Presentation on theme: "Employer Shared Responsibility. Overview of 4980H Step #1 – Determine if you are an ALE Step #2 – Identify Full-time Employees Step #3 – Determine."— Presentation transcript:
Overview of 4980H Step #1 – Determine if you are an ALE Step #2 – Identify Full-time Employees Step #3 – Determine if excise tax will be owed Step #4 – Determine whether to Pay or Play Wrap up & Questions
Effective January 1, 2015 (January 1, 2016 for small applicable large employers with between 50 and 99 FTEs) for Applicable Large Employers (ALE) Penalties are assessed for each MONTH that the following occur: ◦ Minimum essential coverage that is affordable and provides minimum value is not offered to 100% of the employer’s full-time employees (and their children); AND ◦ A full-time employee receives a premium subsidy in the Exchange or ◦ Each Full-Time Employee who would be subsidy eligible enrolls in the coverage The penalty you pay depends on whether you satisfy the substantially-all test or not: ◦ 4980H(a): Failure to offer MEC to at least 95% of your full-time employees 1/12 of 2000 x Total number of full-time employees (reduced by allocable share of 30) ◦ 4980H(b): MEC was offered to 95% or more of full-time employees but MEC that is affordable and provides minimum value wasn’t offered to all full-time employees (and their children) 1/12 of 3000 x Total number of full-time employees who received a subsidy in the Exchange
Who is an Applicable Large Employer (ALE) subject to the penalty? Who are full-time employees? What is minimum essential coverage offered through an eligible employer sponsored plan? When is coverage affordable ? When does coverage provide minimum value?
Full-time employee ◦ Common law employee of a controlled group member who is credited, on average, with 30 or more of hours of service during a week in a month ◦ 130 hours of service in a month is considered full-time ◦ Count actual hours of service—safe harbor for determining FT for purposes of the tax not applicable to ALE status ◦ Do not count hours for services performed outside the United States Full-time equivalent ◦ Divide total hours of service for employees who are NOT full-time employees (not to exceed 120 hours of service) by 120 Seasonal Worker ◦ If you exceed 50 for no more than 4 months/120 days solely because of seasonal “workers”, then not an ALE ◦ Who is seasonal “worker”? An employee who performs work on a “seasonal basis” Based on labor regulations Not necessarily the same as “Seasonal Employee”
NO!!!!! Stop, you are not subject to 4980H!!!!! ◦ But other aspects of ACA still apply (health coverage mandates, etc) YES!!!! Then you must comply with Section 4980H ◦ This doesn’t mean you have to provide coverage; it simply means you have to pay the assessable penalties due under 4980H ◦ The following rules help you determine the assessable penalties
4980H(c)(4): A full-time employee is, with respect to a month, an employee who is employed, on average, 30 or more hours of service per week during a month 2 key elements: ◦ COMMON LAW EMPLOYEE of employer ◦ with the requisite HOURS OF SERVICE Monthly measurement Each month Look back measurement period New Employees Non-Variable-Monthly Variable/PT/Seasonal: Measurement period Caution: Initial Measurement Period is a limited non- assessment period Ongoing Employees Measurement Period
3 key questions: ◦ Who is a “common law employee”? ◦ What is an “hour of service”? ◦ How do you apply the measurement methods to identify employees who qualify as a full-time employee for a month?
Who is a common law employee? 20 factor IRS test Essence of Test: Do you have the right to control the manner in which the services are performed? Trouble areas: ◦ Individuals obtained from staffing agency Rev. Rul. 70-630 ◦ Temporary employees (individuals that YOU hire for short periods of time but who do not qualify as seasonal) ◦ Section 530 Employees ◦ Statutory Employees ◦ “Leased Employees” as defined in Code Section 414(n) ◦ Individuals with H2A/2B Visas-Maybe
What is an Hour of Service? HOURS OF SERVICE are defined as ◦ Each hour for which an employee is paid or is entitled to payment for performance of services AND ◦ Each hour for which an employee is paid or is entitled to payment on account of a period for which no services are performed due to the following (i.e. Paid Leave): Vacation Holiday Illness/disability Issues with disability benefits paid for solely by the employee!!! Layoff, Jury duty Military duty Leave ◦ Paid leave defined according to 29 C.F.R. 2530.200b-1(a) Is there a limit on the hours of service allocable to a paid leave? What about employees on a workers compensation leave?
