Transcript Healthcare Reform

Employer Shared Responsibility
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Overview of 4980H
Step #1 – Determine if you are an ALE
Step #2 – Identify Full-time Employees
Step #3 – Determine if excise tax will be owed
Step #4 – Determine whether to Pay or Play
Wrap up & Questions
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Effective January 1, 2015 (January 1, 2016 for small applicable large employers
with between 50 and 99 FTEs) for Applicable Large Employers (ALE)
Penalties are assessed for each MONTH that the following occur:
◦ Minimum essential coverage that is affordable and provides minimum value is
not offered to 100% of the employer’s full-time employees (and their children);
AND
◦ A full-time employee receives a premium subsidy in the Exchange or
◦ Each Full-Time Employee who would be subsidy eligible enrolls in the coverage
The penalty you pay depends on whether you satisfy the substantially-all test or
not:
◦ 4980H(a): Failure to offer MEC to at least 95% of your full-time employees
 1/12 of 2000 x Total number of full-time employees (reduced by allocable
share of 30)
◦ 4980H(b): MEC was offered to 95% or more of full-time employees but MEC
that is affordable and provides minimum value wasn’t offered to all full-time
employees (and their children)
 1/12 of 3000 x Total number of full-time employees who received a subsidy
in the Exchange
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Who is an Applicable Large Employer (ALE)
subject to the penalty?
Who are full-time employees?
What is minimum essential coverage offered
through an eligible employer sponsored plan?
When is coverage affordable ?
When does coverage provide minimum value?
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Full-time employee
◦ Common law employee of a controlled group member who is credited, on
average, with 30 or more of hours of service during a week in a month
◦ 130 hours of service in a month is considered full-time
◦ Count actual hours of service—safe harbor for determining FT for
purposes of the tax not applicable to ALE status
◦ Do not count hours for services performed outside the United States
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Full-time equivalent
◦ Divide total hours of service for employees who are NOT full-time
employees (not to exceed 120 hours of service) by 120
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Seasonal Worker
◦ If you exceed 50 for no more than 4 months/120 days solely because of
seasonal “workers”, then not an ALE
◦ Who is seasonal “worker”?
 An employee who performs work on a “seasonal basis”
 Based on labor regulations
 Not necessarily the same as “Seasonal Employee”
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NO!!!!! Stop, you are not subject to 4980H!!!!!
◦ But other aspects of ACA still apply (health coverage
mandates, etc)
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YES!!!! Then you must comply with Section
4980H
◦ This doesn’t mean you have to provide coverage; it
simply means you have to pay the assessable penalties
due under 4980H
◦ The following rules help you determine the assessable
penalties
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4980H(c)(4): A full-time employee is, with respect to a month, an
employee who is employed, on average, 30 or more hours of service per
week during a month
2 key elements:
◦ COMMON LAW EMPLOYEE of employer
◦ with the requisite HOURS OF SERVICE
 Monthly measurement
 Each month
 Look back measurement period
 New Employees
 Non-Variable-Monthly
 Variable/PT/Seasonal: Measurement period
 Caution: Initial Measurement Period is a limited nonassessment period
 Ongoing Employees
 Measurement Period
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3 key questions:
◦ Who is a “common law employee”?
◦ What is an “hour of service”?
◦ How do you apply the measurement methods to identify
employees who qualify as a full-time employee for a
month?
Who is a common law employee?
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20 factor IRS test
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Essence of Test: Do you have the right to control the manner in
which the services are performed?
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Trouble areas:
◦ Individuals obtained from staffing agency
 Rev. Rul. 70-630
◦ Temporary employees (individuals that YOU hire for short
periods of time but who do not qualify as seasonal)
◦ Section 530 Employees
◦ Statutory Employees
◦ “Leased Employees” as defined in Code Section 414(n)
◦ Individuals with H2A/2B Visas-Maybe
What is an Hour of Service?
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HOURS OF SERVICE are defined as
◦ Each hour for which an employee is paid or is entitled to payment for
performance of services AND
◦ Each hour for which an employee is paid or is entitled to payment on account of
a period for which no services are performed due to the following (i.e. Paid
Leave):
 Vacation
 Holiday
 Illness/disability
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Issues with disability benefits paid for solely by the employee!!!
 Layoff,
 Jury duty
 Military duty
 Leave
◦ Paid leave defined according to 29 C.F.R. 2530.200b-1(a)
 Is there a limit on the hours of service allocable to a paid leave?
