Determining Applicable Large Employer Status & Full-Time Equivalent Employees

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1 Determining Applicable Large Employer Status & Full-Time Equivalent Employees Q Who is considered an employee? A For these purposes, an individual who is an employee under the common law standard is considered an employee. For purposes of Paragraph (a)(15), a leased employee (as defined in Section 414(n)(2)), a sole proprietor, a partner in a partnership, a 2-percent S corporation shareholder or a worker described in Section 3508 is not an employee. For leased-employee arrangements, an offer of coverage is treated as made by the client employer only if the fee the client employer would pay to the staffing firm for an employee enrolled in health coverage under the plan is higher than the fee the client employer would pay the staffing firm for the same employee if that employee did not enroll in health coverage under the plan. Q I understand the employer shared responsibility provisions apply only to employers employing at least a certain number of employees. How many employees must an employer have to be subject to these provisions? A To be subject to the employer shared responsibility provisions for a calendar year, an employer must have employed during the previous calendar year at least 50 full-time employees, i.e., those employed 30 or more hours per week on average, or a combination of full-time and part-time employees that equals at least 50. For example, an employer that employs 40 full-time employees and 20 employees employed 15 hours per week on average has the equivalent of 50 full-time employees and would be an applicable large employer (ALE). Seasonal workers are taken into account in determining the number of full-time employees. However, if an employer s work force exceeds 50 full-time employees (including full-time equivalents) for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period were seasonal workers, the employer is not considered an ALE. Seasonal workers are those who perform labor or services on a seasonal basis, as defined by the Secretary of Labor, and retail workers employed exclusively during holiday seasons. For this purpose, employers may apply a reasonable, good faith interpretation of the term seasonal worker. Employers will determine each year, based on their current number of employees, whether they will be considered an ALE for the next year. For example, if an employer had at least 50 full-time employees (including full-time equivalents) for 2016, it will be considered an ALE for Q Do the employer shared responsibility provisions apply to employers with full-time employees who are eligible for health coverage through another source, such as Medicare, Medicaid or a spouse s employer? A Yes. For purposes of determining whether an employer is an ALE, all employees are counted (subject to a limited exception for certain seasonal workers), regardless of whether the employees are eligible for health coverage from another source, such as Medicare, Medicaid or a spouse s employer. Therefore, an ALE with full-time employees who are eligible for health coverage through another source will be subject to the employer shared responsibility provisions regardless of whether those employees are eligible for coverage from another source. However, employees eligible for Medicare or Medicaid are not eligible for a premium tax credit. If no full-time employee receives a premium tax credit, e.g., because all of an employer s full-time employees are eligible for Medicare or Medicaid, the employer will not be subject to an employer shared responsibility payment. However, if an ALE does not offer coverage to its full-time employees (and their dependents) or offers coverage to fewer than 95 percent of its full-time employees (and their dependents), and a full-time employee receives a premium tax credit, the employer will be liable for an employer shared responsibility payment calculated based on the employer s number of full-time employees. For this purpose, the number of full-time employees includes those eligible for coverage from another source. 1

2 Q Are companies that employ U.S. citizens working abroad subject to the employer shared responsibility provisions? A A company employing U.S. citizens working abroad generally are subject to the employer shared responsibility provisions only if the company has at least 50 full-time employees (including full-time equivalents), determined by taking into account work performed in the United States. Employees working only abroad, regardless of U.S. citizenship, generally will not be taken into account for purposes of determining whether an employer is an ALE or for purposes of determining whether the employer owes an employer shared responsibility payment or the amount of any such payment. Q How does an employer identify its full-time employees for purposes of the employer shared responsibility provisions? A An employer s number of full-time employees matters both in determining applicability of the employer shared responsibility provisions and whether an employer shared responsibility payment is owed by an employer (and the amount of that payment). An employer identifies its full-time employees based on each employee s hours of service. For purposes of the employer shared responsibility provisions, an employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week. Under the final regulations, for purposes of determining full-time employee status, 130 hours of service in a calendar month is treated as the monthly equivalent of at least 30 hours of service per week. The final regulations provide two measurement methods for determining whether an employee has sufficient hours of service to be a full-time employee. One method is the monthly measurement method, under which an employer determines each employee s status as a full-time employee by counting the employee s hours of service for each month. The other method is the look-back measurement method, under which an employer may determine the status of an employee as a full-time employee during a future period (referred to as the stability period), based upon the hours of service of the employee in a prior period (referred to as the measurement period). The look-back measurement method for identifying full-time employees is available only for purposes of determining and computing liability for an employer shared responsibility payment and not for purposes of determining ALE status. The final regulations describe approaches that can be used for various circumstances, such as for employees who work variable-hour schedules, seasonal employees and employees of educational organizations. These methods prescribe minimum standards for the identification of full-time employee status. Employers always may make additional employees eligible for coverage or otherwise offer coverage more expansively than required. Q How do payroll cycles based on a period other than a calendar month impact the determination of applicable large employer status? For purposes of the employer shared responsibility provisions, what is an hour of service? A In general, an hour of service refers to each hour for which an employee is paid, or entitled to payment, for the performance of duties for the employer, and each hour for which an employee is paid, or entitled to payment, for 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. Under the final regulations, an hour of service does not include any hour of service performed as a bona fide volunteer, as part of a federal work study program (or a substantially similar program of a state or political subdivision thereof) or to the extent the compensation for services performed constitutes income from sources outside the United States. In addition, until further guidance is issued, a religious order is permitted, for purposes of determining if an employee is a full-time employee for the employer shared responsibility provisions, to not count as an hour of service any work performed by an individual who is subject to a vow of poverty as a member of that order when the work is in the performance of tasks usually required 2

