Employer Shared Responsibility Glossary of Key Terms

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1 Employer Shared Responsibility Glossary of Key Terms Administrative Period An administrative period is an optional period of up to 90 days following the initial or standard measurement period and ending immediately before the subsequent stability period in which the employer can identify, notify, and offer full-time employees health coverage. Employers should note there is a limit on the combined length of the initial measurement and administrative periods as described in the initial measurement period definition. In addition, the administrative period 90-day limit must include the time between an employee s start date and the beginning of the employee s initial measurement period. Affordability Safe Harbor Methods For 2017, health coverage is considered affordable if an employee s required premium contribution for self-only coverage to the lowest cost plan that offers minimum essential coverage (MEC) does not exceed 9.69 percent of the employee s modified adjusted gross household income. Because employers may not know the household income for their employees, they can use one of three affordability safe harbor methods* to determine if the coverage they are providing employees is affordable: Form W-2 Safe Harbor Use employee s Form W-2 wages shown in Box 1. Employers cannot use imputed W-2 wages for periods of special unpaid leave. In this circumstance, employers may use the Rate of Pay or Federal Poverty Line safe harbor instead. Rate of Pay Safe Harbor Multiply an employee s hourly rate by 130 to determine monthly wages or use a salaried employee s monthly pay. o Employers can apply the Rate of Pay safe harbor to an hourly employee even if the employee s rate of pay is reduced during the year. In this situation, the rate of pay is applied separately to each calendar month rather than to the entire year. The employee s required contribution may be treated as affordable if it is affordable based on the lowest rate of pay for the calendar month multiplied by 130 hours. The rate of pay used for the month must be the lowest rate paid during that month (times 130) in the case of a reduction in rate of pay. An employer cannot use the Rate of Pay safe harbor for a salaried (non-hourly) employee whose monthly salary is reduced during the year. Federal Poverty Line Safe Harbor Use the federal poverty line (FPL) for a single individual. Employers can use the FPL published poverty guidelines in effect six months prior to the beginning of the plan year *Note: Certain limitations apply. Employers may use any of the three safe harbor methods to determine affordability, but they must use them consistently across like categories of employees. Reasonable categories generally include specified job categories, type of compensation (hourly or salaried), geographic location, and similar bona fide business criteria. An enumeration of employees by name or other specific criteria having substantially the same effect as enumeration by name is not considered a reasonable category. For 2017, employers who offer MEC to all or most full-time employees and their dependents but do not offer affordable coverage that meets minimum value requirements may be subject to a potential annualized penalty of $3,390 per affected employee if that employee receives a premium tax credit for obtaining coverage through a government Health Insurance Marketplace. (rev. 12/13/17) Page 1

2 Aggregated Applicable Large Employer Group The IRS term for a controlled or affiliated service group of companies that, in general, has a total of 50 or more full-time employees and full-time equivalent employees (FTEs) on business days during the preceding calendar year. Applicable Large Employer (ALE) In general, a business entity that employs 50 or more full-time employees, including full-time equivalent employees (FTEs), on business days during the preceding calendar year. A new employer (an employer who didn t exist in the previous calendar year) will be considered an ALE if the business reasonably expects to employ and does employ an average of 50 or more full-time employees, including FTEs, in the current calendar year. All member entities within controlled and affiliated service groups are taken into account when determining if an employer is an ALE. For the ALE calculation only, there is a seasonal worker exception. If you have a workforce that exceeds 50 full-time employees and FTEs for 120 or fewer days during a calendar year, you should exclude the seasonal employees in excess of 50 during that period from the ALE calculation. It is important to note that per the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, for any month, an employee who is a military veteran and has coverage through TRICARE or the Department of Veterans Affairs will not be included in the count for determining ALE status. Unlike others who are exempted, such as S-Corp 2% shareholders or 1099 contractors, this law only exempts veterans for the purpose of determining ALE status. Once ALE status is determined, veterans are treated the same as any other employee for determining full-time status, offer of coverage, and 1095-C filing. COBRA The Consolidated Omnibus Budget Reconciliation Act (COBRA) was adopted by the U.S. Congress in 1986 to provide workers and their families who lose their health insurance under certain circumstances (see Qualifying Event definition) the right to continue coverage for limited periods. Not all employees qualify for COBRA (e.g. those terminated for gross misconduct). COBRA generally applies to employers who offer a group health plan and who employed 20 or more employees (full-time and part-time) on 50 percent of typical business days during the previous calendar year. Continuation requirements may differ for employers who are subject to State Continuation regulations. In general, COBRA coverage offered should be comparable to the coverage offered when the qualified beneficiaries were active employees. See the Department of Labor COBRA Frequently Asked Questions for more information. Conditional Offer of Health Coverage An offer of health coverage that is subject to one or more reasonable, objective conditions, regardless of whether the conditions are satisfied. For example, an employer may offer health insurance to employee s spouse on the condition that the spouse is not eligible for coverage under Medicare or a group health plan sponsored by another employer. Controlled and Affiliated Service Groups Entities that are treated as a single employer under Internal Revenue Code section 414(b), (c), (m), or (o). In general, controlled and affiliated service groups of corporations are the following: Parent-Subsidiary A "parent-subsidiary" controlled group is when one organization owns 80 percent or more of another organization. For a corporation, the 80 percent test reflects the level of voting power or total ownership based on all classes of stock. For a partnership, the 80 percent test reflects the level of profits, interest, or capital interest. For trusts and estates, the 80 percent test reflects the level of actuarial interest. Brother-Sister A "brother- sister" controlled group is when the same five or fewer persons collectively own 80 percent or more of the equity in two separate businesses, and 50 percent or more of those businesses are owned by the same individuals. In some cases, relatives may be included in determining ownership. (rev. 12/13/17) Page 2

