Can You Afford the Penalties if You do Not Comply With the Affordable Care Act?

Currently, small business employers, including those in the retail, hotel, restaurants and other hospitality industries, can take advantage of certain tax benefits for employee health care costs to offset those costs.  But starting in 2014, the Affordable Care Act (ACA) requires small businesses that employ more than 50 people provide health insurance to their workers or incur a penalty payment. The hospitality industry, and in particular restaurants and retail industries, may be most affected by the law. These industries are least likely to provide health insurance to their employees, because of the nature of their workforce. Restaurant, hotel and hospitality work forces are often comprised of temporary, part-time employees who may be seasonally employed and characterized by high employee turnover.

How do you calculate the number of employees for the ACA?

The ACA provides ways to determine and calculate the total number of employees depending on whether each employee is full-time, part-time, seasonal or temp agency employed.

  • Full-time employees are counted as one employee, based on a 30-hour or more work week.
  • Part-time employees are prorated with a calculation that takes the number of the hours worked by part-time employees in a month divides it by 120.
  • Seasonal employees are counted if they work more than 120 days in a year and then only counted for the months in which the worker is full time.
  • Temporary agency workers are generally counted as working for the temp agency, except for those who are independent contractors.

So you could cross the threshold of 51 employees with say 30 full-time employees, 10 seasonal workers who worked that month and 11 full-time equivalents, but you still might not be considered as having more than 50 employees. An employer will not be considered as having more than 50 employees if its number of full-time employees exceeded 50 employees for 120 days or less. For employers not in existence for the complete preceding calendar year, the determination of having greater than 50 employees is based on the average number of employees an employer is reasonably expected to employ on business days in the current calendar year.

How is the penalty assessed?

Each employer of 50 or more employees could become liable for a penalty in 2014 if one or more of their full-time employees obtains a premium credit through a state Affordable Insurance Exchange (“AIE”). After an employee applies for premium credits in an AIE, the Secretary of Health and Human Services (“HHS”) will notify the AIE whether the person is eligible, because the coverage of the employer is either not “affordable” or does not provide “minimum value” (which means the coverage does not provide some minimum essential coverage). The AIE will then be required to notify and inform the employer that the employer may be liable for a penalty. The Secretary of HHS must establish a separate appeals process for the employer, providing them with the opportunity to present information for review and must grant the employer access to the data used in making the determination.

For the purpose of the penalty, a “full-time employee” includes only those individuals working 30 hours per week or more. Although part-time employees are included in the determination of whether you have more than 50 employees, part-time workers are not included in penalty calculations. An employer will not pay a penalty for any part-time worker, even if that part-time employee receives a premium credit. Although some seasonal workers are not included in the aggregate number of employees calculation, the employer could still face a penalty for each month that a full-time seasonal worker received a premium credit for AIE coverage if an employer is determined to have more than 50 employees, without counting the seasonal workers.   Beginning in 2014, individuals who are not offered employer-sponsored coverage and who are not eligible for Medicaid or certain other programs may be eligible for premium credits for their coverage through an AIE. Generally, these people will have income between 138% and 400% of the poverty line. Individuals who are offered employer-sponsored coverage can only obtain premium credits for AIE coverage if, in addition to the other criteria above, they also are not enrolled in their employer’s coverage, and their employer’s coverage meets either of the following criteria:

  • the individual’s required contribution toward the premium for self-only coverage exceeds 9.5% of their household income,
  • or the plan pays for less than 60%, on average, of covered health care expenses.

How much is the penalty?

The penalties in the ACA are annual amounts per employee, but it is calculated on a monthly basis. If you have more than 50 employees and do not offer coverage, then the monthly penalty will be equal to the number of full-time employees minus 30 multiplied by 1/12 of $2,000 for each such month. In other words you get to exclude the first 30 of your employees from the penalty. For employers over 50 employees who offer health care coverage, the penalty is based on each full-time employee who receives a premium credit and will be equal to 1/12 of $3,000 for each such month, also excluding the first 30 employees from the assessment.

What is an Affordable Insurance Exchange?

In 2014, small businesses, including restaurant, retail and hospitality operators, with generally fewer than 100 employees can shop in an Affordable Insurance Exchange (“AIE”).  An AIE will be a newly mandated marketplace where individuals and small businesses can buy affordable health benefit plans. AIEs will hopefully provide similar buying power to what large businesses have. This could include more and better choices for health care plans at lower prices than a small business could obtain on their own.