We are in the “rule-a-week” period that follows any new law, where the various agencies put meat on the bones of the law. THis is a long, but very important article, if you have more than 50 employees!- Reeve
By J.D. Harrison, January 16 | Washington Post
The ramifications of health care reform for business owners are coming into focus as regulators float new rules to govern employer-sponsored coverage.
Lost in the political fervor over the fiscal cliff, the Internal Revenue Service
recently proposed new regulations to govern what has been dubbed the
“employer mandate” section of the Affordable Care Act. The provision,
which takes effect next year, requires companies with 50 or more
employees to either provide adequate and affordable coverage to their
workers or pay tax penalties.
But just how are those 50 to be counted? Business owners
have been waiting to find out how part-time and seasonal employees will
count toward staff totals, how owners of more than one business are
supposed to tally their workers, and of course, exactly how steep the
penalties will be for failing to provide coverage.
The IRS addresses several of those issues with its newly proposed regulations.
Here’s a look at what we now know about the employer health care
requirements, as well as three key questions that remain unanswered.
Included in the proposed rules
A formula for calculating full-time equivalents: The health care law
set the threshold for large-employer penalties at 50 full-time
employees and full-time equivalents, but left the definition of those
terms up to the IRS. The agency has proposed counting all employees who
work an average of 30 hours per week as full-time workers and
calculating full-time equivalents by adding up the total number of hours
worked by part-time employees each month and dividing by 120. Thus, a
company with 45 full-time employees and eight part-timers who each work
85 hours per month (about 20 hours each per week) would be subject the
large-employer coverage mandate (5.66 full-time equivalents + 45
full-time employees = 50.66 employees).
A slim margin-of-error for no-coverage penalty: The law
states that a no-coverage penalty shall apply to any eligible large
company that “fails to offer [coverage] to its full-time employees,” and
the penalty has been pegged at $166.67 per month multiplied by the
number of full-time employees, excluding the first 30. By that formula, a
firm with 51 full-timers that doesn’t provide coverage would generally
pay $3,500 per month (21 X $166.67). But while that language granted
regulators permission to penalize large firms that do not immediately
provide benefits to each and every full-time employee, the IRS has
granted some leniency. The new regulations would only enforce the
non-coverage penalty for employers who fail to offer coverage to more than 5 percent of their employees (or five workers, whichever is larger).
The inclusion of paid-leave hours: But what about paid
vacation, holidays or extended leaves—do those hours count toward
monthly totals for each employee? This was a pressing question for many
business owners, and most of them won’t like the answer. Regulators have
suggested that hours used to determine full-time status will include
hours worked and hours for which employees are entitled to compensation
even if no work is performed. That means time spent away for paid vacation,
illness, maternity leave and even jury duty can push workers over the threshold for full-time benefits.
A transition rule for determining employer-size status:
Business owners must make their own large- or small-employer
determination on an annual basis by counting the number of full-time
employees and equivalents they had during each month of the past
calendar year. But for the first year, to ease the transition,
regulators have included a provision that allows them to count their
employees for any six-month period in 2013 to determine their size
status for 2014. The rules also delay the penalty for failing to provide
coverage to employees’ dependents until 2015 so long as large employers
that don’t yet offer those benefits take steps toward implementing them
A delayed start for non-calendar year plans:
states that the employer mandate provisions will take effect on January
1, 2014, which left business owners with fiscal-year (rather than
calendar-year) health care plans wondering whether they would be held to
that start date (which may fall right in the middle of their current
plan) or permitted to wait until the start of their 2014 fiscal year.
The proposed regulations grant them that break, noting that large
businesses will not be subject to penalties until the start of their
plan year for 2014.
Still up in the air
What constitutes a controlling interest in a business?
The language in these latest proposals remains vague for owners of
multiple businesses and part-owners of a single business. For example,
if a pair of business partners share ownership of two companies, each
taking a two-thirds majority stake in one firm and one-third ownership
of the other, the regulations do not specify whether they will each be
forced to count only one entity’s employees toward their respective
totals or whether they will both count all workers.
What constitutes a seasonal employee?
The regulations leave the term “seasonal employee” open to
interpretation when calculating their contribution to a company’s size
status and their eligibility for health benefits. In one case, the
regulations refer to definitions of “seasonal employee” set by the Labor
Department, but later, regulators state that through at least the end
of 2014, employers will be responsible for using a “reasonable good
faith interpretation” of the term to determine which of their workers
should be considered seasonal.
What constitutes adequate and affordable care? While
the IRS has started to clarify the tax penalty side of the health reform
equation, plenty of large employers are still waiting for the
Department of Health and Human Services to define the law’s essential
health benefits package — in other words, they haven’t yet been told
what type of medical and health-related expenses their plans must cover
for full-time employees. Until then, projecting future health costs for
many businesses remains difficult.