Trouble Tracking ACA Hours? Better Figure It Out To Avoid The $2,160 ACA Penalty . . .
Many employers in the marketplace are still experiencing difficulties in measuring the hours of their part time and variable hour employees to determine if they are actually full time under the Affordable Care Act (ACA) regulations. Making this determination is critically important since as an Applicable Large Employer (ALE) beginning with the 2016 reporting calendar year, you must provide qualifying coverage to 95% of your full time employees in order to be considered compliant.
The penalty for not being compliant in 2016 is that you will be charged $180 per full time employee per month. It is important to remember this penalty applies to all of your full time employees, and not just the ones whom you might have failed to offer coverage to.
How does this have anything to do with tracking of part time employee hours you ask? Let’s take an example so you can see how it plays out in reality. We will make the following assumptions of an employer:
- 130 full time employees who are offered coverage
- 50 part time employees who’s hours are measured to determine if they are eligible for coverage
In our simplistic example, we will assume that the employer offered coverage to all of their full time employees, 130 in total. So you immediately are likely thinking that they should be in good shape since they have offered coverage to 100% of their full time employees. Right? … Well, Maybe.
We will further assume that in the measuring of the hours of part time employees they did not extend an offer of coverage to any of these employees. However, at a later date they determined that correctly applying the measuring rules under ACA would mean that 12 of these 50 total part time employees actually were indeed full time.
Oh … No …. Now think about what percentage of coverage you offered as an employer.
130 offered coverage | Total full time employees 142 | 91.5% offer of coverage
So what happens now? Your company now will owe a penalty in 2016 of: 112 X $2,160 = $241,920
(Why 112 you ask? The A penalty isn’t paid on the first 30 full time employees. Also, this is a simplified example. In reality an employer would be charged the penalty at the rate of $180 per month per employee. Therefore, if they did not make the appropriate offer for the entire year that would add up to $2,160 per employee for the year. Otherwise, the penalty would only apply to each month in which appropriate coverage was not offered.)
Do I have your attention now?
So you might not understand some of the complexities that come into play when measuring the hours of part time employees, so let’s talk about that.
The Affordable Care Act requires applicable large employers (ALEs) to offer appropriate and affordable health coverage to their full time employees who work 30 or more hours per week (130 hours per month). Employers are also required to measure the hours worked of part time and variable hour employees to determine if they should be offered coverage as all other full time employees. There are two methods available to employers for use in measuring: Monthly Measurement Method, and the Look-Back Measurement Method.
Monthly Measurement Method
The monthly measurement method proves difficult in application since an employee must be offered coverage in any month which they worked over 130 hours, yet the employer might not know this until the end of the month. Many employers are unaware of this fact and apply the method incorrectly, measuring one month and then making the offer in the following month. This is an incorrect application of the rules.
Overall, the monthly measurement method leads to uncertainty and inability to predict employees as full time and can lead to unnecessary penalties. For that reason, most employers choose the Look-Back Measurement Method.
Look-Back Measurement Method
The Look-Back Measurement Method involves designating a period of months over which you measure the hours worked by an employee to determine if they are indeed full time. This period is called the measurement period. Following the measurement period, employers are given a short administrative period during which they can communicate and enroll any new employees on the plan. Finally, employees enter their stability period where they are guaranteed to maintain coverage regardless of the number of hours worked.
Administrating the look back method can be complex. However, by following our simple methodology you can easily track your employees and ensure you offer coverage to anyone who becomes a full time employee.
Example of the Difficulties
As an example let’s consider an employer in the Staffing Industry. This employer hires a new employee and then put them on assignment. Let’s further assume that assignment ends after 4 months. The overwhelming majority of companies would continue to keep this person on their ‘books’ as an employee rather than go through the process of formally terminating them. After all, they could go out on another assignment at any time. However this methodology then causes the employees ACA reporting to be completely wrong, and as you likely know you as an employer are ultimately on the hook for penalties due because of incorrect reporting.
For Applicable Large Employers (ALEs), 2016 is the calendar year in which the prior rules of offer of coverage expired. Specifically, I am referring to the fact that in 2015 ALEs only had to offer coverage to 70% of their ACA full time employees in order to avoid the ‘A’ penalty for not providing coverage.
The ‘A’ penalty for employers is a penalty of $2,160 per full time employee and you count all of your full time employees (not just the ones you didn’t offer coverage to).