Your 2014 Obamacare To-Do List, Pt. I
By Jess Castner
When it comes to Obamacare, as an employer, you don’t really need pundit opinions and horror stories. All you actually need is practical knowledge of how to implement an Obamacare strategy that makes the most sense for your business. In this three-part series, we will give the steps to make your own road map for the rest of 2014 in anticipation of the changes you may expect in 2015.
Part I: Assess Your Labor Like the ACA Will
Are you a large- or small-employer? What will the IRS, the government entity responsible for enforcing Obamacare, say?
To calculate your large- or small-employer status, you will need to account for both your full-time (FT) and part-time (PT) workforce. Even though large employers are only required to offer healthcare to their full-time employees, the combined hours worked by all of your hourly employees is the factor to consider when determining whether you are a large-employer, and therefore required to offer healthcare coverage to all of your full-time employees.
So, how do you makes these calculations?
To determine your large- or small-employer status, you will need to make some very simple calculations. These labor figures, based on your labor status right now, will determine how you will need to approach Obamacare in your business. Here’s how:
How many full-time employees do you have? A full-time employee is defined by the ACA as one who works an average of 30 hours or more per week. However, the weekly average may be difficult to determine. That is because the exact definition of what constitutes a week has not been expressly explained. Since we don’t know if the IRS, the government entity responsible for assessing the penalties to business for not offering appropriate coverage, intends to assess the number of hours your employees work each week according to a calendar week or a pay week, which obviously varies between businesses, it may be rather difficult to tell whether your employees actually count as full-time. To clarify this, the IRS has proposed a secondary means of determining full-time status. Employers may also base their full-time calculation on hours worked by hourly employees in a month. If an employee works 130 or more hours in a month, they should be considered full-time. It is likely that this will be the basis on which the IRS will assess full-time qualification and thereby determine small- or larger-employer status and assign relevant penalties. For this reason, I recommend that you do your calculations using this method. To find out how many full-time employees you have, average the monthly hours worked by each employee for the last twelve months. Those who have an average of 130 hours or more are full-time employees.
What about part-time employees and full-time equivalent (FTE)? Your number of full-time employees determined by the previously explained calculation will be added to another calculation; your full-time equivalent. In order to determine your large- or small-employer status, you will need to take both your part-time and full-time workforce into account. This number can be found by adding together the number of hours worked by each of your part-time employees in a month and then dividing that by 130. The number, rounded down, is your FTE for the month. When determining your large or small-employer status, you will need to add the number of full-time employes and the FTE together for each month of the last year. Then, find the average of the FT and FTE for the year.
Now what? Generally , if you employ an average of 50 or more full-time employees and FTE, you are considered a large employer and thereby are required to offer healthcare coverage to your full-time employees. Employers with more than 25 full-time employees and FTE, but less than 50 are not considered “small employers”, but rather, they are simply not large employers. If you have less than 50 full-time employees and FTE, you may consider healthcare options anyway. Offering healthcare to your full-time employees may decrease turnover and increase employee morale. This is because, under Obamacare, your employees will be required to have healthcare coverage, regardless of whether their employer is required to offer it them.
Also, large-employers may opt not to offer healthcare to their full-time employees and risk penalties from the IRS. Often, these penalties will be less than the cost of providing coverage that meets the standards of affordability and value stipulated by Obamacare. There are a variety of options for both small- and large-employers that we will cover in future installments.
Who is eligible for healthcare?
The Employer-Shared Responsibility portion of the Affordable Care Act will take effect in 2015. As a large employer, your responsibility in 2015 will be determined by your current 2014 workforce! In order to avoid surprises in January, you need to monitor your labor closely throughout 2014 to make the right choice for your business.
Determining whether you “pay” (opt not to offer healthcare to your full-time employees) or “play” (provide healthcare coverage to eligible employees that meets ACA standards of affordability and value) will depend heavily on knowing exactly how many employees you will be required to buy coverage for. Although a “full-time employee” has commonly been considered any who works at least 40 hours a week, it is a bit more difficult to determine who is classified as a full-time employee (and thereby is eligible for healthcare) according to Obamacare. Salary and variable-hour employees are even more difficult to classify. Below is an explanation of the accepted methods for determining full-time status and healthcare eligibility.
Guess and Check Method: This method requires employers to make a judgment regarding the number of hours he/she expects an employee to work in a month, and then verify at month’s end. To employ this method, you will review your employees’ healthcare coverage-eligibility on a month-to-month basis. You may proactively offer healthcare to all employees you think will be eligible, or review the previous month’s employee hours and offer healthcare the next month to those who are eligible according to the hours worked during the previous month. There is more risk associated with this method, as you may be penalized for not offering healthcare when an employee unexpectedly works more than 130 hours in a month. If using the Guess and Check Method, you will need to monitor employee hours very closely to ensure they do not exceed your expectations.
Lookback Measurement Method: This method was proposed by the IRS as a way to minimize risks faced by employers whose workforce is difficult to classify. The process for determining full-time status consists of three periods. At any time, the entire company is considered to be in one or more of these overlapping periods. After all of the periods have been completed, the cycle begins again.
Measurement period: The purpose of the measurement period is to measure the number of hours your employees are working in order to proactively avoid risks. It may last between 3 and 12 months and begin each year at any time that you choose.
Administrative period: After you have collected the necessary data regarding the hours your employees have worked during the measurement period, you may enter the optional administrative period. The purpose for this period is to assess who within your workforce is eligible for healthcare coverage. This period gives your human resource personnel time to complete the healthcare enrollment process.
Stability period: The stability period establishes the employee’s status as full- or part-time. During the stability period, an employee’s status does not change, even if the employee’s average weekly hours vary.
The three periods (measurement, administrative, and stability) are continuous and overlap each other. Therefore, a measurement period always occurs during the stability period. This assures that employees in a stability period will always be offered healthcare, if eligible.
After you have an understanding of your labor, you can assess your options according to Obamacare in your business. Part II will cover these options in detail and help you determine whether you will “pay” or “play”. Since you need to begin these calculations immediately, you should visit with a tax professional soon for the latest ACA information and how to create a strategy in your state, specifically.