What is an “hour of service” Hourly Employees—based on records of actual hours of service Non-Hourly ◦ Actual hours ◦ Days equivalency: A day credited with one hour of service is credited with 8 hours of service ◦ Weeks equivalency: A week with one hour of service is credited with 40 hours of service Cannot use the equivalency method if it operates to substantially understate the hours of service (e.g. nurse that works 3, 12 hour shifts per week) May use different methods for different classifications of non-hourly May change method each calendar year
What is an Hour of Service? Hours of service performed for one ALE member treated as performed by any other ALE member for whom the employee provides services during the year ◦ If hours of service with two or more members during a month, treated as employee of member with most hours of service ◦ If same number for each member, then members may choose whose employee he/she is. Issues arise when different subsidiaries use different measurement periods.
How do you identify employees who qualify as “full-time employees” in a month? 2 methods: ◦ Monthly measurement period approach ◦ Look back measurement period approach Each ALE member may use a different approach Each ALE member may apply a different method to each distinguishable class of employees ◦ Special rules apply when employee switch between positions that use different methods Key Concept: If an employee qualifies as a full-time employee for a month, qualifying coverage must be offered for that month or the ALE member could be subject to an excise tax for that month unless... ◦ The employee is a limited non-assessment period
How do you identify employees who qualify as “full-time employees” in a month? What are the distinguishable classes of employees? ◦ Hourly ◦ Salaried ◦ Union (generally) ◦ Employees subject to different collective bargaining agreements ◦ Employees working in different locations Variable and non-variable are NOT distinguishable classes of employees!!!!!!!
Monthly Measurement Period Approach If employee has requisite Hours of Service in month, employee qualifies as a full-time employee. If employee qualifies as a full-time employee for that month and is not offered qualifying coverage for that month, then ALE member could be subject to an excise tax with respect to that full-time employee for that month if employee receives subsidy in the Exchange. Relief is provided for months that “continuous” employee is in limited non-assessment period
Monthly Measurement Period Approach What are the requisite hours of service? ◦ Average of 30 hours of service per week during the month ◦ 130 hours of service in the month ◦ Weekly rule: Months with 4 weeks--120 Hours of Service Months with 5 weeks--150 hours of service ◦ Do you round up?
Monthly Measurement Period Approach What is a limited non-assessment period under monthly measurement period approach? ◦ First month of partial employment ◦ First 3 full calendar months beginning with first full month that that employee first becomes full-time (“3 month limited non-assessment period) provided that: Employee is “otherwise eligible” during those 3 months but for a waiting period AND Coverage is offered by the first day of 4 th full calendar month following that first full month that the employee was first full-time If coverage through eligible employer sponsored plan is offered but it does not provide minimum value, then employee is disregarded for purposes of substantially test BUT could trigger Tackhammer Tax If coverage also provides minimum value, then employer is treated as offering affordable, minimum value coverage during the 3 month limited non-assessment period Only applicable 1 time for a continuous employee (i.e. employee who has not experienced a break in service)
Look Back Measurement Period Approach 3 components to each part: ◦ Measurement Period New Employees-Initial Measurement Period Ongoing-Standard Measurement Period ◦ Administrative Period ◦ Stability Period
Look Back Measurement Period Approach New Employee: ◦ Employee who has not been employed as a common law employee for one standard measurement period (the measurement period for ongoing employees) ◦ Employee who is rehired after 13 weeks or more with no hours of service Types of New Employees ◦ Non-Variable ◦ Other New Variable Seasonal Employees Part-time
Look Back Measurement Period Approach – New Employees What is a non-variable employee? ◦ Facts and circumstances test ◦ On the start date, you can make a determination that they are reasonably expected to have the requisite hours each month while employed by you. Expected length of service generally NOT relevant Exception for seasonal employee Who is a variable employee? ◦ Facts and circumstances ◦ On start date, you cannot make a determination that they will be reasonably expected to have the requisite hours of service because their hours will fluctuate or are uncertain
Look Back Measurement Period Approach – New Employees Who is a seasonal employee? ◦ Employee hired into a position the typical duration of which is 6 months or less and ◦ The start date is the same time each year ◦ GET TO TREAT AS VARIABLE EVEN THOUGH MIGHT NOT BE NON-VARIABLE!!!!! Contrast with “Temporary”—position does not necessary start same time each year Who is a part-time employee? ◦ On the start date, you can make a determination that they are not expected to have the requisite hours of service ◦ Why does it matter?