3 (and to the extent usually required) of an active member of the order. Q Are there special rules for hours of service that are particularly challenging to identify or track or for which the regulation s general rules for determining hours of service may present special difficulties? A The Treasury Department and IRS continue to consider additional rules for determining hours of service for certain categories of employees whose hours are particularly challenging to identify or track or for whom the general rules for determining hours of service may present special difficulties (including adjunct faculty, commissioned salespeople and airline employees) and certain categories of work hours associated with some positions of employment, including layover hours, e.g., airline employees, and on-call hours. For this purpose, until further guidance is issued, employers are required to use a reasonable method of crediting hours of service consistent with Section 4980H. The preamble to the final regulations includes examples of methods of crediting these hours that are reasonable and that are not reasonable, including a method considered reasonable for crediting hours of service for adjunct faculty members. Q Can you explain the process of determining full-time status of seasonal, variable-hour and part-time employees? A For new variable-hour employees, seasonal employees and part-time employees, ALE members are permitted to determine whether the new employee is a full-time employee using an initial measurement period of no less than three consecutive months and no more than 12 consecutive months (as selected by the ALE member) that begins on the employee s start date or on any date up to and including the first day of the first calendar month following the employee s start date (or on the first day of the first payroll period starting on or after the employee s start date, if later). The ALE member measures the new employee s hours of service during the initial measurement period and determines whether the employee was employed on average at least 30 hours of service per week during this period. The stability period for such employees must be the same length as the stability period for ongoing employees. Q Are union employees covered under a collective bargaining unit counted in the total number of full-time equivalent employees when calculating the 95 percent that must be offered health coverage? A Yes. Union employees must be included when calculating total number of full-time equivalents to determine whether the employer is subject to the Section 4980H rules and must be included when determining whether coverage was offered to at least 95 percent of full-time employees and their dependents to avoid potential penalties under 4980H(a) in However, if the employer contributes to the plan and allows the union to make an offer of coverage that provides minimum value and is affordable to the employee on its behalf, the requirement would be satisfied. Considerations for Controlled Groups of Companies Q Can you explain the concepts and requirements of the authoritative transmittal indicator? A A Form 1094-C must be filed when an employer files one or more Forms 1095-C. An employer that has multiple divisions or uses payroll and benefits systems not connected between locations may find it most efficient to have a 1094-C and accompanying Forms 1095-C prepared at the location where the records are available. This could result in more than one 1094-C submission for the same employer. The employer is required to aggregate any data reported by individual divisions, locations or other designation of the same employer on a single 1094-C; it also must mark the combined 1094-C as authoritative and include all relevant 1095-C forms for the employer included in that authoritative filing. Essentially, department-level nonauthoritative filings act as a partial draft submission to be combined with the complete authoritative submission. 3

