By Sheryl Southwick
The Affordable Care Act (ACA) will be a challenging adjustment for construction companies. Because of the nature of the construction industry including seasonal workers and employees and determining which employees should be eligible for health care benefits can be tricky. For a construction company owner to remain compliant and avoid ACA tax penalties, it’s important to keep on top of the latest ACA developments. Here’s what is coming up next.
The Employer Shared Responsibility (“Pay or Play”) provisions of the ACA take effect for Applicable Large Employers (ALEs) starting in 2015. The ACA requires ALEs to offer health insurance coverage (that meets certain minimum standards) to its full-time employees or potentially pay a tax penalty.
First, a quick recap of the Pay or Play rules. If your company employed an average of 50 or more full-time employees, including Full Time Equivalents (FTEs), during months in the previous calendar year, your company is an ALE. Therefore it must offer medical coverage to full-time employees and their eligible children to avoid potentially paying ACA penalties. In addition, to avoid penalties:
- The medical coverage must meet the standards for minimum essential coverage (MEC) as defined by the ACA;
- The MEC must meet “minimum value” thresholds. A health plan meets the “minimum value” standard if it is designed to pay at least 60% of the total cost of medical services for a standard population; and,
- The MEC meets “affordability” requirements. Coverage is considered “affordable” if the employee’s required contribution for the lowest cost employee-only medical plan that provides “minimum value” is no more than 9.5 percent of the employee’s wages, based on one of three IRS safe harbor formulas.
Here are several things to keep in mind as we approach 2015:
- FTE Count: Companies with 50 or more FTEs generally must offer coverage to at least 70% of their full-time employees beginning with the first day of the benefits plan year in 2015. Employers with 50 to 99 FTEs may qualify for transition relief to delay the effective date until the start of the benefits plan year in 2016.
- 2016 Changes: In 2016, companies generally must offer coverage to at least 95% of their full-time employees.
- Full-Time Employees: Full-time employees are employees who are reasonably expected to work, on average, 30 or more hours per week and are generally benefits eligible under ACA rules.
- Variable Hour Employees: If the company cannot determine whether a newly hired employee is reasonably expected to work at least 30 hours of service per week at the time of hire, because the employee’s hours are variable or otherwise uncertain, the company will need to establish an initial Measurement Period to track variable hour employees’ work hours. This initial measurement period will also apply to new seasonal employees, generally hired into a position for which the customary annual employment is six months or less, and new part-time employees expected to average less than 30 hours per week.
Once the standard or initial measurement period ends, benefits eligibility will apply during a subsequent period of time known as the stability period. The stability period can be as long as the measurement period, but not less than six months. An employee’s benefits eligibility status is locked in during the entire stability period, regardless of actual hours worked.
An employer may also designate an administrative period between the measurement period and the stability period to process data, notify employees of their status and enroll eligible employees.
Once established, Measurement, Administration and Stability Periods can be difficult to change. In order to avoid tax penalties, accurately recording, tracking and reporting all employee hours is critical.
Finally, complying with ACA requirements may be more difficult for larger companies with many employees. In order to avoid ACA tax penalties, companies that currently do not offer employee benefits may start offering affordable medical plans in 2015, which will affect the bottom line. However, if managed properly, companies can avoid tax penalties, and therefore help minimize costs to the company.
Sheryl Southwick has more than 15 years of experience in retirement and benefits, helping ensure that companies are in compliance with state and federal laws and regulations. As director of compliance at TriNet, Sheryl helps small business owners navigate the complex issues of compliance.