 What about employees on a workers compensation leave?
What is an “hour of service”
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Hourly Employees—based on records of actual hours of service
Non-Hourly
◦ Actual hours
◦ Days equivalency: A day credited with one hour of service is
credited with 8 hours of service
◦ Weeks equivalency: A week with one hour of service is credited
with 40 hours of service
 Cannot use the equivalency method if it operates to
substantially understate the hours of service (e.g. nurse that
works 3, 12 hour shifts per week)
 May use different methods for different classifications of
non-hourly
 May change method each calendar year
What is an Hour of Service?
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Hours of service performed for one ALE member treated as
performed by any other ALE member for whom the employee
provides services during the year
◦ If hours of service with two or more members during a
month, treated as employee of member with most hours of
service
◦ If same number for each member, then members may
choose whose employee he/she is.
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Issues arise when different subsidiaries use different
measurement periods.
How do you identify employees who qualify as
“full-time employees” in a month?
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2 methods:
◦ Monthly measurement period approach
◦ Look back measurement period approach
Each ALE member may use a different approach
Each ALE member may apply a different method to each distinguishable
class of employees
◦ Special rules apply when employee switch between positions that use
different methods
Key Concept: If an employee qualifies as a full-time employee for a
month, qualifying coverage must be offered for that month or the ALE
member could be subject to an excise tax for that month unless . . .
◦ The employee is a limited non-assessment period
How do you identify employees who qualify as
“full-time employees” in a month?
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What are the distinguishable classes of employees?
Hourly
Salaried
Union (generally)
Employees subject to different collective bargaining
agreements
◦ Employees working in different locations
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Variable and non-variable are NOT distinguishable
classes of employees!!!!!!!
Monthly Measurement Period Approach
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If employee has requisite Hours of Service in
month, employee qualifies as a full-time employee.
If employee qualifies as a full-time employee for
that month and is not offered qualifying coverage
for that month, then ALE member could be subject
to an excise tax with respect to that full-time
employee for that month if employee receives
subsidy in the Exchange.
Relief is provided for months that “continuous”
employee is in limited non-assessment period
Monthly Measurement Period
Approach
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What are the requisite hours of service?
◦ Average of 30 hours of service per week
during the month
◦ 130 hours of service in the month
◦ Weekly rule:
 Months with 4 weeks--120 Hours of Service
 Months with 5 weeks--150 hours of service
◦ Do you round up?
Monthly Measurement Period Approach
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What is a limited non-assessment period under monthly measurement period
approach?
◦ First month of partial employment
◦ First 3 full calendar months beginning with first full month that that
employee first becomes full-time (“3 month limited non-assessment
period) provided that:
 Employee is “otherwise eligible” during those 3 months but for a waiting
period AND
 Coverage is offered by the first day of 4th full calendar month following
that first full month that the employee was first full-time
 If coverage through eligible employer sponsored plan is offered but it
does not provide minimum value, then employee is disregarded for
purposes of substantially test BUT could trigger Tackhammer Tax
 If coverage also provides minimum value, then employer is treated as
offering affordable, minimum value coverage during the 3 month
limited non-assessment period
 Only applicable 1 time for a continuous employee (i.e. employee who
has not experienced a break in service)
Look Back Measurement Period Approach
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3 components to each part:
◦ Measurement Period
 New Employees-Initial Measurement Period
 Ongoing-Standard Measurement Period
◦ Administrative Period
◦ Stability Period
Look Back Measurement Period Approach
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New Employee:
◦ Employee who has not been employed as a common law employee
for one standard measurement period (the measurement period
for ongoing employees)
◦ Employee who is rehired after 13 weeks or more with no hours of
service
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Types of New Employees
◦ Non-Variable
◦ Other
 New Variable
 Seasonal Employees
 Part-time
Look Back Measurement Period
Approach – New Employees
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What is a non-variable employee?
◦ Facts and circumstances test
◦ On the start date, you can make a determination that they are
reasonably expected to have the requisite hours each month
while employed by you.
 Expected length of service generally NOT relevant
 Exception for seasonal employee
Who is a variable employee?
◦ Facts and circumstances
◦ On start date, you cannot make a determination that they will
be reasonably expected to have the requisite hours of service
because their hours will fluctuate or are uncertain
Look Back Measurement Period Approach
– New Employees
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Who is a seasonal employee?