4 Q If an organization is a member of a controlled group, can it be covered under a consolidated authoritative filing transmittal for the controlled group? A No. The controlling entity determination is to determine filing requirement as an ALE. Each separate employer entity still must file on behalf of its employees. Internal divisions of a group member entity can file separately for their employees, but one aggregate authoritative filing for the employer needs to be filed that consolidates any division-prepared 1094/1095 forms. Through this method, these entity divisions still are reported under a single authoritative filing for the employer of record. Determination of Coverage & Reporting Q For 2017, will employees receiving offers of coverage effective as of the first day of the first pay period beginning on or after the first day of the year be treated as having been offered coverage for January 2017? A In general, if an employer fails to offer coverage to a full-time employee for any day of a calendar month, that employee is treated as not having been offered coverage during the entire month. Q Can you explain coverage of nonemployees? A Part III of 1095-C may be completed by an employer offering self-insured health coverage for any other individual who enrolled in the coverage under the plan for one or more calendar months of the year but was not an employee for any calendar month of the year, such as a nonemployee director, a retired employee who retired in a previous year, a terminated employee receiving COBRA continuation coverage who terminated employment during a previous year and a nonemployee COBRA beneficiary (but not including an individual who obtained coverage through the employee s enrollment, such as a spouse or dependent obtaining coverage when an employee elects COBRA continuation coverage that is family coverage). If the Form 1095-C is used with respect to an individual who was not an employee for any month of the calendar year, Part II must be completed by using Code 1G in the All 12 Months box or the box for each month of the calendar year. Q How do employers treat multiple employees covered under family coverage? A All employee family members who are covered individuals through the employee s enrollment must be included on the same form as the employee. If two or more employees employed by the same employer are spouses or employee and dependent, and one employee enrolled in a coverage option under the plan that also covered the other employee(s), e.g., one employee spouse enrolled in family coverage that provided coverage to the other employee spouse and their employee dependent child, the enrollment information should be reflected only on the Form 1095-C for the employee who enrolled in the coverage (but would report the other employee family members as covered individuals). Q If an organization has a delay before offering new employees coverage, is it subject to penalty? How should this be reported? A There would be no penalty applied if the employee is in a limited nonassessment period. The employer would indicate on Line 14 that coverage was not offered for the period in question and indicate the nonassessment period on Line 16 with Code 2D. Q Are dental and vision plan offerings considered in determining if employees are offered minimum essential coverage? Do the premiums for these kinds of plans need to be reported on the Form 1095 as part of the coverage? A Dental and vision plans generally do not impact considerations regarding minimum essential coverage offerings. There is not a current requirement that these amounts be reported on the Form

5 Q If an employee declines coverage and is offered a waiver stipend in exchange, does the stipend amount need to be reported as an expense of coverage? A ALEs must report whether coverage was offered to full-time employees and their dependents. Q How are changes between fully insured plans and self-insured plans handled if completed inside of a reporting period? A Complete monthly information on the forms by following the instructions applicable to the type of coverage offered each month. For example, if a large employer switched from offering fully insured coverage to self-insured coverage effective July 1, Part III of Form 1095-C would not apply for January through June but would apply for July through December. Q We are thinking of offering a Health Reimbursement Arrangement (HRA) supplement to our existing plan. What additional reporting requirements would that entail? A Employers with fewer than 50 full-time equivalents that offer a fully insured plan and an HRA have no reporting requirement for employees that have elected coverage under both. If an employee has waived medical and elected the HRA, e.g., he or she is enrolled in a spouse s medical plan, the employer still would need to report the employee s HRA coverage on Form 1095-B. Employers with 50 or more full-time equivalents that offer a fully insured plan and an HRA have no Form 1095-C, Part III reporting requirement for employees who have elected coverage under both. If an employee has waived medical and elected the HRA, e.g., he or she is enrolled in a spouse s medical plan, the employer still would need to report the employee s HRA coverage on Form 1095-C, Part III. Employers with 50 or more full-time equivalents that offer a self-insured plan and an HRA have Form 1095-C, Part III reporting requirements for any employee who elected either option. They must report any employee electing coverage under the self-funded medical plan but also would need to report any employee who waived the medical but elected the HRA because they are enrolled in a spouse s medical plan. Q We are an ALE with union and nonunion employees. We provide coverage to the union employees through a unionsponsored and controlled plan and to the nonunion employees through a separate, fully insured plan. What do we need to file for each category of employee? A Form 1095-C is required for all full-time employees (union or nonunion) due to ALE status. There are specific codes that apply for union employees if the employer is relying on the multiemployer interim IRS guidance. Under this guidance, an employer is treated as offering health coverage to an employee if the employer is required by a collective bargaining agreement or related participation agreement to make contributions for that employee to a multiemployer plan that offers, to individuals who satisfy the plan s eligibility conditions, health coverage that is affordable and provides minimum value, assuming the employer also offers health coverage to those individuals dependents. Form Completion Q Can an ALE member satisfy its reporting requirements for an employee by filing and furnishing more than one Form 1095-C that together provide the necessary information? A No. There must be only one Form 1095-C for each full-time employee with respect to that full-time employee s employment with the ALE member, so that all information for a particular full-time employee of the ALE member is reflected on a single Form 1095-C. Q When must an ALE member furnish the statements to full-time employees? A An ALE member must furnish the statement to each full-time employee on or before January 31 of the year immediately following the calendar year to which the information relates. 5

