For the next few weeks, we will be taking a look at the employer mandate that is part of the Affordable Care Act.
Before the Affordable Care Act, employers had complete discretion whether to offer health plan coverage to their employees and their dependents. Now with the passage of the Affordable Care Act, the rules have drastically changed. Large employers may be subject to a penalty if they do not offer their full-time (and their dependents) the opportunity to enroll in a health plan that provides affordable insurance that provides a certain minimum value.
Eligible Employer-Sponsored Plan
These employers can satisfy the mandate to provide full-time employees (and their dependents) with health insurance by offering the health insurance through an eligible employer-sponsored plan.
An eligible employer-sponsored plan is a fully insured or self-insured group health plan (or group insurance coverage) offered by an employer that is:
1. A governmental plan
2. Any other plan or coverage offered in the small or large group market within a state
3. A grandfathered plan offered in a group market
Applicable Large Employer
For this purpose, an applicable large employer generally, is an employer that has an average of at least 50 full-time employees, including the full-time equivalent value of part-time employees, on business days during the preceding calendar year.
When determining if an employer is an applicable large employer, all related businesses treated as a single employer, such as controlled groups or affiliated service groups, are treated as one employer.
Therefore, all employees of the controlled or affiliated group are taken into account in determining whether the group as a whole constitutes an applicable large employer. If the group is determined to be an applicable large employer, each separate entity of the group is considered an applicable large employer member.
Calculating Full-Time Employees
The calculation for determining whether an employer has at least 50 full-time employees and is therefore an applicable large employer is based on the number of individuals employed during a month.
However, an employer is an applicable large employer based on having, on average, at least 50 full-time employees on business days in a calendar year. Therefore, the number of full-time employees for each month is calculated and the sum of all months is divided by 12 to determine the average number of full-time employees for the year. If the result is not a whole number, it is rounded down to the next lowest whole number.
Generally, a full-time employee for any calendar month is an employee whose hours of service average at least 30 hours per week. To take into account that the average month consists of more than four weeks, employers can treat 130 hours of service in a calendar month as the monthly equivalent of 30 hours of service per week, provided the employer applies this equivalency rule on a reasonable and consistent basis.
Calculating Full-Time Equivalent Value
The total hours worked during a month by all employees who are not full-time employees are used to determine a full-time equivalent (FTE) value, which is added to the number of actual full-time employees to determine if the employer had at least 50 full-time employees during a month.
The FTE value is calculated by dividing the total hours of service for employees who are not full-time employees (i.e., did not average at least 30 hours of service per week or have at least 130 hours of service during the calendar month) by 120 hours. No more than 120 hours of service is used for an employee for any month.
The total calculated FTE value is then added to the number of full-time employees (i.e., those who averaged at least 30 hours of service per week or had at least 130 hours of service during a calendar month) to determine if the employer employed an average of at least 50 full-time employees on business days during the preceding calendar year. In determining the FTE value of part-time employees for each calendar month, fractions are taken into account.
Next week we will continue to examine the requirements of the employer mandate.
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