Updated: July 6, 2016
Small businesses still have many questions about reporting, taxes, and penalties under the Employer Shared Responsibility (ESR) provisions of the Affordable Care Act (ACA). Here are a few common sticking points for many businesses.
What is a Full-time equivalent (FTE)?
In the ESR provision of ACA, FTE is defined as Full-Time Equivalent employees. This is a calculation of hours worked by employees, each of whom individually is not treated as a Full-Time Employee because he or she is not employed on average at least 30 hours of service per week or 130 hours in the calendar month with an employer, and who, in combination, is used solely for the purpose of determining applicable large employer status.
How do I calculate FTEs?
To calculate your full-time equivalents, add the hours of service for all employees who worked less than an average 30 hours a week or 130 hours a month in a given month. Count no more than 120 hours per employee per month. Then divide the total hours by 120 to get your FTE count for that month. This number is then added to the count of regular full-time employees to get the total number of full-time employees, including full-time equivalents, which determines if a business is an Applicable Large Employer subject to the ESR provisions.
What are the transitional reporting rules for 2016?
The IRS is offering employers some relief from penalties for inaccurate or in complete filing in 2015, as long as the employer has made a good faith effort to comply with the ESR reporting requirements on forms 1094-C and 1095-C. Specifically, the relief is provided incorrect or incomplete information reported on the return. No relief is provided in the case the Applicable Large Employer cannot show a good faith effort to comply with the reporting or fails to file or furnish the statements in a timely fashion.
What are the taxes and fees under the ACA?
While there are other taxes and penalties that apply under the ACA, many employers are concerned with the taxes and fees that apply to Applicable Large Employers (ALEs). ALEs are those with 50 or more full-time employees, including full-time equivalents. ALEs with 50 to 99 full-time employees (including FTEs) may qualify for relief from penalties for 2015 if certain conditions are met, but all employers with 50 or more full-time employees, including FTEs, will be subject to potential penalties in 2016.
- ALEs that do not offer Minimum Essential Coverage (MEC) to substantially all full-time employees and their dependents and have at least one full-time employee who receives a premium tax credit for health coverage through the Marketplace may face a penalty of $2,080 per full-time employee, minus the first 80 employees in 2015, then the first 30 employees in 2016 and after.
- ALEs who offer MEC to substantially all full-time employees and their dependents, but the coverage is deemed unaffordable or doesn't meet minimum value face a potential penalty of $3,120 per employee that was not offered MEC that met minimum value and affordability requirements and receives a premium tax credit (not to exceed the penalty in #1).
Paychex is here to help you understand the requirements and reporting provisions in 2016 through expert advice and helpful tools.