Preparing the Large Employer for the Affordable Care Act's Penalties

Transcription

1 Preparing the Large Employer for the Affordable Care Act's Penalties Presented By: Heather DeBlanc, Jerry Healy and Diane Fiero (Asst. Superintendent, VP HR for Santa Clarita CCD)

2 ACA Mandates Individual Mandate individual tax penalty for not having health coverage Employer Mandate (Shared Responsibility Payment) employer tax penalty for not offering health coverage 2

3 ACA Glossary ACA FTE Employee who earns, on average, 130 Hours of Service in a month Household Income Adjusted Gross Income (with minor additions) of all members of the household Minimum Essential Coverage (MEC) Employer s standard group medical plan Minimum Value Benefits provided under MEC are no less than 60% (i.e. employee pays 40%) Affordable Self-Only coverage under an Employer s lowest cost MEC that provides Minimum Value costs the ACA FTE no more than 9.5% of Household Income 3

4 Employer Mandate: Large Employer Penalties Effective January 1, 2015 (was 2014) Large Employers Trigger: FT employee purchases subsidized coverage in exchange (Penalty A) Employer does not offer minimum essential coverage to substantially all FT employees & dependents; or (Penalty B) Coverage is unaffordable or doesn t provide minimum value 4

5 Information Reporting Information Reporting Delayed (IRC 6055 & 6056) IRS encourages employers to voluntarily comply with information reporting Name, SS #, benefits of employees & dependents 5

6 Failure to Offer Coverage (Penalty A) 1. To 95% of ACA FTE Workforce (IRC 4980H(a)) Penalty = $2,000/yr x (ACA FTE Workforce 30) Example: 1,000 ACA FTE Workforce with 900 eligible for coverage (90%): Penalty: $161,667 monthly ($2,000 x 970 = $1,940,000 annually) 2. To 5% or less of ACA FTE Workforce (IRC 4980H(b)) $3,000 x each ineligible FTE who purchases coverage on Exchange and receives a Federal subsidy 6

7 Ex. Penalty A Calculation Fails To Offer Coverage No. of FT Employees Assessable Payment 14 Formula 100 $ $ x (100-30) 500 $ $ x (500-30) 1,000 $ $ x (1,000-30) 2,000 $ $ x (2,000-30) 4,000 $ $ x (4,000-30) Monthly Penalty Penalty Annualized $11,667 $140,003 $78,335 $940,019 $161,670 $1,940,039 $328,340 $3,940,079 $661,680 $7,940,159 7

8 Failure to Provide Affordable Coverage w/ Minimum Value (B) MEC coverage with a Minimum Value is provided but it is not Affordable to the individual employees (IRC 4980H(b)) $3,000 x each ACA FTE who (i) opts out of employer coverage; (ii) purchases coverage on the Exchange; and (iii) receives a Federal subsidy Example: 20 ACA FTEs are offered coverage that is unaffordable. 15 opt out of employer coverage, purchase coverage on exchange and receive a subsidy 15 x $3,000 = $45,000 ann./$3,750 monthly 8

9 Penalty B - Affordability Coverage is affordable where: Employee s share of the premium for the employer s lowest cost, self-only plan is no more than 9.5% of household income Safe Harbors for determining 9.5% of household income: 1. Form W-2 2. Rate of Pay 3. Federal Poverty Line 9

10 Affordability Safe Harbor Form W-2 Employer will not be subject to unaffordable coverage penalty if: Employee s portion of the premium for the lowest cost self-only coverage does NOT exceed 9.5% of the employee s Form W-2 wages reported in Box 1. 10

11 Affordability Safe Harbor Rate of Pay Not subject to unaffordable penalty if: Employee s portion of the premium for the lowest cost self-only coverage does NOT exceed 9.5% of monthly amount Monthly amount = Hourly rate of pay x 130 hrs./mo. 11

12 Affordability Safe Harbor Federal Poverty Line Not subject to unaffordable penalty if: Employee s portion of the premium for the lowest cost self-only coverage does NOT exceed 9.5% of the monthly FPL FPL in 2013 was $1, per month 9.5% of $1, = $90.96/mo. Thus, if employee contribution is lower than $90.96, it will automatically be affordable based on this safe harbor. 12

13 Ex. Penalty B Calculation Offers Unaffordable Coverage Monthly penalty is lesser of two penalties: No. of FT Es No. who enroll in subsidized coverage (here 2%) Penalty B ($250 x No. subsidized) Penalty A Monthly Penalty (Penalty B is lesser) Penalty Annualized $500 $11,667 $500 $6, $2,500 $78,335 $2,500 $30,000 1, $5,000 $161,670 $5,000 $60,000 2, $10,000 $328,340 $10,000 $120,000 4, $20,000 $661,680 $20,000 $240,000 13