6 However, IRS Notice provides transition relief for filing 2017 forms in Under Notice employers are required to furnish forms to employees on or before March 2, Q For self-insured group health plan coverage, who is the plan sponsor that must report under Section 6055? A For a self-insured group health plan maintained by a single employer, the plan sponsor is the employer. For a plan maintained by more than one employer that is not a multiemployer plan (as defined in ERISA), the plan sponsor is each participating employer. For a multiemployer plan (as defined in ERISA), the plan sponsor is the association, committee, joint board of trustees or other similar group of representatives of the parties who establish or maintain the plan. For a plan maintained solely by an employee organization, the plan sponsor is the employee organization. For any plan for which a plan sponsor is not identified above, the plan sponsor is the person designated by plan terms or, if no person is designated, each entity that maintains the plan. Q If multiple Line 16 safe harbor codes apply to an employee, what should be entered? A According to the form instructions for Line 16, only one code should be entered. In the situation in which multiple codes may apply, the instructions help to determine which code should be used. For example, if the employee actually enrolls in the coverage offered, Code 2C is used because it is no longer relevant whether or not the coverage is affordable (an individual cannot qualify for a subsidy if the individual is enrolled in other minimum essential coverage). Q We have a self-funded plan where the employee contributions are based on a floating metric, like age or percentage of salary. How are minimum essential coverage costs determined for determining affordability and reporting on Form 1095? A If you are an ALE required to report on all full-time employees, it is necessary to include the employee contribution amount for minimum value coverage (if offered) on Line 15 according to the form instructions. Each full-time employee will be provided with their own form, and the employee contribution for the lowest-cost minimum value plan offered to that particular employee will be used (regardless of which plan may have been elected). Q Our controlled group has more than 50 full-time equivalent employees and we are an ALE, but none of our member entities have 50 employees. Do we have a filing requirement? What if we are self-insured? A Once your controlled group has met the threshold of 50 full-time equivalent employees, all members of the group are required to report their full-time employee coverage details, regardless of how many full-time equivalent employees a particular member entity employs. If a plan is self-insured, the members are required to report all covered employees, including those who do not work full-time. General Questions Q Do the employer shared responsibility provisions apply to government entities? A Yes. There is no exclusion from the employer shared responsibility provisions for government entities. All ALEs are subject to the employer shared responsibility provisions, including federal, state, local and Indian tribal government employers. Q What are some characteristics defining a self-insured plan versus a fully insured plan? A A self-insured (or self-funded) group health plan is one in which the employer assumes the financial risk for providing health care benefits to its employees. In practical terms, self-insured 6

7 employers pay for each out-of-pocket claim as they are incurred instead of paying a fixed premium to an insurance carrier, which is known as a fully insured plan. Typically, a self-insured employer will set up a special trust fund to earmark money (corporate and employee contributions) to pay incurred claims. Q How does an employer deal with a missing or incorrect Social Security number? A The IRS issued guidance in Publication 1586 to relieve an employer from penalties if they follow these steps: 1. The initial solicitation is made at an individual s first enrollment or, if already enrolled, the next open season. 2. The second solicitation is made a reasonable time thereafter. 3. The third solicitation is made by December 31 of the year following the initial solicitation. Q How does an employer or controlled group determine if it s required to file electronically? A Electronic filing is required if you file 250 or more returns in a year. The 250-return threshold applies to each information return type separately and is determined based on filer, which is the employer in this case. Since ALE members file at the employer level and not the ALE group level, this threshold would apply to each ALE member filing an authoritative Form Q What s new for 2017 reporting year? A For 2017 no section 4980H transition relief will be available. The percentage of income limit increased from 9.66 percent to 9.69 percent. Additional Questions & References Q When considering the affordability of minimum coverage, does the 9.69 percent of employee income limit apply to the cost of both employee and dependent premium costs? Are there parameters governing how much coverage to dependents can cost? A Affordability for both employee-only coverage and dependent coverage is based on 9.69 percent of employee-only coverage. In other words, if the employee contribution for employee-only (single) coverage does not exceed 9.69 percent of household income, the coverage is considered affordable. Q Is there a simple reference available for the IRS codes on Form 1095-C, Part II? A Yes. See the lists on the next page. 7

