All employers with 50 or more full-time employees will need to make a decision in January 2015 whether they are going to “pay or play.” Preparing now can be crucial to ensuring you make the right decision for your organization and avoid unwelcome surprises come 2015. As you make your decision, take a careful look at these three key areas:
Health coverage is affordable from an employer when an employee’s premiums do not exceed 9.5% of the employee’s a.) W-2 Form, wages from that employer, b.) monthly wages equal to the hourly rate of pay X 130 hours or the employee’s monthly salary, or c.) the federal poverty line for a single individual.
These premiums are those paid on a minimum value, lowest cost coverage plan. To qualify as minimum value, a plan must pay at least 60% of the total allowed costs stated under the plan. Employers can use 3 methods to determine minimum value:
1.) IRS generated minimum value calculator,
2.) Safe Harbor Checklist,
3.) Actuarial certification.
2.) Full-time status:
Many tax penalties will occur because of the lack of quality systems that clearly differentiate eligible from ineligible employees. A full-time, eligible employee is anyone who works at least 30 hours per week in the previous year. Therefore, employee hours in 2014 will affect how much liability your company will face once the employer mandate takes effect next year. Benefits Lawyer, Peter Marathas, says that “employers should be working with payroll and HRIS vendor now to create systems that will flag hours employees work and maintain them in a form that will be suitable for use to prove to the government” (ebn, 2014).
Double checking eligibility can benefit both you and your employees. Employers can use a standard measurement period (SMP) between 3-12 months for ongoing employees in order to define full-time status based on hours worked during that period. On going employees are those which have been employed for at least one complete SMP and have worked an average of 3o hours per week during the stability period. The stability period, subsequent to the SMP and usually the same length, must be at least 6 months long and no shorter than the SMP. Employers can vary the SMP as long as the changes are consistent for all employees under the same category of employment. For example, if an employee is determined a full-time employee during an SMP of 6 months, then he/she must be treated as full-time for the duration of the next 6 months (stability period) even if they work less than the required 30 hours per week.
**Hint: Remember, even if you are part of controlled group with another company, both of the companies are combined to determine if they collectively qualify as a large employer. If so, both of you would be subject to the pay-or-play penalties. However, any tax penalty amount will be individually issued and assessed.
Still having trouble deciding whether paying or playing is right for your company? The following questions can help you start thinking about certain ramifications of both the paying and playing decision.