee worked
Full-Time Equivalent (FTE) Employees
To comply with the Employer Shared Responsibility, employers need to calculate the number of full-time equivalent employees on staff in addition to full-time employees. A full-time employee is defined as working 30 hours per week on average or 130 hours per month. Part-time employees also count toward the ESR 100-employee threshold, although employers only need to offer health coverage to full-time employees.
To calculate full-time equivalent employees, use the hours of service for all part-time employees, including seasonal workers, in a given month and divide the total by 120. The total FTE employee count is then added to the full-time employee count to determine if an employer is subject to ESR provisions.
To help you determine if your business is subject to ESR, use our simple FTE calculator.
Minimum Essential Coverage (MEC)
Health coverage provided to employees must meet minimum essential coverage (MEC) requirements under the ESR. The following guidelines are used to determine if MEC is provided:
- Covers at least 60% of expected costs for an average person or family
- Available to at least 70% of full-time employees and their child dependents (increases to 95% in 2016)
- Limits an employee’s premium contribution to 9.5% of their income
If employers are unable to determine the gross household income for their employees, they can use one of three affordability safe harbors to determine coverage affordability:
- Use the federal poverty line for a single individual
- Use Box 1 on the employee’s Form W-2
- Use the employee’s hourly rate and multiply it by 130 to figure out monthly wages
Penalties for Non-Compliance
Starting in 2015, Large employers with 100 or more employees may be assessed a penalty for failing to comply with the Employer Shared Responsibility provisions. Penalties are broken down into the following categories:
No Minimum Essential Coverage Offered
If an employer fails to offer minimum essential coverage to at least 70% of their full-time employees and their dependents in 2015, and at least one full-time employee receives a premium subsidy, a penalty under ESR may be assessed.
The penalty for not offering minimum essential coverage is $2,000 per full-time employee, excluding the first 80 employees in 2015. The exclusion will be reduced to 30 employees in 2016, and likely eliminated after 2016. Penalties are assessed annually and are not a one-time fee.
For example, if an employer has 120 employees and does not meet the MEC requirement, the penalty charged would be $80,000 (excluding the first 80, 40 employees x $2,000 = $80,000).
Minimum Essential Coverage Offered
Even though an employer offers minimum essential coverage to at least 70% of its employees, a penalty can be assessed if the following guidelines are not met:
Coverage does not meet minimum value
- If an employer offers MEC but coverage does not cover at least 60% of expected medical costs for an average person or family, and at least one full-time employee receives a premium subsidy, a penalty may be assessed.
- The penalty for not covering 60% of expected expenses is $3,000 for each non-covered full-time employee that receives a subsidy. Please note that the penalty amount cannot be greater than the penalty assessed for not offering any coverage outlined above.
Coverage is not considered affordable
- If an employer offers MEC but the employee’s share of the premium contribution is greater than 9.5% of their income, and at least one full-time employee receives a premium subsidy, a penalty may be assessed.
- The penalty for unaffordable coverage is $3,000 for each non-covered full-time employee that receives a subsidy. Please note that the penalty amount cannot be greater than the penalty assessed for not offering any coverage.
Employee receives premium subsidy
- If an employer offers MEC to at least 70% of full-time employees, but at least one full-time employee receives a premium subsidy, a penalty may be assessed.
- The penalty for an employee receiving a subsidy through the health insurance exchange is $3,000 for each non-covered full-time employee that receives a subsidy. Please note that the penalty amount cannot be greater than the penalty assessed for not offering any coverage.
If your plan meets the requirements listed above, none of your full-time employees will qualify for a premium subsidy in the health insurance marketplaces.
Reporting and Monitoring
TelePayroll's ESR Reporting and Monitoring solutions are designed to determine if your business is an applicable large employer and help you decide the employees who should be offered health coverage.
The following reports are provided at no cost with our standard payroll package:
- ACA Eligibility Report – Reports hours worked within a specified date range to calculate average hours per week or per month.
- ACA FTE Report – Calculates the total number of full-time employees and full--time equivalents (FTE) you have per month. The report summarizes the data for ease of reporting aggregate totals and can also include the individual employees’ total paid hours and average hours per month. This report will designate whether an employer is large or small for ACA reporting purposes.
- ACA FTE Projection Report – Calculates the total projected number of full-time employees and FTEs based on your schedule for a month.
Time and Attendance Package
With our Time and Attendance package, it's easy to identify which employees are close to the threshold of needing health coverage under ESR. Please note that you must use our time and attendance service to be eligible for this report.
- Approaching Threshold Report – Lists employees who are approaching an employer-defined threshold, such as being a full-time employee after passing 32 hours. Can also forecast when an employee will reach a defined threshold.
Monitoring your employees' hours is an important part of the Employer Shared Responsibility provision. TelePayroll provides two monitoring packages to help you stay compliant.
- Applicable Large Employer Analysis and Monitoring - Track and calculate of the number of full-time employees and FTEs to help determine if you are an applicable large employer and subject to ESR provisions or approaching this status at any given point in time.
- Full-Time Employee Analysis and Monitoring – Assists in determining which of your employees may subject you to ESR penalties if you do not offer adequate and affordable coverage. The analysis shows you measurement periods, allows for designation of stability periods, tracks ongoing employees vs. new hires and allows a sliding scale of measurement ranges to ensure adequate monitoring of newly hired employees.
When your business is partnered with TelePay Insurance for health coverage, you can be sure that adequate coverage is offered to all eligible employees.
- Coverage Adequacy Analysis and Monitoring - Helps you determine the adequacy of your health coverage by evaluating whether it provides minimum essential coverage, minimum actuarial value, and affordable coverage according to ESR provisions.
For more information about TelePayroll's ESR Reporting and Monitoring solutions, contact us today through our website or at (800) 442-4988.