As employer shared responsibility (ESR) provisions are going into effect this year for applicable large employers (ALEs), many businesses are finding there's not just one approach that works for everyone. They are wondering what information they need in order to determine their status throughout the year as well as their risk for penalties. Answers range from simple data collection to more complex data analysis. Below are some common concerns for businesses of varying sizes and what information is needed to address those concerns.
I have 20 to 40 employees, so I am not an ALE, but how will I know if I am approaching the threshold?
You will need to have consistent, accurate employee work-hours reports. ALE status is determined by full-time and full-time equivalent employees. According to the IRS, a full-time employee is anyone who works an average of 30 hours per week. However, included in the full-time employee count that determines ALE status is the total of full-time equivalents (FTEs). You will need to determine your FTEs by aggregating part-time employee hours per month (capped at 120 per employee) and dividing by 120. Track this information throughout the year to stay on top of your status.
My company averages between 40 and 60 employees with many variable-hour employees that put us close to the ESR threshold. I'm worried I may cross the ESR threshold without knowing it.
The best practice would be to conduct a monthly review of paid and unpaid hours as well as average hours worked per month. Use these numbers to determine full-time and FTEs and develop projected numbers for the coming months based on your company's monthly schedules.
I am an ALE, but I am not sure which employees should be offered coverage to avoid penalties.
ALEs must offer affordable coverage that provides minimum actuarial value to all full-time employees and their dependents to avoid penalties under 4980H(a) and 4980H(b). Some ALEs may qualify for relief in 2015 for offering coverage to dependents.
You may need a more in-depth analysis of payroll and human resources data to determine full-time status of your employees. Begin with a look-back period, usually of 3 to 12 months or a monthly measurement method. For the look-back period, the critical data needed is the average hours worked per weeks. Employees who meet the full-time criteria should be offered adequate and affordable health coverage. You can also use the monthly measurement period, which may work for employees with fairly consistent hours. Determine the average weekly service hours per month. If an employee works 130 hours in a month, that is treated the same as working 30 hours per week and would qualify as full time.
I am an ALE, but I don't know if the coverage I offer meets the minimum actuarial value or affordability requirements.
Compiling the data needed here requires coordination between payroll and benefits departments. Coverage is considered affordable if it is less than 9.5 percent of the employee’s annual household income. You can use one of three safe harbor tests to determine coverage affordability. Minimum actuarial value means that the plan covers at least 60 percent of the total allowed cost of benefits expected to be incurred.