Get Organized, Do Your Homework
Big health care changes are headed your way soon – which means employers need to get familiar with the fine print of the 2010 health care law now.The biggest changes hit businesses in 2014, when the law’s employer mandate requires employers of 50 or more full-time-equivalent employees to either offer qualifying health plans to full-time employees and their dependents or face penalties for failing to offer a plan or failing to offer a plan that meets certain affordability and value standards.
Some changes are already underway. A mandate due to take effect in March requiring employers to give employees notice about new government “Health Insurance Marketplaces” that are supposed to begin signing people up for 2014 health coverage starting this October has just been postponed until later in 2013.
The law is complex. Each regulatory proposal to implement the law adds complexity – and, in some cases, greater flexibility for employers. Although some regulations are missing and most are not finalized, employers can use the proposed regulations in place now to plan for 2014.
Some large employers may find that the law is more workable than they anticipated. Others may find the law imposes costs and administrative burdens that could make it easier for a business to opt for paying penalties instead of offering health coverage.
Either way, getting ready takes a lot of advance planning – including time with tax advisors, insurance brokers, payroll providers and key staff -- to understand the impact of the law and think through your options for implementing it in your business.
The National Restaurant Association (NRA) has been working since the law was enacted to highlight the restaurant industry’s compliance challenges, and will keep pressing regulatory agencies for answers and maximum flexibility as the rules are written. The NRA will also continue to urge Congress and the White House to address the provisions that have the greatest impact on employers’ ability to create jobs.
New regulations released
The Internal Revenue Service issued a massive proposed regulation in late 2012 to explain what employers need to do to comply with the employer mandate starting in 2014. The proposal covers critical parts of the law for employers:
- Calculating whether you meet the 50-full-time-equivalent threshold: Employers will be required to look at employment levels for the previous calendar year to evaluate whether they’re covered by the employer mandate in the following calendar year. The calculation involves counting full-time employees per month; coming up with a full-time-equivalent number for the hours worked by part-time employees; and getting a 12-month average. The IRS regulation explains the calculation in detail. To determine who’s covered by the employer mandate in 2014, the agency will let employers look at six consecutive months of employment in 2013, rather than a full year.
- Definition of full-time: To avoid penalties, starting in 2014 large employers will be required to offer affordable health plans to full-time employees and their dependents. The IRS defines “full time” as a person who averages 30 “hours of service” per week in a given month, or at least 130 hours of service in a calendar month. That includes both hours worked and hours for which payment is due, such as vacation, sick leave, jury duty and other time. The IRS will let employers use lookback periods of three to 12 months to measure whether existing employees whose hours vary or are seasonal employees worked full-time hours; if they are, employers are then obligated to treat them as full-time for purposes of offering health benefits for a subsequent corresponding “stability” period of not less than six months. The IRS offers similar measurement periods to help employers gauge the full-time status of new variable-hour or seasonal employees.
- Penalties: Large employers covered by the law’s employer mandate face two possible types of penalties starting in 2014. If an employer fails to offer coverage and any full-time employee uses a tax credit to buy coverage on an exchange, the employer will be liable for a “4980H(a)” penalty of $2,000 for each full-time employee, minus the first 30 full-time employees. If an employer offers coverage but it’s not affordable, the employer owes a “4980H(b)” penalty of $3,000 for each full-time employee certified by an exchange as eligible for a premium tax credit to help them purchase insurance through the exchange.
- Affordability of premiums: Large employers can face penalties if full-time employees use a tax credit to buy health insurance on an exchange because workplace coverage is not affordable. The employer’s plan is considered unaffordable if the employee is required to pay more than 9.5 percent of his or her household income for individual coverage – or, alternatively, 9.5 percent of W-2 wages (Box 1 of the W-2, including tip income), or several other options. The IRS regulations explain the affordability test in detail and provide three “safe harbor” methods to test affordability.
Visit Restaurant.org/Healthcare for ongoing information as federal agencies, Congress and states take further steps on health care.