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Affordable Care Act: Size Matters

by: Smith and Howard

August 25, 2014

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Reviewing Your Workforce in a Post-Affordable Care Act World

Remember when the size of your construction company was a strategic matter? Your leadership team work to maintain a streamlined workforce and expand that workforce as business picked up.

The Affordable Care Act (ACA) requires that construction companies think differently. The size of your workforce (defined as the number of full-time and full-time equivalent (FTE) employees you maintain) could qualify you as “larger employer” and put you at risk for penalties if certain requirements aren’t met.

Getting bigger

The danger of getting bigger under the ACA is being defined as a “large employer.” Generally, these are companies with at least 50 full-time employees or a combination of full-time and part-time employees that’s equivalent to at least 50.

Making this determination entails adding up part-time employees’ monthly hours and dividing that figure by 120 to arrive at the number of FTEs. You then add that result to the total number of actual full-time employees — staff members employed on average at least 30 hours a week, or 130 hours in a calendar month.

Large employers may face a penalty in 2015 if just one full-time employee enrolls in a qualified health plan through a government-run Health Insurance Marketplace (commonly called an “exchange”) and receives a premium tax credit because the employer:

  • Doesn’t offer “minimum essential” health care coverage to full-time employees and their dependents, or
  • Doesn’t offer coverage defined as “affordable” or that provides at least “minimum value” as defined under the act.

In February, the IRS released final regulations that clarify these “play or pay” rules and offer some transitional relief.

Creating a middle tier

The final regulations temporarily create a middle tier between large employers (at risk for penalties) and small employers (not at risk for penalties): Employers with an average of fewer than 100 full-time employees or the equivalent during 2014 generally won’t be subject to the play-or-pay provision until 2016.

These employers must retain the health care coverage they offered as of Feb. 9, 2014, and maintain their workforce sizes and aggregate hours of service. So, if your construction company doesn’t fall within the “midsize” limit but comes close, you can’t reduce your workforce or employee service hours to qualify.

Helping with the transition

There are some other helpful measures within the final regs. For example, in getting ready for 2015, employers can now determine whether they had at least 100 full-time employees or the equivalent in 2014 by referring to a period of at least six consecutive months rather than a full year.

Are you a large employer with a plan year beginning on a date other than Jan. 1? If so, you can begin complying with the play-or-pay rules at the start of your plan year in 2015 instead of the beginning of the calendar year. And the requirement to offer coverage to full-time employees’ dependents won’t apply in 2015 if you’re arranging to offer such coverage in 2016.

As a contractor, you’re probably familiar with the “look back” method for calculating the tax impact of long-term contracts. Well, the final regs offer an optional look-back method of their own — for determining whether seasonal employees and employees with varying hours are full-timers. This could be key for contractors who hire additional workers during busy seasons.

Assessing a penalty

Large employers that don’t offer at least 95% of their full-time employees minimum essential health coverage may be assessed a penalty of $2,000 per full-time employee in excess of 30 full-timers. Again, this is if one or more full-time employees receive a premium tax credit. A smaller penalty may apply to large employers offering minimum essential coverage that doesn’t meet the affordability or minimum value requirements.

The final regs allow a temporary “out” for large employers in 2015: They can avoid the penalty for not offering minimum essential coverage by offering such coverage to at least 70% of their full-time employees. The 95% requirement will apply in 2016 and beyond.

Staying on stable ground

If you can’t be defined as a large or midsize employer under the ACA, you could be eligible for a tax credit for offering employees health care coverage. There are also many other details about the play-or-pay rules we couldn’t cover here. Work with your Smith & Howard tax advisors and your benefits advisors to ensure your company is on stable ground.

For more information, contact Debbie Torrance, Marvin Willis, David Lee or another member of our construction niche at 404-874-6244.

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If you have any questions and would like to connect with a team member please call 404-874-6244 or contact an advisor below.

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