How many Full-time Employees do you have under the Affordable Care Act?
The Affordable Care Act (ACA) defines a full-time employee as one that works at least 30 hours per week or 130 hours per month for any calendar month. The Full-Time Equivalent Value is determined by dividing the total monthly hours of all other employees by 120. Why are these terms important?
Under the ACA, beginning in 2015, employers with more than 100 full-time equivalent employees (FTEs) must provide affordable health coverage that provides a minimum level of coverage to at least 70% of their FTEs and their dependents or be subject to an Employer Shared Responsibility penalty.
In 2016, businesses with 50 or more FTEs must offer coverage to at least 95% of their employees and their dependents or be subject to the penalty. Below is an example of how to calculate FTE:
- Calculation: Divide the number of hours in each month for employees who are not full-time by 120, then add the number of full-time (average of 30 hour/week employees) employees. To get a yearly average, the FTEs for 12 calendar months are averaged.
Example: A firm determines it has 30 full-time employees (paid for 30 or more hours/week), and 35 employees who are not full-time (paid for an average of 20 hours per week). In the month of June, the employer adds up the hours of the 35 employees who are not full-time (working 20 hours per week for 4 weeks) and gets 2,800 hours. The calculation is: 2,800/120 + 30 full-time employees = 53 FTEs for the month of June.
Pitfalls of the Voluntary Reclassification Settlement Program (VRSP)
The Voluntary Reclassification Settlement Program (VRSP) is available for taxpayers who want to voluntarily change the classification of their workers from being treated as independent contractors to being classified as employees.
Worker classification has always been a complex area and the Affordable Care Act (ACA) only adds to its complexity. Under ACA, a “Large Employer” is defined as having an average of 50 or more employees during the calendar year. ACA’s Employer Mandate states a “Large Employer” is required to offer their employees (and their dependents) affordable insurance that provides minimum essential coverage or be subject to a penalty.
Despite this mandate being extended until 2016 for employers with 50-99 employees, businesses who participate in the VCSP will inevitably increase their number of employees and may become subject to the requirements of ACA!
Are you aware of the Small Business Health Insurance Credit?
This Small Business Health Insurance Credit was designed to encourage small employers to pay a portion of their employee’s health insurance costs. Small Employers which have fewer than 25 full-time employees with an average of $50,000 or less in wages AND who purchase health insurance on the SHOP AND pay at least 50% of the premiums for their employees, may qualify for the credit.
If you currently do not offer health insurance to your employees, consider whether offering affordable essential coverage through the SHOP may result in a credit for your business. Beginning in 2014, the maximum Small Business Health Insurance Credit increased from 35% to 50% of the premiums paid for their employees for up to two years.
Employer Reimbursement of Employee Healthcare Expenses
In lieu of offering health insurance, employers may choose to increase the employee’s salary to assist in the cost of purchasing their own personal health insurance. Reimbursements must be included in the employee’s wages reported on Form W-2.
For example, Company A does not wish to provide health insurance to their employees, but will instead contribute up to $600 a month to each employee’s monthly premium for their health insurance. Employee X selects a health plan that costs $585 per month. Company A will include 12 * $585 = $7,020 in W2 box 1, 3 and 5 of Employee X.
For more information, contact Padgett Business Services in Bothell, Washington at (425) 408-1695. We handle your accounting, tax (personal & business) and payroll needs – so you can focus on what makes you money. Serving Bothell, Lynnwood, Kenmore, Mill Creek and surrounding areas.