3 Affiliated Service Group An "affiliated service group" exists whenever several organizations regularly collaborate in providing services to the public (usually integrated services), and the organizations are connected by a material level of cross ownership. Please see the IRS definition in Section 414 (b) (c) (m), and (o); there are sections of 414, such as predecessors, multi-employer plans, and leased employees, that do not apply to this aggregation. Consult your CPA or tax advisor to determine how these regulations apply to your particular business structure. Dependent A child of an employee who is under 26 years of age. The spouse, step children, or foster children of an employee are not considered dependents for the purposes of the ESR provisions. Children are considered dependents for the entire calendar month when they turn 26. A dependent must be a US citizen or national (with exceptions for countries contiguous to the United States and certain adoption situations.) Employee Designations Full-Time Employee: An employee who is employed an average of at least 30 hours of service per week or 130 hours per month with an employer. Employees Transitioning from Full-Time to Part-Time If an employee transitions from full-time to part-time status during a measurement period, this does not mean that the employee immediately becomes a part-time employee. In general, the employee would maintain full-time status through the current stability period and be measured again during the next ongoing measurement period to determine the subsequent stability period status. Some exceptions apply. Full-Time Equivalent Employees (FTEs): A combination of employees, each of whom individually is not treated as a full-time employee because he or she is not employed on average at least 30 hours of service per week or 130 hours per calendar month with an employer, and who, in combination, are counted as the equivalent of a full-time employee solely for the purpose of determining whether an employer is an ALE. New Hire Employee: An employee who has been employed by an ALE for less than one complete standard measurement period. If a new employee is reasonably expected to be a fulltime employee, the ALE must treat him or her as a full-time employee. For part-time, variablehour, and seasonal employees, an ALE may use an initial measurement period to determine whether the new employee is a full-time employee. Ongoing Employee: An employee who has been employed by an ALE for at least one complete standard measurement period. Part-Time Employee: An employee who averages fewer than 30 hours of service per week or 130 hours per month with an employer. Seasonal Employee: An employee who is hired into a position where the time of employment is traditionally six months or less per year. Variable-Hour Employee: An employee where the employer can t determine whether the employee is reasonably expected to be employed an average of at least 30 hours of service per week because the employee s hours are variable or uncertain. The employer may not take into account the likelihood that the employee may terminate employment before the end of the initial measurement period. (rev. 12/13/17) Page 3

4 Note: The definition of employee is based on the common-law standard. It does not include individuals such as a leased employee, a sole proprietor, a partner in a partnership, or a two-percent S-Corp shareholder. ALEs can use two methods to calculate the full- or part-time status of employees in a given month: look-back measurement and monthly measurement. The Paychex Full-Time Employee Analysis and Monitoring Service uses the look-back measurement method. Clients who want to use the monthly measurement method must do the calculations themselves and provide Paychex with the information. Employer The term employer means the person who employs one or more employees under the common law standard. For the purposes of determining ALE status, the term employer includes a predecessor employer and successor employer. Federal Poverty Line (FPL) An annual income level set each year by the Department of Health and Human Services to determine eligibility of individuals and families for certain government services. For the ESR provisions, the FPL is one standard that can be used to determine if employer-sponsored health care coverage is considered affordable for an employee. (See Affordability Safe Harbor Methods definition.) Health Insurance Marketplace Also known as an exchange, a health insurance marketplace is a state or federally sponsored venue where an individual or business can shop for and purchase health insurance. Limited Non-Assessment Period A limited non-assessment period generally refers to a period when an ALE will not be subject to potential penalties for not offering a full-time employee coverage with MEC or MAV. There are 6 distinct periods that determine if an employee falls into a limited non-assessment period. Refer to the definition of a limited non-assessment period on the IRS 2017 Instructions for Forms 1094-C and 1095-C. Consult your CPA or tax advisor if you need help determining if a limited non-assessment period applies to any of your employees. Measurement Periods Initial Measurement Period: An initial measurement period selected by an employer of at least 3, but not more than 12, consecutive calendar months is used to determine if new variable hour, new part-time, and new seasonal employees are full-time employees under the look-back measurement period. The employer may begin the initial measurement period on any date between the employee s start date and the first day of the first calendar month following the employee s start date. Pay period rules may apply. Look-Back Measurement Period: For ongoing employees, an employer using a look-back measurement period determines each ongoing employee s full-time status by looking back at the standard measurement period. Monthly Measurement Period: ALEs have the option to use a monthly measurement period method across permissible categories of employees. In addition, for newly hired full-time employees, you have the option to use a monthly measurement method to determine full-time status until their first ongoing stability period, even if the look-back measurement method is used for that employee s particular permissible category. ALEs determine each employee s status as a (rev. 12/13/17) Page 4

