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If your company meets certain criteria, you may be required to offer health insurance. This important information will let you know how to determine if you fall into this category. — Getty Images/ vgajic

The employer shared responsibility provisions (ESRP) of the Patient Protection and Affordable Care Act, also known as the employer mandate, only apply to applicable large employers (ALEs).

Although ALEs are companies with 50 more full-time workers, this designation includes the sum of your part-time employee hours. Therefore, your small business may be an ALE under the ACA.

In addition, the law covers affordability, compliance reporting and family coverage. Here’s what you need to know about the ACA and your obligations as an employer.

The Affordable Care Act: Defining applicable large employers

Applicable large employers are organizations that employ an average of 50 or more full-time equivalent (FTE) workers. An FTE is a person who works, on average, at least 30 hours per week, or a minimum of 130 hours per month.

This figure is based on the previous calendar year, so look at last year to determine your health insurance requirements for the current year. Responsibilities may vary from year to year.

Use the ESRP Estimator online, or follow the steps below to determine your workforce size manually:

  • Find the average number of full-time employees: Write down the total full-timers employed each month and divide by 12 to get your yearly average.
  • Calculate the average hours worked by part-time staff: Add all hours worked by non-full-time employees for each month (up to 120 hours of service per worker) and divide by 12 to get your annual average.
  • Determine the full-time equivalent of part-time hours: Take the average service hours in a month for part-time workers and divide by 120.

There are exceptions for seasonal workers and employees with medical care through the military. If your part-time seasonal staff works 120 days or less per year and your workforce exceeds 50 FTEs for 120 days or fewer per year, you’re not an ALE.

Likewise, suppose you employ people with health insurance coverage under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, such as those with Tricare or Veterans’ coverage. In that case, you may not need to count them as FTEs for ALE calculations.

Understanding the rules for ACA affordability

In general, affordability means the employee contribution for the least expensive health insurance plan is 9.83% for 2021 (adjusted annually) or less of their total household income.

Since many employers don’t know their staff’s household income, you can use the following information, known as affordability safe harbors:

  • Form W-2 wages.
  • Rate of pay.
  • Federal poverty line.

You can use one safe harbor calculation for all employees or apply different methods to various worker categories, such as salary versus non-salary staff. Additionally, the law considers other employer arrangements, including wellness program incentives and health reimbursement arrangements (HRAs).

Learn more by reviewing questions seven through 12 in Notice 2015-87 and the IRS publication about minimum value and affordability.

There are exceptions for seasonal workers and employees with medical care through the military. If your part-time seasonal staff works 120 days or less per year and your workforce exceeds 50 FTEs for 120 days or fewer per year, you’re not an ALE.

Guidelines for dependant coverage

For the employer mandate, you must offer health insurance options to employees and their dependents. The definition of a dependant is a child, including legally adopted children or those placed for adoption, who are under 26 years old.

You aren’t required to offer health insurance to spouses, foster children, stepchildren or non-U.S. citizen children living outside of the United States or a contiguous country. Check out the definition of dependent in the final regulations under section XI.

Reporting requirements for ESRP

ALEs should ensure compliance with the employer shared responsibility provisions of the ACA by following the Internal Revenue Service (IRS) rules for reporting.

All applicable large employers must complete:

  • Form 1095-C, Employer-Provided Health Insurance Offer and Coverage.
  • Form 1094-C, Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns.

In addition, they must supply employees with a copy of Form 1095-C filed with the IRS or an acceptable alternative.

Is your small business required to offer health insurance?

If your company employs fewer than 50 full-time and full-time equivalent workers per year, then you may not be required to offer health insurance. Find the latest news and resources at the Applicable Large Employer Information Center or explore the IRS information page with questions and answers about the employer mandate. Plus, you may want to check out how to afford employee benefits for tips.

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Published August 31, 2021