8 Form 1095-C, Part II, Line 14: Offer of Coverage Codes 1A. Qualifying Offer: Minimum essential coverage providing minimum value offered to full-time employees with employee contribution for self-only coverage less than or equal to 9.69 percent of the mainland single federal poverty line and at least minimum essential coverage offered to spouse and dependent(s) 1B: Minimum essential coverage providing minimum value offered to employee only 1C: Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) (not spouse) 1D: Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to spouse (not dependents); don t use code 1D if the coverage was offered conditionally, instead use 1K 1E: Minimum essential coverage providing minimum value offered to employee and at least minimum essential coverage offered to dependent(s) and spouse; don t use code 1D if the coverage was offered conditionally, instead use 1K 1F: Minimum essential coverage not providing minimum value offered to employee, or employee and spouse or dependent(s) or employee, spouse and dependents 1G: Offer of coverage to employee who was not a full-time employee for any month of the calendar year and who enrolled in self-insured coverage for one or more months of the calendar year 1H: No offer of coverage (employee is not offered any health coverage or is offered coverage that is not minimum essential coverage, which may include one or more months in which the individual was not an employee) 1I: Reserved 1J: Minimum essential coverage providing minimum value to employee and at least minimum essential coverage conditionally offered to spouse, minimum essential coverage not offered to dependent(s) 1K: Minimum essential coverage providing minimum value offered to employee, at least minimum essential coverage offered to dependent(s) and at least minimum essential coverage conditionally offered to spouse 8

9 Form 1095-C, Part II, Line 16: Section 4890H Safe Harbor Codes 2A: Enter this code if the employee was not employed on any day of the month. Code 2A shall not be used for a month if the individual is an employee on any day of the month or for the month during which an employee terminates employment with the employer. 2B: Enter this code if any of the following apply: 1. The employee is not a full-time employee for the month and did not enroll in minimum essential coverage, if offered for the month 2. The employee is a full-time employee for the month and his or her offer of coverage (or coverage if the employee was enrolled) ended before the last day of the month solely because the employee terminated employment during the month, i.e., the offer of coverage or coverage would have continued if the employee had not terminated employment during the month 2C: Enter this code for any month in which the employee enrolled in health coverage offered by the employer for each day of the month, regardless of whether any other code in Code Series 2 might also apply. Do not enter 2C on Line 16 if Code 1G is entered on Line 14. If 1G is entered on Line 14, Line 16 should be left blank. Do not enter Code 2C in Line 16 for any month in which a terminated employee is enrolled in COBRA continuation coverage; in these situations, enter Code 2A. 2D: Enter this code for any month during which an employee is in a limited nonassessment period, including but not limited to an initial measurement period. 2E: Enter this code in connection with Line 14, Code 1H for any month for which the Multiemployer Interim Guidance applies for the employee. Under this guidance, an employer is treated as offering coverage to an employee if the employer is required by a collective bargaining agreement or related participation agreement to make contributions for that employee to a multiemployer plan that offers (to individuals who satisfy the plan s eligibility conditions) health coverage that is affordable and provides minimum value, so long as the employer also offers health coverage to those individuals dependents. 2F: Enter this code if the Form W-2 affordability safe harbor is used for this employee for the year. If this safe harbor is used for an employee, it must be used for all months of the calendar year for which the employee is offered health coverage. This code will apply if the employee s required contribution for the calendar year for the employer s lowest-cost self-only coverage that provides minimum value during the entire calendar year does not exceed 9.69 percent of that employee s wages reported in Box 1 of Form W-2. In addition, to qualify for this safe harbor, the employee s required contribution must remain a consistent amount or percentage of Form W-2 wages during the calendar year. For an employee not offered coverage for an entire calendar year, this safe harbor is applied by adjusting the Form W-2 wages to reflect the period for which coverage was offered. 2G: Enter this code if the employer is using the federal poverty line safe harbor to determine affordability for this employee for any month(s). This code will apply if Code 1A is entered on Line 14 or if Code 1B, 1C, 1D or 1E is entered on Line 14 and the amount on Line 15 is less than or equal to $97.38 per month. 2H: Enter this code if the rate of pay safe harbor is used for this employee for any month(s). This code will apply for hourly employees if the employee s required contribution for the calendar month for the lowest-cost self-only coverage that provides minimum value does not exceed 9.69 percent of an amount equal to 130 hours times the lower of the employee s hourly rate of pay as of the first day of the coverage period or the employee s lowest hourly rate of pay during the calendar month. This code will apply for nonhourly employees if the employee s required contribution for the calendar month for the lowest-cost self-only coverage that provides minimum value does not exceed 9.69 percent of the employee s monthly salary, as of the first day of the coverage period (instead of 130 multiplied by the hourly rate of pay). If the monthly salary is reduced including due to a reduction in work hours the safe harbor is not available. 2I: Reserved 9