2014 will be here before we know it, which means there’s no time for companies to lose to get on board with the Affordable Care Act.
And Finance will play a major role in keeping up your company’s compliance end of the federal law. From Payroll to Benefits, finance staffers have plenty of new jobs to do to make sure your company isn’t stepping out of bounds.
IRS is sure doing its part to make that clear. The Taxman has been churning out new rules almost every other week to outline employers’ requirements.
No time like the present to make sure you’re aware of and ready to follow all the latest info IRS has thrown at you. The latest areas where IRS is offering its two cents:
- what constitutes a full-time employee (FTE)
- penalties for failing to cover all full-time employees, and
- the “affordability test.”
And fortunately, each carries its own safe harbor provisions.
Take a look at what IRS has in mind so you know your organization will be prepared.
Factor 1: Determining who’s a FTE
Pretty much the entire healthcare reform law hinges upon the requirement that all employers with 50 or more full-time employees must provide health insurance – or pay the price in penalties.
But exactly who counts? The law considers individuals who work at least 30 hours each week to be full-time equivalent (FTE) employees.
Are you sure how to determine a “full-time” employee? Many of your peers aren’t.
That’s why IRS recently outlined a safe harbor in Notice 2012-58. Here’s how it works:
You can review employees’ previous hours worked using a “standard measurement period,” of at least three consecutive months, but no more than 12 consecutive months, to determine if the average hours per week meets reform’s 30-hour threshold.
Following the measurement period there is a “stability period,” where the average hours of employees will be projected moving forward.
The stability period must be:
- as long as the measurement period
- at least six months, and
- measured after the standard measurement period.
Take note: Any employee who averages at least 30 hours during the measurement period will be considered a full-time employee regardless of the hours he works during the stability period, says IRS.
Factor 2: Keeping all employees covered
Of course your company will do all it can to stay in line with the new requirements of the new health reform law.
But with so many requirements, it’s possible that something might get missed.
That’s why some proposed recent regulations out of IRS were such good news for employers.
Specifically, you’re being given a margin of error on one of the potentially most costly parts of the new law.
IRS?just addressed the provision that imposes a penalty of up to $2,000 per full-time employee on employers with at least 50 employees, even if just a single full-time employee isn’t offered healthcare coverage.
But IRS and the Treasury department have determined that may be too hard a line to take.
The new standard you’ll be held to:
As long as you offer coverage to at least 95% of your full-time employees and their dependents up to age 26, your company won’t get slapped with the massive penalty.
Factor 3: The affordability test
There’s another way your company could get whacked with penalties with regards to Obamacare.
Even if you offer all eligible employees health coverage, if the price you expect them to pay for it is too steep, then you could be the one paying a hefty price.
A few years back IRS issued proposed rules that contributions can’t exceed 9.5% of the taxpayer’s household income. Note: That’s for self-only coverage.
The Taxman has just issued its final regs on the subject – and that threshold stands. (Some groups wanted the threshold to apply to family coverage, but ITRS batted that down.)
To figure out whether you’re in line, get Payroll involved. Your company can base that number on Box 1 of the person’s W-2.
But some taxpayers were worried that may not be the best way to do it.
So IRS?has now proposed two new safe harbor protections for your company to determine if the coverage is affordable (www.federalregister.gov/articles/2013/01/02/2012-31269/shared-responsibility-for-employers-regarding-health-coverage):
Safe harbor 1: The rate of pay. Under this, affordability would be determined by:
- taking the hourly rate of each employee who is eligible for health care at the start of the plan year
- multiplying that rate by 130 hours per month (the monthly benchmark for FTEs under the law), and
- determining the affordability based on the resulting wage amount.
Note: You won’t be able to use this method if employees’ wages are reduced at any point during the year.
Safe harbor 2: the federal poverty level. If an employee’s contribution for self-only coverage doesn’t exceed 9.5% of the federal poverty level for a single individual, then that coverage would be considered affordable – and you as the employer wouldn’t be penalized.