Offering Coverage – ACA
According to the IRS:
The Affordable Care Act’s employer shared responsibility provisions require Applicable Large Employers (or ALEs) to offer minimum essential coverage which provides minimum value to their full-time employees and their dependents, and also meets employee only affordability standards. Failing this, an ALE is potentially eligible for a shared responsibility payment to the IRS, also known as the Employer Mandate or Pay or Play provisions.
What is an Applicable Large Employer (ALE)?
An applicable large employer has 50+ full-time employees, including full-time equivalents. ALE’s are required to offer coverage to their full-time employees and dependents.
Your company is not an ALE if you employed less than 50 full-time employees, including FTEs, on average during the previous calendar year, or 50+ employees no more than 120 days during the previous calendar year due to a seasonal workforce.
What is considered full-time or a full-time equivalent?
In general, for purposes of the employer shared responsibility provisions, a full-time employee is someone employed on average at least 30 hours of service per week, or 130 hours of service per month.
A full time equivalent employee (FTE) is a combination of part-time employees. To calculate the full-time equivalent of part-time employees, add the number of hours worked by part-time employees in a given month and divide the total by 120.
What is considered minimum value and affordable?
An employer-sponsored plan provides minimum value if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.
Affordable coverage means that no more than 9.5% of employee’s household income is spent on employee-only coverage. Three Safe Harbor methods are available to estimate total household income.
How are penalties incurred?
An ALE may incur penalties if it does not offer minimum essential coverage to at least 95 percent of its full-time employees (and their dependents), and at least one full-time employee receives the premium tax credit for purchasing coverage through the Health Insurance Marketplace.
In general, a full-time employee could receive the premium tax credit if: (1) the minimum essential coverage the employer offers to the employee is not affordable; (2) the minimum essential coverage the employer offers to the employee does not provide minimum value; or (3) the employee is not one of the at least 95 percent of full-time employees offered minimum essential coverage.
While Passport does not offer actual legal advice, we encourage you to learn more about the Employer Shared Responsibility Provisions and Determining FTEs. Passport’s ACA compliance software has helped many companies minimize the administrative burden of ACA compliance and protect their businesses from incurring costly penalties.
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Passport Software does not offer legal advice, learn more at Irs.gov