Look Back Measurement Period Approach – New Employees Initial Measurement Period (“IMP”) ◦ 3-12 month period ◦ Begins on any date between start date (date first credited with an hour of service) and first day of the first calendar month following employee’s start date If start of IMP delayed to first day of month following employment delay counted towards the administrative period Recommendation: 11 or 12 month initial measurement period
Look Back Measurement Period Approach – New Employee Change in Position to Non-variable during IMP: Applies to changes in positions that if originally hired into the new position, the employee would have reasonably been expected to be employed on average 30 hours of service or more per week 3 month limited non-assessment period rule applies following the month in which the status change occurs, with one twist If stability period would begin earlier, and the employee averaged requisite hours over measurement period, then must be offered qualifying coverage by first day of stability period
Look Back Measurement Period Approach – New Employee Administrative period ◦ No more than 90 CALENDAR days ◦ Any period preceding the start date of the IMP is counted towards 90 days ◦ Coverage must be offered no later than end of the 1 st month beginning on or after the anniversary of the employee’s start date
Look Back Measurement Period Approach – New Employee Stability Period following IMP ◦ Employees who average requisite hours of service over IMP qualify as full-time employee during each month of the stability period that they are employed; employees who don’t average requisite hours of service qualify as other than a full- time employee during each month of the stability period Hours of service during each month of the stability period NOT relevant ◦ Employees who average requisite hours of service over the IMP No shorter in duration than the IMP (but at least 6 months) IMP is a limited non-assessment period: If offered minimum value coverage by start of stability period, no excise tax with respect to the employee for months actually full-time during IMP If only offered MEC that does not provide minimum value, then disregarded for purposes of substantially all test only BUT could trigger a Tackhammer Tax Reporting on 6056 for employees who qualify as full-time in one or more months during IMP ◦ Employees determined NOT to be full-time during IMP Stability period not more than 1 month longer than the IMP
Look Back Measurement Period Approach – Ongoing Employee Standard Measurement Period (SMP) ◦ 3-12 months ◦ Payroll period rule applies ◦ ALL ONGOING EMPLOYEES ARE IN SMP Biggest impact on full-time employees who experience the following during a stability period: Unpaid leave of absence Terminate/rehire to part-time position (unless the period between is 13 weeks or longer) Unlike IMP, SMP is NOT a limited non-assessment period Administrative Period-no more than 90 calendar days
Look Back Measurement Period Approach – Ongoing Employee Stability Period following SMP ◦ If employee averages requisite hours of service over SMP Stability must be at least 6 months but no shorter in duration than the SMP ◦ If employee determined NOT to be full-time Stability period same duration as SMP ◦ Recommend 12 months SMP ◦ Transition Rule for 2015/2016 (as applicable): May use a standard measurement period of 6 months or more and a stability period of 12 months for both full-time and non-full-time
Breaks in Service Generally, If an employee has a period with no hours of service (other than a special unpaid leave) that is at least 13 full weeks (week = 7 consecutive calendar days), he has a break in service. If he/she resumes service after the break in service, he/she is treated as a “new employee” If the employee has a period with no hours of service that is less than 13 weeks and then resumes service, he/she is treated as a “continuous employee” Impact of Break in Service Rules: ◦ Look Back Measurement Period: If continuous, employee resumes measurement period If resumes during a stability period and was full-time, then must be offered coverage by first day of month following start date IF employee was previously offered and accepted coverage. If coverage was offered and declined, no need to offer again during that stability period. ◦ Monthly Measurement Period If continuous, then no available limited non-assessment period upon resumption of services if already used
