The Affordable Care Act (“ACA”) is a very large and complex law that was designed to significantly overhaul the United States healthcare system. The ACA was signed into law on March 23, 2010, and on June 28, 2012, the United States Supreme Court upheld its constitutionality. The ACA, among other things, imposes new regulation and obligations on employers with a certain number of full-time equivalent (“FTE”) employees. The sheer size and complexity of the law, combined with various deadlines that continue to change, have left many employers confused about the requirements they must follow, and when they must follow them.
This article provides an overview of the ACA as it relates to the regulations and obligations that pertain to employers. The information contained herein is not an exhaustive explanation of the ACA and corresponding regulations, but a brief summary of the main concepts and requirements for employers. This article discusses the employer shared responsibility provisions (employer mandate), calculating and determining FTE employees, the requirement to provide healthcare coverage that is affordable and that provides “minimum value,” identifying full-time employees to whom coverage must be provided, and the employer shared responsibility payment (penalty).
Employer Shared Responsibility Provisions (Employer Mandate)
The ACA requires employers with a certain number of FTE employees to provide healthcare coverage to their full-time employees and their dependents, or pay a penalty each month. Currently, businesses with fewer than 50 FTE employees are not subject to the employer mandate. Businesses with 50 FTE employees or more are considered “large employers” under the law, and are required to provide healthcare coverage. Although the requirement to provide healthcare coverage was originally scheduled to begin in 2014, this past February the Obama administration announced that it would give employers more time to comply with the law. Employers with 50-99 FTE employees now have until 2016 to provide full-time employees with insurance. Employers with 100 or more FTE employees now have until 2015 to provide at least 70% of full-time employees with insurance, with the requirement that 95% of full-time employees be provided with insurance by 2016. These requirements and deadlines have fluctuated over time, and may change again.
Full-Time Equivalent Employees
The ACA defines a full-time employee as an individual employed on average of at least 30 hours per week. An employer will be subject to the employer mandate if it employed 50 or more full-time employees, or a combination of full-time and part-time employees that equal 50 full-time employees, during the previous calendar year. As one example, if an employer has 30 full-time employees at 30 or more hours of work per week, and 40 employees at 15 hours per week on average, then the employer has the equivalent of 50 full-time employees, and is subject to the employer mandate. This calculation is to be made on an annual basis. Whether the employer mandate will apply for the next year will be based on the number of FTE employees an employer has in the current year.
Affordable Health Insurance and Minimum Value
The health insurance offered by an employer must be affordable and provide “minimum value.” If the employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, then the coverage is not considered affordable. The law recognizes that employers may not know their employees’ household incomes. Accordingly, employers can take advantage of one or more of three safe harbor provisions that are based on information that is available to the employer. If the requirements of any of the safe harbor provisions are met by the employer, the employer-provided coverage will be considered affordable, even if the coverage was considered not affordable for purposes of the employee receiving a premium tax credit. (See footnote 1.) The three safe harbor provisions are: (1) the Form W-2 safe harbor; (2) the rate of pay safe harbor; and (3) the federal poverty line safe harbor. In addition, the health insurance offered by an employer must provide “minimum value.” Simply stated, a plan provides “minimum value” if it covers at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan. (See footnote 2.)
Identification of Full-Time Employees
An employer with over 50 FTE employees is required to offer healthcare coverage to its full-time employees and their dependents. Full-time employees are identified based on each employee’s hours of service. If an employee averages at least 30 hours of service per week, then the employee will be considered full-time. 130 hours of service in a calendar month is considered the equivalent of 30 hours of service per week. An hour of service is defined as each hour for which an employee is paid, or entitled to receive pay, for performing duties for the employer. This includes each hour the employee is paid, or entitled to receive pay, for a period of time during which the employee does not perform any duties due to vacation, holiday, illness, incapacity, disability, layoff, jury duty, military duty, or leave of absence.
Employer Shared Responsibility Payment (Penalty)
The employer shared responsibility payment (penalty) is a per employee penalty for employers with over 50 FTE employees who do not provide healthcare coverage to full-time employees and their dependents that is affordable and provides minimum value. (See footnote 3.) There are two main scenarios under which an employer may be subject to a penalty:
1. First, if the employer does not offer healthcare coverage or offers coverage to fewer than the requisite percentage of its full-time employees and their dependents, and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a marketplace. Under this scenario, the penalty will equal the number of full-time employees employed for the year, excluding the first 30, multiplied by $2,000. (See footnote 4.) If an employer offers coverage for some months, but not others, then the penalty will be calculated for each month for which coverage was not offered. The amount of the penalty for the month will equal the number of full-time employees employed for the month, again excluding the first 30, multiplied by 1/12 of $2,000.
2. Second, if the employer offers health coverage to all or at least the requisite percentage of its full-time employees and their dependents, but at least one full-time employee receives a premium tax credit to help pay for coverage on a marketplace. This scenario may occur if the employer did not offer coverage to that employee or if the coverage offered to the employee was not affordable or did not provide minimum value. If an employer offers coverage to at least 95% of its full-time employees and their dependents, but has one or more full-time employees who receive a premium tax credit, the penalty will be computed separately for each month. The amount of the penalty for the month will equal the number of full-time employees who received a premium tax credit for that month multiplied by 1/12 of $3,000. The amount of the payment for any calendar month is capped to ensure that the penalty for an employer that does offer healthcare coverage will not exceed the penalty that would be owed if it did not provide coverage. The cap equals the number of full-time employees for the month, excluding the first 30, multiplied by 1/12 of $2,000.
Although the ACA is a very large and complex law, understanding the regulations imposed by the law now will help employers plan accordingly to meet the new deadlines and avoid any penalties. As the obligations and deadlines have fluctuated over time, the information contained in this article may have changed.
 A premium tax credit is available to help pay for coverage for employees who: (1) have a household income between 100% and 400% of the federal poverty line and enroll in coverage through a marketplace; (2) are not eligible for coverage through a government-sponsored program; and (3) are not eligible for coverage offered by an employer or are eligible only for employer coverage that is not affordable or that does not provide “minimum value.”
 A full description and analysis of the safe harbors and how to calculate “minimum value” is outside the scope of this article.
 Of note, while the employer contributions to employee healthcare premiums are tax deductible, the penalty is not.
 This calculation does not include FTE employees.