In 2013, the IRS has proposed regulations which further clarify employer shared responsibility, specifically the requirement of employers with at least 50 full-time and/or full-time equivalent employees to offer affordable healthcare coverage with a minimum level of coverage or pay a penalty.
1. Employers must determine if they need to offer a minimum level of healthcare coverage.
According to the regulations, each year, employers will need to determine if they must offer healthcare coverage with a minimum level of coverage or pay a penalty by averaging the number of employees they employ across months in the year, which accounts for fluctuations in the workforce. If the average is 50 or more full-time equivalent or full-time employees, the employer must offer healthcare coverage or pay a penalty.
There is a $2,000 penalty for each full-time employee not covered by the plan beyond the first 30 full-time employees. There are additional large penalties for coverage that is not deemed to be "affordable."
2. Employers must use a specific calculation method to determine how many full-time/full-time equivalent employees it has.
The proposed regulations also offer a calculation method for determining how many full-time and full-time equivalent employees an organization has.
- Employers need to calculate the total number of hours of service per month for all employees who were not employed an average of 30 hours of service per week for that month.
- Employers should divide the total hours of service by 120 to yield the number of full-time equivalent employees employed in a given month.
- Employers should add the number of full-time employees (those working 30 hours or more each week) to the number of full-time equivalent employees.
*If employees in excess of 50 FTEs were seasonal workers for a period of no more than 120 days, an employer is not subject to the shared responsibility requirement.
3. A calculator will be provided for employers to use to determine if they meet affordable healthcare coverage requirements.
In addition, the regulations state that the IRS and Department of Health and Human Services will provide a calculator for employers to use to determine if they meet the “affordable healthcare coverage” requirements.
Health coverage is considered affordable if the plan has a single employee premium no more than 9.5% of the employee's household income. Additionally, a healthcare plan must meet the requirement of minimum essential coverage when the policy pays out at least 60% of the actuarial value of the covered benefits (Source: Buckingham, Doolittle & Burroughs, LLP).
Please note that by providing you with research information that may be contained in this article, ERC is not providing a qualified legal opinion. As such, research information that ERC provides to its members should not be relied upon or considered a substitute for legal advice. The information that we provide is for general employer use and not necessarily for individual application.