Special Leaves of Absence/Employment Break Special unpaid leaves of absence include leaves subject to FMLA, USERRA and jury duty leaves When calculating average hours worked for a measurement period that includes a special leave of absence/employment break, employers have 2 options: ◦ Option 1: disregard the weeks of unpaid special leave and average the remaining weeks, or ◦ Option 2: credit employees with hours of service for special unpaid leave at the rate equal to the average weekly rate at which the employee was credited with hours of service during the weeks in the measurement period that are not special unpaid leave
No excise taxes for any month that: ◦ An ALE Member offers to 100% of its employees who qualify as a full-time employee to whom qualifying coverage must be offered coverage that is affordable and provides minimum value ◦ No full-time employees received a Premium Subsidy in the exchange for that month Coverage under THP was not affordable but they were enrolled anyway Did not qualify based on household income Did not enroll in the Exchange
4980H(a) - No Offer Penalty: If employer does not offer minimum essential coverage: ◦ $2,000 (annual, but calculated on monthly basis) tax per full-time employee, if at least one full-time employee obtains federally-subsidized Exchange coverage ◦ Calculated after first 30 employees; 5% or 5 people whichever is greater (special rule for 2015) 4980H(b) - Unaffordable Coverage Penalty: If employer does offer minimum essential coverage but coverage is not affordable or does not offer minimum value: ◦ Tax is lesser of $3,000 per subsidized full-time employee, or $2,000 per all full-time employees (annual, but calculated on monthly basis)
No 4980H(a) Penalty if MEC coverage is offered to substantially all of the ALE member’s full-time employees Offer ◦ Must extend to children (natural and adopted/placed for adoption) under age 26 BUT NOT SPOUSES ◦ Effective opportunity to enroll (or decline to enroll) no less than 1 time per plan year 125 election rules not impacted Special enrollment rules not impacted ◦ Partial Calendar Month Rule: Generally must offer coverage for whole month Special rule for mid-month terminations
No 4980H(b) Penalty if MEC coverage is offered to substantially all of the ALE member’s full-time employees that: Meets Minimum Value And Is Affordable
Minimum value (MV) is satisfied if: ◦ The plan must pay 60% of the “allowed costs” ◦ What are “allowed costs”? Based on EHB 3 ways to determine if plan provides minimum value— ◦ Minimum value calculator ◦ Array of design-based safe harbors provided by the IRS, or ◦ Appropriate certification by an actuary that the plan provides minimum value HRA (if limited to expenses covered by plan) and HSA contributions may be taken into account in determining MV http://www.cms.gov/cciio/resources/regulati ons-and-guidance/index.html http://www.cms.gov/cciio/resources/regulati ons-and-guidance/index.html
Assessment of Penalties – 4980H(b) Affordability Rules ◦ Based on self-only premium for lowest cost option that provides minimum value ◦ Safe harbor for determining affordability W-2 wages Wages does NOT include pre-tax salary reductions Adjustments for partial year offer of coverage Premium must remain a constant amount or percentage of W-2 Rate of Pay Safe Harbor (hourly and monthly rate determined generally prior to start of coverage period) Hourly rate of pay X 130 (for hourly employees) Monthly rate of pay (for salaried employees) This appears to be based on GROSS pay Can apply if hourly rate or salary changes during coverage Federal Poverty Safe Harbor Federal poverty limit for single individual (based on most recent published report at start of plan year or anytime in last 6 months)/ 12
Affordability Doing the math… W-2: Employee’s W-2 wages are reported at $28,500. Monthly contributions to the plan are $75/month or $900 annually. 9.5% of wages = $2707.50. Since $900 is less that $2707.50 then plan is affordable Rate of Pay: Employee paid at a rate of $7.25/hour. Employer can assume that employee works 130/month so employee makes $942.50/month. Employee contributions are $75/month. 9.5% of wages = $89.53/month therefore plan is affordable Federal Poverty Line: Employee contribution is $75/month. Federal Poverty Line for 2014 is $11,670. 9.5% of $11,670 = $1,108.65 /12 = 92.39/month therefore plan is affordable
Are there any classes of employees to whom coverage is not offered in which one or more employees would qualify as a Full-time employee in any given month What changes to existing coverage are required to avoid the 4980H(a) penalty? What changes to existing coverage are required to avoid the 4980H(b) penalty? Is it better to play instead of pay? Should you make only changes to avoid the 4980H(a) penalty? Changes only to avoid the 4980H(b) penalty?