14 Typical CC Workforce Categories Salaried (exempt) Hourly (non-exempt) Union (represented) Non-Union Full-Time Part-Time Part-Time Pool Interns Seasonal Independent Contractors Classified employees Service Employees Faculty College Trainer Leased Employee (via agency) Non-Contract Temp Substitute Teachers Adjunct Professors Stipend-paid employees (coaches) Professional Experts (short and long-term) Student Workers Education Code section assignment 14

15 Common Law Employee Performs services for an entity, and Entity has the right to control and direct the individual: As to the result; and The details and means by which the result is attained Note: Leased employees are not common law employees if through an agency Note: Independent contractors are not employees (IRS audit item) 15

16 ACA Full-Time Employee ACA Full-Time Employee (i.e. earns, on average, 30 Hours of Service per week) 130 Hours of Service for a month (tax is monthly) 1560 Hours of Service for a calendar year (30 hours x 52 weeks) 130 Hours of Service for a month (130 x 12 = 1560) Full-Time status is a calendar month determination Alternative to Monthly Analysis: Look-Back Safe Harbor 16

17 ACA Full-Time Employee Hours of Service Each hour for which an employee is paid, or entitled to payment, for the performance of duties; and Each hour for which an employee is paid, or entitled to payment, on account of a period of time during which no duties are performed due to: Vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence 17

18 Calculating Hours of Service Hourly hours of service Non-hourly 3 methods: 1. Hours of service 2. Days worked equivalency (8hr/day for each day entitled to pay/req d to be credited with an hour of service) 3. Weeks worked equivalency (40hr/wk for each week entitled to pay/req d to be credited with an hour of service) 18

19 Adjunct Faculty Members Reasonable Method to Credit hours of service Not reasonable to only account for class time Should include hours necessary to perform duties (i.e., class preparation time) 19

20 American Council on Education s Comments to Proposed Regs. Propose Safe Harbors for Adjunct Faculty 1) Safe Harbor Based on Percentage of Full- Time Course Load Full-time = course load ¾ or more of course load for full-time non-tenuretrack (NTT) teaching faculty member in that academic dept. 20

21 American Council on Education s Comments to Proposed Regs. 2) Safe Harbor Based on One-to-One Ratio of Hours Teaching to Non-Classroom Work. Credit one hour of work outside classroom for each hour teaching in classroom. Reasonable approximation. 21

22 American Council on Education s Comments to Proposed Regs. Propose Safe Harbors for Student Workers (Institution of Higher Education) 1.Nature of Work Safe Harbor Use standards in DOL s Field Operations Handbook to determine employee status 2.Work-Study Safe Harbor Exclude hours worked by student enrolled in classes at least half time & receives wages as part of work-study program 22

23 Untracked Hours Stipend Coaches Special Projects 23

24 Look Back Measurement Method Safe Harbor

25 IRS Workforce Categories ONGOING EMPLOYEES Full-Time Employees Not Full-Time Employees NEW EMPLOYEES Full-Time Employees Not Full-Time Employees Variable Hour Employees Seasonal Employees 25

26 Look-Back Safe Harbors Eliminate the need to track employees monthly Convert HR workforce into workforce defined by IRS Define FTEs to report to IRS on Forms 1094 B and 1095-B Reporting to California State Controller s Office? Provide an orderly (but complex) method of tracking employees as approved by the Internal Revenue Service Predict who will be FTE for a future period of time Provide an opportunity for strategic planning Predict potential IRC 4980H tax liability Provide one method to manage IRC 4980H tax risk Provide an IRS approved response to 1411 Certification 26

27 Definitions Ongoing Employee Earning Hours of Service for a period longer than the Standard Measurement Period Standard Measurement Period A period of from three (3) to twelve (12) months Stability Period A period during which an employee s status as FTE or NFTE is locked in Administrative Period An optional period to test an individual s eligibility 27

28 Look-Back Method for Ongoing Employees 1. Count Hours of Service over the previous period, the Standard Measurement Period ( SMP ) 2. If employee averages 130 Hours of Service per month for the SMP, then employee is FTE for the related future period, the Stability Period 3. If employee averages less than 130 Hours of Service per month, then the employee is NFTE for the Stability Period 28

29 Ongoing Employees Oct. Jan Oct. Jan Standard Measurement Period #1 AP #1 Stability Period #1 29

30 Ongoing Employees Oct. Jan Oct. Jan Standard Measurement Period #1 AP #1 Stability Period #1 Standard Measurement Period #2 AP #2 Stability Period #2 30

