Global Tax Insights
Determining if you are a large or small employer under the Affordable Care ActJune 02, 2013
If your business is considered a large employer (at least 50 full-time equivalent employees); you need to know how the government is calculating your workforce.
Starting on January 1, 2014, employers with at least 50 full-time employees must offer all full-time employees an “affordable” health plan that meets a “minimum value” standard. Those who fail to do so could face penalties.
How do you know if you’re a large or small employer? To determine if your business is considered a large employer (at least 50 full-time equivalent employees); you need to know how the government is calculating your workforce and you’ll need to begin calculating it in 2013.
To determine whether you are covered by this mandate, you must look at each of the preceding 12 months to calculate the average number of full-time equivalents you employed over these months (looking at 2013 staff levels). A full-time equivalent is an employee working an average of at least 30 hours a week in any given month, or the equivalent of 130 hours per calendar month. This is not a simple calculation, especially for employees whose hours vary significantly from month to month. The federal government is expected to publish further regulations on such issues by late December, just in time to do the calculations.
Small employers, who employ fewer than 50 full-time equivalent employees, are not subject to the employer mandate. These businesses are currently not required to offer health benefits to their employees and will not owe federal penalties if they fail to offer health benefits. However, certain portions of the Act will apply. You must still provide a required notice to employees about exchanges starting October 1, 2013. If small employers do offer a health plan, certain insurance reforms will still apply (i.e. must cover people with preexisting conditions, allow children to remain on parent’s plan until age 26, etc.). You must offer a “plain English” summary of their benefits and coverage to employees and must report the value of health care coverage on W-2 forms starting with W-2’s issued for calendar year 2013.
Don’t assume your business is too small to be covered by the mandate. Many employers with more than one business entity do not realize they may need to consider all of their employees as one group, which could push them over the 50 full-time equivalent threshold. The common control rules are complex and you’ll likely need professional help to determine how the common control rules apply to your business.
Bottom line is you’ll need to study your workforce numbers for 2013 to know which category your business falls into and what requirements will apply to you. Best advice for today – keep good detailed records - you’re going to need them.