5 full-time employee by counting the employee s hours of service in that month. Alternatively, an ALE can use the weekly rule when assessing an employee s full-time status under this method Determination of full-time employee status using weekly rule under the monthly measurement method: Under the optional weekly rule set, full-time employee status for calendar months is based on hours of service over four weekly periods or five weekly periods, depending on how many full weeks fall in the month. With respect to a month with four weekly periods, an employee with at least 120 hours of service is a full-time employee, and with respect to a month with five weekly periods, an employee with at least 150 hours of service is a full-time employee. For the purposes of this rule, the seven continuous calendar days that constitute a week (for example Sunday through Saturday) must be consistently applied for all calendar months of the calendar year. To apply the monthly measurement method, the employer must consistently use one of the following: 1) Begin on the first day of the week that includes the first day of the calendar month, provided that the period over which hours of service are measured does not include the week in which falls the last day of the calendar month (unless that week ends with the last day of the calendar month, in which case it is included); or 2) Begin on the first day of the week immediately subsequent to the week that includes the first day of the calendar month (unless the week begins on the first day of the calendar month, in which case it is included), provided the period over which hours of service are measured includes the week in which falls the last day of the calendar month. Note: Paychex does not use the monthly measurement period method to determine full-time status of employees as part of the Full-Time Employee Analysis and Monitoring service. Standard Measurement Period: A time period of at least 3 but not more than 12 consecutive months that the employer selects and uses in determining whether an ongoing employee is a full-time employee under the look-back measurement period. The employer determines the beginning and ending of the standard measurement period, and must apply the standards on a uniform and consistent basis for all employees in the same IRS permissible category. These categories are: Collectively bargained employees and non- collectively bargained employees Each group of collectively bargained employees covered by a separate bargaining agreement Employees of different entities Salaried and hourly employees Employees whose primary places of employment are in different states (e.g., employees working at branch locations in different states) For example, if an employer selects a standard measurement period of one calendar year, Paychex will determine which ongoing employees are full-time by looking back at the hours of service for each ongoing employee during certain months in the prior two calendar years, based on when their measurement period begins. This would apply to each IRS permissible category the employer has set up with Paychex ESR Services. The default is a single category that covers all employees. (rev. 12/13/17) Page 5

6 Minimum Actuarial Value (MAV) Minimum actuarial value (MAV) refers to the percent of medical costs that a health plan must share with the participating employees. To meet ESR requirements, health plans must cover at least an average of 60 percent of the total allowed costs of plan benefits. The Department of Health and Human Services has provided a spreadsheet with a Minimum Value Calculator at: to assist employers with determining minimum value for their plans. Minimum Essential Coverage (MEC) Health insurance coverage that meets the minimum benefits standard of the small- or large-group market within the state. This includes most broad-based medical coverage typically provided by employers. It would not include certain specific coverage, such as accident or disability income, stand-alone dental or visions coverage. Qualifying Event A qualifying event is a change in family status or coverage that may allow for modifications to, enrollment in, or additions to health benefits, such as COBRA. Examples include: Marriage Divorce or legal separation from the insured employee Birth of a child Involuntary loss of coverage from another policy Death of an insured spouse Termination of the insured employee for any reason other than gross misconduct Loss of dependent child status under the plan rules Reduction of hours of the covered employee Employee becomes entitled to Medicare Please contact your insurance carrier for specific guidelines. Stability Period The stability period begins as soon as the administrative period ends (or as soon as the measurement period ends if the employer is not using an administrative period). If an employee is determined to be fulltime in the preceding measurement period, the stability period must be at least six calendar months and no shorter than the associated measurement period. In general, during the stability period, a full-time employee must be treated as a full-time employee for the entire stability period and may not be treated as a part-time employee, even if the full-time employee no longer works 30 hours per week. For employees determined not to be full-time during the preceding measurement period, the stability period can be no longer than the measurement period. If a three-month measurement period is used, the stability period for employees who are determined to be full-time must be six months. For newly hired variable-hour, parttime, and seasonal employees, the stability period can exceed the measurement period by one month for employers using an 11-month measurement period. The stability period associated with the initial measurement period must be the same length as the stability period associated with the ongoing measurement period. Note: The information in this document should not be considered legal or accounting advice and it should not substitute for legal, accounting, and other professional advice where the facts and the circumstances warrant. It is provided for informational purposes only. If you require legal or accounting advice or need other professional assistance, you should always consult your attorney, accountant, or other tax professional to discuss your particular facts, circumstances, and business needs. (rev. 12/13/17) Page 6