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Restaurant Owners: Health Insurance Reimbursement Rules Could Cost You

September 10, 2015

If you reimburse employees for healthcare, your restaurant is at serious risk of incurring harsh penalties.

IRS Notice 2015-17 offered a transitional relief period to small employers, those with fewer than 50 full-time employees, who offer employer payment plans, which are arrangements that reimburse an employee for medical care costs, as covered in our blog, “Do You Reimburse Employees for their Individual Health Care Premiums?” This relief ended June 30th of this year, meaning that any business continuing to reimburse employees for healthcare plans now could face high costs for each employee they reimburse. For the restaurant industry it is especially important to retain high quality employees, and these penalties and high costs could put that in jeopardy.

More about employer payment plans

Employer payment plans (EPPs) are arrangements which provide direct payment or reimbursement to the employee for his/her premiums for health coverage. Included in this arrangement is a health reimbursement arrangement (HRA) which is an employer funded agreement that compensates an employee for medical care costs, including premiums for health coverage incurred by an employee on behalf of the employee’s spouse, dependents, and any other person.

New penalty

As of January 1, 2014, EPPs are now considered group health plans subject to the market reform rules of the ACA. This means that any employer still providing reimbursements to employees for health insurance will be subject to:

  • Non-deductible excise tax of $100 per employee, per day, which comes out to $36,500 per year, per employee!

Opposition to the change

Many employers have relied on EPPs for years as the arrangement allows employers the chance to provide a great benefit to their employees while easing the burden of health costs. There are also tax deductions available to employers through EPPs.

Many small business owners think provisions of the ACA are not applicable to them if they have less than 50 FTE's. However, these penalties apply to all businesses that have more than one employee, which means that a lot of restaurants will be forced to set up costly group plans, or face the hefty fees mentioned above. Reimbursing employees for healthcare plans was a way for many small employers to help employees in past years, so it will be a difficult adjustment for many if Congress does not reconsider. It could mean that some establishments may lose valued employees.

Questions? Contact any member of our Hospitality Services Group.

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