September 21, 2015

Navigating Through Healthcare Reform (Pay or Play Penalties)

At the top of the long list of Affordable Care Act (ACA) regulations are the taxes and penalties that can be passed on to employers for not offering minimum essential coverage. Employers will need to determine whether they want to “Pay or Play.”

Unfortunately, determining whether you are considered a large or small employer, or even how to calculate the number of full-time employees you have is not as simple as counting the number of people on your payroll.

How to Determine Full-Time Equivalent (FTE)

Full-time equivalent (FTE) employees equal the number of employees on full-time schedules plus the number of employees on part-time schedules converted to a full-time basis. To determine full-time equivalents (FTE):

  • Look at all part-time employees (those working up to 120 hours/month); take the total number of hours worked by all part-time employees per month divided by 120. This equals your Total FTE for a calendar month
  • Add together the number of full-time employees and your FTE total. This equals your monthly total
  • Add all of the monthly totals together to get an annual total, divide by 12 to determine your yearly average of full-time employees

Now...What's A Full-Time Employee

A full-time employee is defined as an employee working an average of 130 hours or more throughout a measurement period. The government has established measurement periods so that eligibility determinations do not have to be made on a monthly basis.

Three Measurement Periods

  1. The 1st period is called the Standard Measurement Period. During this period the employer calculates the number of hours each employee works per month to determine full time status. The standard measurement period can be no shorter than three months and no longer than 12 months.
  2. The 2nd period is called the Administrative Period. During this period the employer averages the hours of each employee, makes a determination of eligibility, and offers coverage to those eligible. This period can be no longer than 90 days.
  3. The 3rd and final measurement period is called the Stability Period. During this period the employees that were determined to be full time or part time maintain their eligibility status for health benefits regardless of hours worked. This period can be no shorter than the longer of: Six calendar months or the Standard Measurement Period.

If you opt to “Pay” rather than “Play,” your penalties will be based upon the number of full-time employees you have on your payroll, and don’t forget about hidden factors such as tax implications and recruitment challenges. Even if you are thinking about dropping coverage because of the amount of calculations and paperwork involved, think again – you will still be subject to reporting to the government and exchange programs.

What should you do?

Talk to the professionals. If you are faced with the decision to “Pay or Play” contact your financial advisor, broker or account executive at Unified Group Services. We can discuss how to look at restructuring your benefit plan design to reduce cost and maintain affordable coverage for your employees.

This information is provided by Unified Group Services, Inc. for informational purposes only and is not to be construed as legal advice.