◦ Employee hired into a position the typical duration of which is
6 months or less and
◦ The start date is the same time each year
◦ GET TO TREAT AS VARIABLE EVEN THOUGH MIGHT NOT BE
NON-VARIABLE!!!!!
 Contrast with “Temporary”—position does not necessary
start same time each year
Who is a part-time employee?
◦ On the start date, you can make a determination that they are
not expected to have the requisite hours of service
◦ Why does it matter?
Look Back Measurement Period Approach –
New Employees
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Initial Measurement Period (“IMP”)
◦ 3-12 month period
◦ Begins on any date between start date (date first
credited with an hour of service) and first day of the first
calendar month following employee’s start date
 If start of IMP delayed to first day of month
following employment delay counted towards the
administrative period
Recommendation: 11 or 12 month initial measurement
period
Look Back Measurement Period Approach
– New Employee
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Change in Position to Non-variable during IMP:
 Applies to changes in positions that if originally
hired into the new position, the employee would
have reasonably been expected to be employed on
average 30 hours of service or more per week
 3 month limited non-assessment period rule applies
following the month in which the status change
occurs, with one twist
 If stability period would begin earlier, and the
employee averaged requisite hours over
measurement period, then must be offered
qualifying coverage by first day of stability period
Look Back Measurement Period Approach –
New Employee
 Administrative period
◦ No more than 90 CALENDAR days
◦ Any period preceding the start date of the IMP is
counted towards 90 days
◦ Coverage must be offered no later than end of the
1st month beginning on or after the anniversary of
the employee’s start date
Look Back Measurement Period Approach – New Employee
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Stability Period following IMP
◦ Employees who average requisite hours of service over IMP qualify as full-time
employee during each month of the stability period that they are employed;
employees who don’t average requisite hours of service qualify as other than a fulltime employee during each month of the stability period
 Hours of service during each month of the stability period NOT relevant
◦ Employees who average requisite hours of service over the IMP
 No shorter in duration than the IMP (but at least 6 months)
 IMP is a limited non-assessment period:
 If offered minimum value coverage by start of stability period, no excise tax
with respect to the employee for months actually full-time during IMP
 If only offered MEC that does not provide minimum value, then disregarded for
purposes of substantially all test only BUT could trigger a Tackhammer Tax
 Reporting on 6056 for employees who qualify as full-time in one or more
months during IMP
◦ Employees determined NOT to be full-time during IMP
 Stability period not more than 1 month longer than the IMP
Look Back Measurement Period Approach –
Ongoing Employee
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Standard Measurement Period (SMP)
◦ 3-12 months
◦ Payroll period rule applies
◦ ALL ONGOING EMPLOYEES ARE IN SMP
 Biggest impact on full-time employees who experience
the following during a stability period:
 Unpaid leave of absence
 Terminate/rehire to part-time position (unless the
period between is 13 weeks or longer)
 Unlike IMP, SMP is NOT a limited non-assessment period
Administrative Period-no more than 90 calendar days
Look Back Measurement Period Approach
– Ongoing Employee
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Stability Period following SMP
◦ If employee averages requisite hours of service over SMP
 Stability must be at least 6 months but no shorter in
duration than the SMP
◦ If employee determined NOT to be full-time
 Stability period same duration as SMP
◦ Recommend 12 months SMP
◦ Transition Rule for 2015/2016 (as applicable):
 May use a standard measurement period of 6 months
or more and a stability period of 12 months for both
full-time and non-full-time
Breaks in Service
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Generally, If an employee has a period with no hours of service (other than a
special unpaid leave) that is at least 13 full weeks (week = 7 consecutive calendar
days), he has a break in service. If he/she resumes service after the break in
service, he/she is treated as a “new employee”
If the employee has a period with no hours of service that is less than 13 weeks
and then resumes service, he/she is treated as a “continuous employee”
Impact of Break in Service Rules:
◦ Look Back Measurement Period:
 If continuous, employee resumes measurement period
 If resumes during a stability period and was full-time, then must be offered
coverage by first day of month following start date IF employee was
previously offered and accepted coverage. If coverage was offered and
declined, no need to offer again during that stability period.
