Under the employer play-or-pay provisions of the Affordable Care Act (ACA), employers of at least 50 full-time employees must offer them affordable group health benefits that provide minimum value and cover a menu of benefits or pay free-rider penalties.
This can put new employers and employers on the cusp of employing 50 full-time employees in a bind, since any growth in their payrolls may put them unexpectedly in the cross hairs. The final ACA play-or-pay regulations provide relief to these employers.
Grow in peace. Here’s how to determine whether you meet the 50-employee mark: Average the number of full-time and full-time equivalent employees (FTEs) per month during the prior year by adding full-time employees and FTEs for each month, dividing by 12 and rounding down. FTEs are employees who didn’t work full-time during any month of the prior calendar year.
Because of this formula, existing employers that are close to the 50-employee mark, but whose status as large employers may be affected by data from the final months of a calendar year, may need some time to respond to becoming large employers by lining up group health insurance, identifying eligible full-time employees, etc.
Free-rider penalties apply on a monthly basis. Under the final ACA regs, free-rider penalties won’t apply if coverage wasn’t offered during January, February and March of a calendar year, provided eligible full-time employees, who weren’t offered coverage during the prior calendar year, are offered coverage by April 1 of the first year you meet the 50-employee mark.
Warning: This rule applies only during the first year you become a large employer, even if you fall below the 50-employee threshold in a later year and then expand again to meet that threshold.
’Tis the season. New employers don’t have an automatic pass from free-rider penalties for their first year. Instead, they must determine whether they’ll employ 50 full-time employees by reasonably estimating the number of employees they’re expected to hire during that first year. Seasonal employees, who must be counted when determining whether an employer is a large employer, will obviously skew the employee count.
Under the regs, an employer isn’t considered a large employer if it reasonably expects its workforce to exceed 50 full-time employees (including FTEs) for 120 days or fewer during the current calendar year and the employees in excess of 50 employed during that 120-day period are seasonal workers. The regs provide relief to new employers by extending this so-called seasonal employee exception to them.