31 Standard Measurement Period Employer chooses when SMP starts and ends Can start on any day in a month Can be coordinated with payroll periods but must coordinate with selected measurement period Example: Measurement Period Calendar Year May exclude the payroll period that includes January 1 but must include the payroll period that includes December 31 For example: January 5, 2014 to January 4,

32 Stability Period Begins after the Standard Measurement Period Status as ACA FTE or NFTE is locked in for the period, regardless of actual Hours of Service earned For ACA FTEs, Stability Period must be at least the greater of: Six consecutive calendar months; or The length of the SMP For NFTEs, Stability Period cannot be longer than the SMP but can be shorter 32

33 Measurement Period/Stability Period Measurement Periods and Stability Periods may vary in length or starting/ending date for these classes of employees: Collectively Bargained and Non-Collectively Bargained Employees under different Collective Bargaining Agreements Salaried and Hourly Employees located in different states 33

34 Optional Administrative Period Up to 90 days in length for Ongoing Employees Calculate employee hours Answer questions Enroll employees Optional at employer s discretion Begins following SMP and ends before SP Delays coverage for newly eligible Cannot create a gap in coverage for covered Ongoing Employees 34

35 Special Unpaid Leave Averaging Method: 1. Exclude special unpaid leave/break period and apply average over entire measurement period; or 2. Impute hours of service for the special unpaid leave/break period at a rate equal to average weekly hours of service for weeks actively at work. 35

36 Employment Break Period At least 4 consecutive weeks (not incl. special unpaid leave) Averaging Method: (1) exclude the employment break period and apply average over entire measurement period; or (2) credit with hours of service for the employment break period at a rate equal to the average weekly rate. 501 hours max./calendar year (of time excluded/credited, depending on method used) 36

37 Look Back Method for New Employees

38 Definitions Initial Measurement Period (IMP) Start Date New FTE New NFTE New Variable Hour Employee New Seasonal Employee Rehire 38

39 New Employees New Start Date, Ask: Is it reasonably expected he/she will average 30 or more service hours/week over the entire initial measurement period? If yes must offer coverage w/in 60 days (fully insured)/3 calendar months (self insured) If no New Variable Hour employee - start measuring 39

40 Workforce Analysis New Employees On the Start Date: Need to offer MEC? Probably Probably Not Status Sure New FTE: Reasonably expected to be an ACA FTE New NFTE: Reasonably expected to be an NFTE Status Unsure New Variable Hour Employee: Cannot reasonably determine if FTE, or of limited duration of employment Possibly New Seasonal Employee: Good faith determination to be a seasonal employee Probably Not 40

41 Workforce Analysis New Employees Examples of a New Variable Hour Employee New Adjunct New Part Time Pool Employee New Student Worker Examples of New Seasonal Employees New Coach for Volleyball season 41

42 Safe Harbor for New Employees - Variable Hour & Seasonal Initial Measurement Period (IMP) 3 to 12 mo. (employer determines) Optional Administrative Period 90 days max. (60 CA law) Time between start date and start of IMP counts toward the 90 days Time between end of IMP and date offered coverage also counts toward the 90 days IMP + Admin. period must not extend beyond last day of first calendar mo. beginning on/after first anniversary of start date. 42

43 Safe Harbor for New Employees - Variable Hour & Seasonal (cont.) Stability Period Must be same length as it is for ongoing employees Special rules for length of stability period depending on how employee measures during initial measurement period 43

44 New Variable Hour Oct. Jan Oct. Jan Standard Measurement Period #1 AP #1 Stability Period #1 Standard Measurement Period #2 AP #2 Stability Period #2 May 15 Initial Measurement Period (Bob) AP (Bob) June 31 End Stability (Bob) 44

45 New Variable Hour Oct. Jan Oct. Jan Standard Measurement Period #1 AP #1 Stability Period #1 Standard Measurement Period #2 AP #2 Stability Period #2 May 15 Initial Measurement Period (Bob) AP (Bob) June 31 End Stability (Bob) 45

46 Rehires as New Employees? A rehire may be treated as a new EE if 26 consecutive wks. of no qualifying hours, OR Parity Rule: The break in service is at least 4 wks. long and the break is longer than the preceding period of service Not a new EE If cannot qualify as new hire under above calculation, then the individual s previously used SMP and SP continue to apply, as if there were no break in service 46

47 Employer Appeal Opportunities Appeal: Exchange s Determination of Employee Eligibility for Subsidy Exchange notifies employer 90 days to appeal Employer submits evidence Review of appeal Notice of decision within 90 days Appeal: IRS Penalty Determination Appeal Process expected in future guidance 47

48 Questions? Heather DeBlanc Attorney Los Angeles Office Jerry Healy Employee Benefits Counsel Corporate Legal Department