Health Care Reform: Frequently Asked Questions

Health care reform update: the employer shared responsibility provision has been delayed until 2015. This means you have more time to determine how to comply.

The implications of the Affordable Care Act—especially the employer shared responsibility mandate—have many employers scratching their heads. This long and complex legislation is confusing to many, and still in a state of flux.

Paycor has been receiving many questions from current and prospective clients, so we have gathered some of the most frequently asked questions here:

1. How do I determine if I have to comply?

Employers must comply with the employer shared responsibility provision if they have 50 or more full-time equivalent employees (FTEs). What can be confusing about this calculation is that it includes full-time and part-time labor.

The formula for determining full time equivalent employees is:

Part-time employee equivalents (total monthly part-time hours/120) plus
Full-time employees (30 hours/week or more) minus
Owners (sole proprietors, partners in a partnership, members of LLCs taxed as a partnership, and shareholders who own two percent or more in an S Corporation)
*= Full time equivalent employees*

Take this simple example: ABC Company has five full-time employees on their staff, and 100 part-time employees. Each of the full-time employees works 30 hours per week, and each of the part-time employees works 15 hours per week. Five full-time employees at 30 hours plus 100 part-time employees at 15 hours is equivalent to 55 employees working 30 hours per week. Thus, ABC Company is over the 50-FTE threshold and must offer coverage to their five full-time employees.

Paycor’s time and attendance applications will perform these calculations for you, saving you from this complicated task and allowing you to focus on your compliance strategy.

2. How can I measure the affordability of my health plans without knowing my employees’ total household income?

The affordability of an employer’s health plans is a major component of health care reform. An affordable plan is one whose employee contribution for single-only coverage does not exceed 9.5% of an employee’s household income. However, since most employers do not know their employees’ total household income, IRS guidance states that they may use the employee’s annualized or W-2 wages instead.

Paycor offers a standard report in Custom Web Reporting that helps you determine the affordability of your plans based on each employee's annualized wages.

3. How often do I have to review who is eligible for coverage?

This question relates to measurement (“lookback”) periods and stability periods. A measurement period is the period of time over which an employee’s eligibility for health coverage is measured. The stability period is the period of time over which an employee is offered coverage, which cannot be less than the measurement period.

For example, an employer may choose a measurement period of 12 months (December 1, 2013 to November 30, 2014) and a stability period of 12 months (beginning on January 1, 2015), leaving the requisite 30-day administrative period to review and make decisions. During that time, the employer looks back over the previous 12 months to determine which employees qualify for coverage—in other words, which employees averaged 30 hours or more. The employer then offers them coverage for the stability period in 2014. In theory, the employer will only have to evaluate eligibility once a year, though they can do it more frequently.

For a new hire, their measurement period starts when they begin working and can stretch a full 12 months, after which the employer must evaluate her hours worked during the measurement period and decide whether she gets offered coverage for the next stability period.

It’s important to note that, once the stability period starts, employers cannot deny eligible employees health benefits should their hours drop below 30 hours a week. Employers have to wait until the end of the current stability period to re-evaluate this.

Read more about measurement and stability periods here.

4. Which employees are included? What about leased employees or independent contractors?

Workers who must be included in these considerations are those who qualify as an employee under the common-law test. The common-law test helps to determine the degree of control and independence of the employee based on three categories:

# Behavioral: Does the company control or have the right to control what the worker does and how the worker does his or her job?
# Financial: Are the business aspects of the worker’s job controlled by the payer? (these include things like how the worker is paid, whether expenses are reimbursed, who provides tools/supplies, etc.)
# Type of relationship: Are there written contracts or employee type benefits (i.e. pension plan, insurance, vacation pay, etc.)? Will the relationship continue and is the work performed a key aspect of the business?

Businesses must look at the entire relationship, consider the degree of control and document each of the factors used in coming up with the determination. Any worker who meets this common-law test must be considered in health care reform provisions.

As more information is released regarding the specifics of health care reform, the implications for employers will become clearer. However, it is safe to assume that businesses need to be tracking employee data now to ensure they are ready to comply. Paycor’s Health Care Suite includes the tools employers need to track and report on employee hours, determine health plan affordability and stay up-to-date on this important legislation. Visit our health care reform resources page for more information, or get in touch with us to learn more.

Sources: Internal Revenue Service, HR Support Center, SHRM

This content is for informational purposes only and should not be considered legal advice.