The Affordable Care Act’s shared-responsibility provisions call for specified large employers to offer health care to newly defined “full time” employees. Beginning January 1, 2015, the ACA defines applicable large employers as those that had at least 50 full time equivalent employees in the previous calendar year.
Note - there is a transition relief ruling that states that employers with 50-99 full time equivalent employees have until January 1, 2016 to comply with the ACA’s shared-responsibility provisions. However, the employers with 50-99 full time equivalent employees must still comply with the ACA’s reporting requirements.
Determining If You A Large Employer
A full time equivalent employee is an employee with an average of at least 120 service hours in a month or one unit of at least 120 service hours in a month. A full time employee can be represented by multiple part time employees, referred to as full time employee equivalents. To calculate full time employee equivalents, add all the part time employees’ monthly hours and divide the total by 120. Add the results for each month and divide by 12. This will give you the number of full time equivalent employees represented by part time employees.
As an example, if a company has 40 full time employees and 54 full time equivalent employees, it is considered a large employer and must offer full time employees minimum health care.
Qualifying a Full Time Employee
Once it is determined if a company is a “large employer” then it must be identified which employees are actually considered full time employees and offer them minimum essential health coverage under ACA.
To complicate things, just because part time employees count towards an employer’s qualification for ACA shared-responsibility, that does not mean those employees must be offered health coverage. Only full time employees who average at least 130 service hours each month must be offered minimum essential health coverage under ACA. Yes, the number above for determining if you are a large employer was 120 hours – it’s not a typo!
Employee Service Hour Requirements
There are two methods to determine whether employees met the 130 service hour minimum requirement - the monthly method and the look-back method.
Calculating the Monthly Method
For the monthly method, after the employee completes a month of work, the employer determines if the employee worked at least 130 service hours in that month. One problem with this method is that at the end of the month the employer realizes coverage was not offered when it should have been. However, the ACA does offer relief to employers for new hires but the employee has to be covered by the first day of the fourth month after the hire date.
Calculating the Look-Back Hour Method
For the look-back method, the employer set a recurring period of 3 to 12 months to capture employee service hours. At the end of the period, divide the total hours of service by the number of months. Employees with an average of at least 130 service hours each month will be considered full time employees and must be offered minimum essential health coverage. New hires expected to average at least 130 service hours a month under this method should be covered by the first day of the fourth month after the date of hire.
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