Q: I have a business which employs 54 full time workers and 15 part time workers, and I am only now considering signing up for a health insurance plan. How is Obamacare going to impact my business?
A: This is a difficult question considering that Obamacare, also known as The Patient Protection and Affordable Care Act (“ACA”), is 961 pages long and that does not include the regulations that go along with the law which will be at least four times as long. In addition, many of the regulations do not go into full effect until 2014. However, there are some facts that employers should know now.
First, the law sets a limit in Flexible Spending Accounts for plan year 2013 of $2,500. Next, for those employees filing joint returns and earning $250,000 or more ($125,000 for single filers) there is an additional Medicare tax of 0.9% which the employer must deduct from the employee’s paycheck.
For companies such as yours, which is considered a “Large Employer” by the government, there are some more onerous provisions. Starting in 2014, an employer must determine how many full time employees (“Full Time Equivalent” employees or “FTE’s”) it has working for it to determine if it meets the threshold of 50 or more FTE’s. The answer is not as easy as you might think. According to the ACA, a FTE is one who works 30 or more hours per week. Note that the Bureau of Labor Statistics has always defined a full time employee as one who works 35 hours per week. With 54 FTE’s in 2014, if you do not offer health insurance, you must pay the government $2,000 per employee (excluding the first 30 employees) and an additional $2,000 for each new hire. In your particular situation, that is – 24 x $2,000 or a $48,000 penalty.
So let’s say you are thinking about demoting 5 FTE’s to part time to get under the 50 employee threshold, this will not do you any good. The ACA has thought of that so it calculates in the hours worked by part time employees as part of its FTE determination. The Congressional Research Service has stated:
So, for example, if you did demote 5 employees, you would then have 20 part time employees. Under the ACA, assume those 20 employees work 24 hours per week (96 hours per month). These part-time employees’ hours would be treated as equivalent to 16 full-time employees, based on the following calculation:
20 employees x 96 hours / 120 = 1920 / 120 = 16 Full time employees added to the FTE’s you already have working for you. So let’s say you opt to purchase insurance – choose your insurance coverage, but choose wisely. If you do not, you could find yourself paying twice. The employer may avoid the penalty by providing its employees with “affordable” health care. To be deemed ‘affordable,’ the health care insurance provided by the employer must pay for at least 60 percent of covered health care expenses, and employees may not be forced to pay more than 9.5 percent of their family income (before deductions and adjustments) for coverage offered by employers. The question of how an employer is supposed to know the amount of ‘family income’ is not yet addressed. If a business provides coverage that is deemed not to be affordable, the amount of the penalty is the lesser of : $2,000 per worker or if some of your employees have purchased insurance through the state exchange, then the employer will pay $3,000 per employee receiving such tax credits. This cost is in addition to the cost of the coverage you purchased which you thought would prevent the penalty form being assessed.
There is some good news for small employers with fewer than 50 employees. They are not subject to the penalties listed above. Also, for those employers with 25 FTE’s or less that do provide health insurance, they can qualify for a tax credit if their employees’ average wages are below $50,000.