Under the Affordable Care Act (ACA), you must provide health insurance to full-time employees if you have 50 or more full-time equivalent employees (FTEs). This is known as the employer mandate.

That may sound simple enough, but the ACA is peppered with tons of rules you need to follow in order to keep your employees safe and sound. According to a recent survey by TRUSAIC and Creelman Research, which evaluates how regulations impact workforce wellness, 53 percent of companies that were surveyed feel that their ACA compliance requirement is overly burdensome and 21 percent feel it’s somewhat burdensome, especially for businesses with variable-hour employees.

What is the ACA?

The Patient Protection and Affordable Care Act was passed in 2010. It’s meant to help people access more affordable health care. It mandates how carriers, employers, individuals, and other entities can make health plans more accessible.

For small business owners, the employer mandate is where much of that responsibility lies. The mandate’s shared responsibility provisions requires applicable large employers (ALEs) to offer full-time employees and their dependents (i.e., children not spouses with respect to the mandate) full and affordable health insurance that meets minimum essential coverage (MEC) requirements if they have 50 or more full-time equivalents (FTE) on staff.

If by some other measures, your company might be considered a small business, within this context through the lens of the ACA, you would be considered an ALE. So if you don’t stick to the rules, you’ll have to pay the IRS a fine called the employer shared responsibility payment.

Does the employer mandate apply to me?

To find out if the rule applies to you, you first have to figure out how many FTE employees you have on your team. The federal government defines a full-time employee as one who works at least 30 hours a week, or at least 130 hours a calendar month for more than 120 days in a calendar year. A part-timer is anyone who works less than that.

Use the formula below to figure out how many FTEs you have:

(Total hours worked by part-time employees each week / 30) + number of full-time employees = Your FTE number)

If you need a little more help, you can also jump through the steps below:

  1. Add up the number of hours each of your part-time employees work in a week.
  2. Divide the result you get by 30.
  3. Round down to the nearest whole number.
  4. Add this number to the number of full-time employees you have.

Have that final number in mind? Good. Now, think back to how big your team was in the previous year and see whether you’re required to offer insurance today:

I have 49 or fewer FTE employees: Nope, you’re not required to provide health coverage. That being said, many companies offer insurance to their teams anyway to keep everyone happy and healthy.
I have 50 or more FTE employees:Yes, you do have to offer health coverage! 95% of your full-time employees have to be covered.
Some additional considerations:

– An exception to the above is if there are more than 50 FTEs for less than 121 days who are seasonal employees during the preceding calendar year.

– Aggregated ALEs that have 50 or more FTEs across multiple companies that the IRS views as having common or related ownership (according to section 414 of the Internal Revenue Code) are subject to the mandate.

– If you’re a new business and have (or expect to have) at least 50 FTEs for the current year, you’re considered to be an ALE.

– While employees who have coverage through a Veteran Affairs (VA) health program or TRICARE (health benefits for military personnel, retirees, or their family members) aren’t included in the count for the number of FTEs, those who are eligible for Medicare, Medicaid, or a spouse’s employer are included when calculating the number of full-time employees or FTEs.

What kind of health insurance do I need to provide?

Under the ACA, if you have 50 or more FTEs, the health insurance plan you supply to your employees and their dependents must meet two MEC requirements:

How quickly do I need to provide coverage if the mandate applies to my business?

If you have 50 or more FTEs, an employer can’t take more than 90 days to offer health insurance to eligible employees, though it’s fine if they take longer to elect coverage. This is known as the 90-day waiting period limitation, and all calendar days are counted, including weekends and holidays. (Note: When there is a “reasonable and bona fide employment-based orientation period” that is no more than a month long to satisfy eligibility conditions to enroll in a plan, the waiting period can begin on the first day after the orientation period ends.)

This 90-day limit has a broader application for employees who work variable hours. If the group health plan specifies that an employee must work full-time or a certain amount of time per pay period for eligibility, and that person’s hours vary weekly, then the plan can take a reasonable amount of time (up to 12 months) to assess eligibility, as long as there isn’t a deliberate effort to try to circumvent the waiting period. That means in this case, coverage needs to be effective no more than 13 months from the employee’s start date. (Extra time is applied for coverage to begin the first day of the following month in situations when the employee’s start date wasn’t the first day of a calendar month.)

If the mandate doesn’t apply to my business, what else should I know about the ACA?

If you are a small employer according to the ACA, then depending on eligibility, you may receive a maximum tax credit for two consecutive taxable years and up to 50 percent of premiums paid (or up to 35 percent of premiums paid for small tax-exempt employers, such as charitable, scientific, or educational organizations).

That small business health care tax credit applies if you have less than 25 FTEs, pay each FTE less than $50,000 on average, offer employees a qualified health plan through the Small Business Health Options Program (SHOP) Marketplace, and pay at least 50 percent of the cost for your employees (not their dependents). To figure out the credit, small business employers use Form 8941 and small tax-exempt employers report the amount using Form 990-T.

What happens if I don’t provide coverage to my employees?

If you are a large employer and don’t offer health insurance coverage to at least 95% of your employees, you could pay a penalty. In 2023, the penalty is $2,880 annually ($240 monthly) per full-time employee (not including the first 30 employees). That translates into a costly penalty. For instance, let’s say you have 50 FTEs, that penalty would look like:

(50 employees – 30) x $2,880 = $57,600 per year

You could also face penalties if the policy you offer is not affordable coverage or doesn’t provide minimum value. Penalties may also come into play if one employee is self-insured and receives a federal subsidy.

Plus, as part of the ACA employer reporting requirements, employers need to send the Internal Revenue Service (IRS) Form 1095-C annually to prove compliance, and will include the calendar month indicating when the plan year begins for employees offered coverage and for those who would be offered coverage once they become eligible employees.

The IRS will also use it to administer premium tax credits and confirm eligibility of employees who opt out of employer coverage during the enrollment period and choose a plan through the health insurance marketplace, accessed through the Department of Health and Human Services’ HealthCare.gov or a state-based exchange.

If you don’t file the 1095-C forms by August 1, 2023, the IRS penalty is $290 for each return not filed, and that increases to $580 if you don’t file at all.

The Affordable Care Act is a big Act to follow. But hopefully you now have the basics down. If you’re still not sure about your requirements, talk to a certified broker who can help you figure out if and how you can provide health benefits for your team.

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