In 2014, the Affordable Care Act’s employer shared responsibility provisions went into effect. Informally known as “Pay or Play,” these provisions require applicable large employers (ALEs) to offer affordable health care insurance with a minimum level of coverage to their full-time employees and dependents. If ALEs fail to do so, and even one of their full-time employees receives a premium tax credit for purchasing individual health coverage in the Health Insurance Marketplace, these employers will face a hefty penalty tax.
Which employers need to comply with the Pay or Play provisions?
According to the provisions, employers with over 50 full-time employees must either provide health insurance to their full-time employees and dependents, or pay a penalty fine. However, it’s not always as simple as a 50-employee cut-off. For example, if an employer has 25 full-time employees and 50 half-time employees, the total equals 50 full-time employees, and that employer is considered an ALE. (According to the provisions, a full-time employee is someone employed on average at least 30 hours per week.) In another case, two firms that are owned by the same parent company can be combined to make that parent company into an ALE.
If you’re not sure whether your company is considered an ALE, this calculator can be a helpful tool.
Which employers will be subject to pay the penalty fine?
An ALE that does not offer health coverage, or offers coverage to less than 95% of full-time employees and their dependents, and as such, at least one full-time employee receives a premium tax credit to help pay for coverage, will be fined. In this case, the fine will be equal to the number of full-time employees employed for the year (minus up to 30) multiplied by $2,000.
Similarly, ALEs that do offer health coverage to more than 95% of their full-time employees and dependents, but at least one full-time employee receives a premium tax credit to help pay for coverage in the Marketplace will also have to pay the fine. In other words, even when employers offer health coverage to full-time employees, if it is not sufficient to meet the employees’ needs and they need to turn to the Marketplace, the employer can be penalized. (According to the provisions, coverage is sufficient if a plan covers at least 60 percent of the total allowed cost of benefits that are expected to be incurred under the health plan.)
In this case, the fine is computed separately for each month. The amount of the payment for the month equals the number of full-time employees who receive a premium tax credit for that month, multiplied by 1/12 of $3,000.
Pay and Play is Complicated
As you can see, Pay or Play is quite a complicated issue. Even if you use an online calculator, there are so many nuances of the provisions that it can be easy to miss a detail. And because the onus is on the employer to determine whether they are considered an ALE, it is of the utmost importance to make sure your calculations are correct and that you are in compliance with the law. If you are not confident that your HR team is up to the task, we suggest outsourcing this job to a consulting company, like Corporate Financial, that specializes in these laws. While it may initially seem like an extra expense, it will end up saving your company money in the long run.