April 23, 2018 | HR Compliance | Posted by Ascentis Thought Leadership
ACA Employer Shared Responsibility Penalties
Strategies for Limiting Liability
The Employer Shared Responsibility provisions of the Affordable Care Act (ACA) require employers with 50 full-time or full-time equivalent employees to offer affordable health coverage with a minimum level of coverage to their full-time employees and dependents or face up to $2,000 per employee per year in penalties. To avoid these penalties, employers should not reduce the hours of their full-time employees, as this could potentially violate provisions of the Employee Retirement Income Security Act (ERISA), but they may decide to manage their part-time employees so that they do no inadvertently gain full-time status through scheduling errors.
Types of Penalties
Large employers, defined as those employing 50 or more full-time or full-time equivalent employees, face two types of “pay or play” penalties for failing to comply with the Employer Shared Responsibility provisions of the ACA.
“No Coverage” Penalties
“No Coverage” penalties apply when the large employer does not offer health coverage or offers coverage to fewer than 95% of its full-time employees and their dependents and when at least one full-time employee receives a subsidy from the government to obtain coverage on an ACA Marketplace (also known as an exchange). These penalties are assessed at $166.67 per employee, per month (up to $2,000 per employee, per year), excluding the first 30 employees. An employer with 70 full-time employees who does not offer coverage and who has various employees who received a subsidy to obtain coverage on the Marketplace, for example, would calculate their penalty as follows:
$2,000 (70-30) = $80,000
“Offer Coverage” Penalties
“Offer Coverage” penalties apply when the large employer offers coverage to at least 95% of its full-time employees and their dependents, but at least one full-time employee receives a subsidy from the government to obtain coverage on an ACA Marketplace because the coverage is not minimum value or affordable or because that employee was one of the 5% that was not offered coverage by the employer. These penalties are assessed at $250 per employee, per month (up to $3,000 per employee, per year) for each employee who received a subsidy or at the same rate as the “No Coverage” penalty, whichever is the lesser amount. For an employer with 125 full-time employees, 14 of whom receive a subsidy to obtain coverage on the Marketplace because the employer did not offer affordable coverage, the calculation of the penalty would be as follows:
“Offer Coverage” Calculation: $3,000 * 14= $42,000
“No Coverage” Calculation: $2,000 (125-30) = $190,000
Since the “Offer Coverage” penalty is the lesser amount, the employer would be subject to that penalty.
Strategies for Avoiding Penalties
While there are many strategies for avoiding Employer Shared Responsibility penalties, including offering affordable, minimum value coverage to all employees, one of the most reliable is to ensure accurate assessment of an employee’s full-time status and to offer timely coverage to full-time employees. Simple sounding, assessing an employee’s full-time or full-time equivalent status can in fact be a complex undertaking following the ACA’s guidelines.
Managing Variable-Hour Employee Status
Another strategy for avoiding Employer Shared Responsibility penalties is to effectively manage variable hour employees. For purposes of the Employer Shared Responsibility provisions of the Affordable Care Act, an employee is a variable hour employee if at their start date it cannot be determined whether the employee is a full-time employee expected to work on average at least 30 hours per week. This employee’s schedule may vary over the course of the year, so employers are permitted to determine whether the employee is a full-time equivalent employee using a measurement period of 3 to 12 months during which the employer determines whether the employee works an average of 30 hours per week.
Because variable hour employees can be considered full-time or part-time depending on the actual hours they worked during their measurement period, it is with variable hour employees that employers have the opportunity to limit their liability under the ACA by ensuring that these employees are not scheduled for more than 30 hours per week.
How an Automated Workforce Management Solution Can Help
Automated workforce management solutions can help organizations manage the status of their variable hour employees through reporting features designed to help supervisors and human resources professionals identify variable hour employees who may be close to surpassing 30 average hours of service per week. With this information in hand, supervisors can make informed choices when scheduling employees, thus limiting their organization’s liability under the Employer Shared Responsibility provisions of the Affordable Care Act.
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