◦ Monthly Measurement Period
 If continuous, then no available limited non-assessment period upon
resumption of services if already used
Special Leaves of Absence/Employment Break
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Special unpaid leaves of absence include leaves subject to
FMLA, USERRA and jury duty leaves
When calculating average hours worked for a measurement
period that includes a special leave of absence/employment
break, employers have 2 options:
◦ Option 1: disregard the weeks of unpaid special leave and
average the remaining weeks, or
◦ Option 2: credit employees with hours of service for special
unpaid leave at the rate equal to the average weekly rate at which
the employee was credited with hours of service during the weeks
in the measurement period that are not special unpaid leave
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No excise taxes for any month that:
◦ An ALE Member offers to 100% of its employees
who qualify as a full-time employee to whom
qualifying coverage must be offered coverage that
is affordable and provides minimum value
◦ No full-time employees received a Premium Subsidy
in the exchange for that month
 Coverage under THP was not affordable but
they were enrolled anyway
 Did not qualify based on household income
 Did not enroll in the Exchange
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4980H(a) - No Offer Penalty: If employer does
not offer minimum essential coverage:
◦ $2,000 (annual, but calculated on monthly basis) tax per
full-time employee, if at least one full-time employee
obtains federally-subsidized Exchange coverage
◦ Calculated after first 30 employees; 5% or 5 people
whichever is greater (special rule for 2015)
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4980H(b) - Unaffordable Coverage Penalty: If
employer does offer minimum essential coverage
but coverage is not affordable or does not offer
minimum value:
◦ Tax is lesser of $3,000 per subsidized full-time
employee, or $2,000 per all full-time employees (annual,
but calculated on monthly basis)
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No 4980H(a) Penalty if MEC coverage is offered to substantially all of
the ALE member’s full-time employees
Offer
◦ Must extend to children (natural and adopted/placed for
adoption) under age 26 BUT NOT SPOUSES
◦ Effective opportunity to enroll (or decline to enroll) no less than 1
time per plan year
 125 election rules not impacted
 Special enrollment rules not impacted
◦ Partial Calendar Month Rule: Generally must offer coverage for
whole month
 Special rule for mid-month terminations
No 4980H(b) Penalty if MEC coverage is offered to
substantially all of the ALE member’s full-time
employees that:
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Meets Minimum Value
And
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Is Affordable
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Minimum value (MV) is satisfied if:
◦ The plan must pay 60% of the “allowed costs”
◦ What are “allowed costs”?
 Based on EHB
3 ways to determine if plan provides minimum value—
◦ Minimum value calculator
◦ Array of design-based safe harbors provided by the IRS, or
◦ Appropriate certification by an actuary that the plan
provides minimum value
HRA (if limited to expenses covered by plan) and HSA
contributions may be taken into account in determining MV
http://www.cms.gov/cciio/resources/regulati
ons-and-guidance/index.html
Assessment of Penalties – 4980H(b)
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Affordability Rules
◦ Based on self-only premium for lowest cost option that provides minimum
value
◦ Safe harbor for determining affordability
 W-2 wages
 Wages does NOT include pre-tax salary reductions
 Adjustments for partial year offer of coverage
 Premium must remain a constant amount or percentage of W-2
 Rate of Pay Safe Harbor (hourly and monthly rate determined generally prior
to start of coverage period)
 Hourly rate of pay X 130 (for hourly employees)
 Monthly rate of pay (for salaried employees)
 This appears to be based on GROSS pay
 Can apply if hourly rate or salary changes during coverage
 Federal Poverty Safe Harbor
 Federal poverty limit for single individual (based on most recent published
report at start of plan year or anytime in last 6 months)/ 12
Affordability
Doing the math…
W-2:
Employee’s W-2 wages are reported at $28,500. Monthly
contributions to the plan are $75/month or $900 annually. 9.5%
of wages = $2707.50. Since $900 is less that $2707.50 then
plan is affordable
Rate of Pay:
Employee paid at a rate of $7.25/hour. Employer can assume that
employee works 130/month so employee makes
$942.50/month. Employee contributions are $75/month. 9.5%
of wages = $89.53/month therefore plan is affordable
Federal Poverty Line:
Employee contribution is $75/month. Federal Poverty Line for 2014
is $11,670. 9.5% of $11,670 = $1,108.65 /12 = 92.39/month
therefore plan is affordable
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Are there any classes of employees to whom
coverage is not offered in which one or more
employees would qualify as a Full-time employee
in any given month
What changes to existing coverage are required
to avoid the 4980H(a) penalty?
What changes to existing coverage are required
to avoid the 4980H(b) penalty?
Is it better to play instead of pay? Should you
make only changes to avoid the 4980H(a)
penalty? Changes only to avoid the 4980H(b)
penalty?