The Employer Shared Responsibility (also known as “pay or play” or the “employer mandate”) provisions of the Affordable Care Act (ACA) takes effect for Applicable Large Employers (ALEs) starting in 2015.
First, a quick recap of the Employer Shared Responsibility rules.
If your company employed an average of 50 or more full-time worksite employees* (including full-time equivalent employees (FTEs)) in the previous calendar year, your company is an ALE and must offer medical coverage to full-time employees and their eligible dependents (i.e., children) to avoid potentially paying ACA penalties. In addition:
* Generally, a full-time employee is someone who works on average 120 hours a month for purposes of determining whether your company is an ALE. Note that a full-time employee is generally someone who works on average 130 or more hours a month for all other purposes.
Companies with 50 or more FTEs generally must offer coverage to at least 70% of their full-time worksite employees (and their dependents) on the first day of the benefits plan in 2015. Employers with 50 to 99 FTEs may qualify for transition relief to delay the effective date until the start of the benefits plan year in 2016. In 2016, companies generally must offer coverage to at least 95% of their full-time employees. Companies who fail to meet these requirements may be assessed a non-deductible tax penalty.
If your company uses the look-back measurement method to determine employees’ full-time status, all employees’ hours of service must be calculated during a “standard measurement period.” Furthermore, if the company cannot determine whether a newly hired employee’s weekly hours are reasonably expected to be at least 30 hours of service per week at the time of hire because the employee’s hours are variable or otherwise uncertain, you will need to establish an “initial measurement period” to track such “variable hour” employees’ work hours. This “initial measurement period” will also apply to new seasonal employees (generally employees hired into a position for which the customary annual employment is six months or less) and new part-time employees (expected to average less than 30 hours per week).
TriNet clients generally will select a six- or 12-month measurement period, which is categorized one of 2 ways:
Once the standard or initial measurement period ends, benefits eligibility will apply during a defined period of time known as the “stability period.” The stability period for a full-time employee can be as long as the measurement period, but not less than six months. An employee’s benefits eligibility status is “locked in” during the stability period, regardless of hours worked.
The ACA allows for an administrative period to provide employers with time between the measurement period and the stability period to process data, notify employees of their status, and enroll eligible employees. TriNet will provide a one month administrative period to perform these functions. The administrative period will not reduce or lengthen the standard measurement or stability periods.
The XYZ Company has a January 1 to December 31 benefits plan year and is subject to the Employer Shared Responsibility mandate beginning in 2016. They have chosen to use a 12-month standard measurement period (but utilizing the IRS one-time exception that permits using 6 months of employment data in lieu of 12 for 2014), a one-month administrative period and a 12-month stability period. Here is what these periods will look like for the plan year that starts on January 1, 2015:
(This example is for illustration purposes. You can change the timing of your measurement and stability periods to accommodate your benefits plan year. Additional rules apply to seasonal employees.)
Accurately recording and reporting all employee hours will be critical in complying with the Employer Shared Responsibility mandate.