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September 1, 2015

ACA Requires Calculation Work For Full Time & Seasonal Employees

Dear Jon,

We have 60 full-time employees year-round and for about six months of the year we employ 250 seasonal employees.  The seasonal employees typically work 40-60 hours a week.  We have two different seasons: March through May and September through November.  We offer a health benefit plan to our full-time employees; do we need to worry about these seasonal employees?  Could we be penalized for failing to offer coverage to seasonal employees?

Seasonal Employee Concerns in Salinas

 

Dear Seasonal,

You may, in fact, have an employer mandate problem and be subject to tax penalties in 2015 for failing to offer coverage.  Depending on the manner in which you’re identifying full-time employees you may be failing to offer coverage to employees that are considered full-time under the law.

The general rule under the Patient Protection and Affordable Care Act (“ACA”) in 2015 is that large employers with 100 or more full-time employees and equivalents are required to offer minimum essential coverage to substantially all full-time employees and dependents and the coverage must be affordable and meets minimum value.  If an employer fails to do this, they will potentially owe a tax penalty.  In 2016, employers with 50 or more full-time employees and equivalents will be required to comply.  Tax penalties are not automatic, rather they are triggered when a full-time employee goes to a health insurance exchange and qualifies for subsidized health coverage.

An employer who fails to offer coverage to substantially all full-time employees is subject to the “A Penalty” of $2,000 multiplied by all full-time employees minus the first 80 full-time employees.  The “minus the first 80 full-time employees” is thanks to some transitional relief for 2015 only.  This reverts to minus the first 30 full-time employees in 2016; the ACA’s original requirement.

An employer who fails to offer coverage that meets the law’s requirements (e.g. is unaffordable or not minimum value) is subject to the “B Penalty”—which is the lesser of the “A Penalty” or $3,000 multiplied by each full-time employee that gets a subsidy.  Thanks to transition relief, the definition of substantially all in 2015 is 70 percent of full-time employees.  In 2016 and beyond the definition of substantially all reverts back to 95 percent of full-time employees (the original text of the law).

In your case, the first step is to analyze your employer size.  An employer must determine the number of full-time employees and equivalents employed in the prior calendar year.  If an employer employed 100 or more full-time employees and equivalents in 2014, it is considered a large employer subject to the large employer mandate in 2015.  Because of a one-time transitional relief rule, employers may use a consecutive six month period of time in 2014 to determine large employer status in 2015.  This transition rule does not apply in 2016 (unless further relief is provided by regulators) and employers will use the entire prior calendar year to determine employer size, that is, the entire calendar year of 2015 for 2016 and so on for future years.

To determine employer size you simply count full-time employees and full-time equivalents working for you every single month of the year (or for 2014 only, a selected consecutive six month period), add them up and divide by 12.  If you have 100 or more you’re subject to the employer mandate in 2015.

You mentioned that you have 60 full-time employees working year-round and 250 seasonal employees who work 40-60 hours a week.  If you have seasonal workers who are working more than 120 days or four months during a calendar year; you will be required to count them for purposes of determining employer size.

In your question, you stated your seasonal employees work from eight to 10 months of the year.  You will be required to count these individuals (you may also owe them an offer of coverage if they qualify as full-time employee, see below).

You have 60 full-time employees and 250 employees you’re referring to as seasonal who work at least 40 hours a week for six months.  To calculate your large employer status you must add up all full-time employees and full-time equivalents employed during each month during prior calendar year month and divide by 12 (or for 2015 only you may use a consecutive six month period in 2014).

In your case, from your question it appears that all of your employees are full-time employees despite the fact that you’re referring to them as seasonal.  A full-time employee is one who works at least 30 hours a week or 130 hours a month.  See the accompanying Table 1.(In hard copy but not reproduceable online)

From January through February, June through August and in December you employ 60 full-time employees.  From March through May and September through November you employ 310 full-time employees.  Over the course of calendar year 2014 (and during any consecutive six month period) you employ an average of 185 full-time employees.

Now that we’ve identified you as a large employer for 2015; the next step is to identify full-time employees or those individuals to whom you are required to offer coverage or potentially pay tax penalties.  Based on the above description, you’ll likely note that it appears I’ve already discussed full-time employees, which I have but only for purposes of determining employer size.  Employers actually have additional flexibility under the ACA to identify and define full-time employees.

To identify full-time employees, employers may use two methods: the monthly measurement method or the look-back rules.  The monthly measurement method requires an employer (after a permissible waiting period) to offer substantially all full-time employees, those working 30 hours a week or 130 hours a month, the opportunity to enroll in qualifying health benefits coverage or potentially pay a tax penalty (as explained above).  The monthly measurement method is the default rule that applies unless the employer affirmatively implements and documents the use of the look-back rules.  The monthly measurement method does not differentiate between seasonal employees and full-time employees.  If an individual is working at least 30 hours a week he or she is full-time.

The look-back rules, on the other hand, allow an employer to measure certain employees over a period of time between three and 12 months to determine whether they qualify as full-time employees during the measurement period.  If they qualify during the measurement period, they will earn coverage for a subsequent time period called a stability period.  These measurable employees include variable hour, seasonal, and part-time employees.  Individuals hired as full-time employees, on the other hand, must be offered coverage after a waiting period of no longer than 90 days.

In your case, the employees you’ve described in your question appear to fall into the definition of seasonal employees: a seasonal employee is one who is hired into a position for which the customary annual employment is six months or less and for which the period of employment begins each calendar year in approximately the same part of the year, such as summer or winter.

You could have utilized the look-back rules to measure your seasonal employees to determine whether they qualify as full-time.  However, you did not and may as a consequence, face serious tax penalties.

In your case, you explained the scenario depicted in Table 2..(in hard copy but not reproduceable online)

As a large employer, you are required to offer coverage to substantially all or 70 percent of your full-time employees in 2015 (in 2016 this reverts the ACA text’s 95 percent requirement).  You’ve failed to offer coverage (so far this year) to substantially all of your full-time employees potentially subjecting yourself to the A Penalty.  The $2,000 multiplied by all full-time employees minus first 80 (reverts to minus first 30 in 2016).  If a single full-time employee obtains subsidized coverage in a given month you may be subject to penalty for that month.  For simplicity’s sake, assume at least one full-time employee received subsidized coverage in 2015; you may face a penalties for each month in which you failed to offer coverage to substantially all full-time employees.

From the table above, you’ve failed to offer coverage to substantially all of your employees in six out 12 months.  If a full-time employee is receiving subsidized coverage that month (as we assumed above) you’ll face penalties calculated each month as follows:

•    For March through May and September through November you could be penalized for every full-time employee each month because you fail to offer coverage to substantially allfull-time employees during these months. Here’s the A Penalty calculation:

o    (310 – 80) x 6/12 of $2,000 = $230,000

 

Please note that the $2,000 (and the $3,000 B Penalty) will be adjusted for inflation year over year.  The penalty amount is in addition to the costs you’ve incurred for offering coverage to your other employees and the penalty is not tax deductible.

If you are interested in learning more about the penalties and seasonal employees, download the Ag Employer’s Guide to Health Care Reform available to all WGA members.  You can find it here:  http://bitly.com/aghcrguide.  For more information about this article or if you have other questions about health care reform contact our Health Care Reform team today at [email protected] or 800-333-4WGA. Write to Dear Jon at [email protected].  For more information and resources on Health Care Reform, visit www.wgat.com/health-care-reform.