The Affordable Care Act may be in its second year for consumers, but for most small business owners, the law is just about to kick in.
Starting January 1, 2016, business owners with 50 or more full-time employees will be required to offer a qualified health care plan to eligible workers and their dependents. (The ACA has been in effect for larger employers--those with 100 or more employees--since the beginning of 2015) This is called the employer mandate, and generally speaking, such business owners must offer plans that cover a minimum of 60 percent of plan expenses, and must cost no more than 9.5 percent of an employee’s annual household income.
If you’re part of this newly expanded group, you can expect to encounter a raft of changes. Among others, the volume of documentation around providing health care will likely increase. You’ll need to keep track of data related to your employees’ hours and the offers you made them for health plans. You’ll also have to file paperwork related to your various efforts for each of your employees with the Internal Revenue Service.
It’s not something you can punt on. In fact, you should pay careful attention now, as the penalties can be significant for failing to file documentation with the IRS. You could owe fees up to $250 per employee for whom you failed to file information in 2016, capped at $3 million.
Here are three questions you should be asking yourself right now:
1. Are you an applicable large employer, or “ALE”?
For 2016, you’re considered one if you’ve had 50 or more full-time employees in the prior year. Even though in 2015 only companies with 100 or more employees had to offer health care plans, those with 50 or more employees were supposed to begin gathering informaton about their coverage in 2015. You must report the dertails of your 2015 coverage to the IRS by the beginning of 2016. As such, you’ll be required to report the specifics of your coverage to the IRS through forms 1095 b and 1095 c. The forms allow you to include information for multiple employees. Self-insured companies that sponsor their own health-care plans are not exempt, and must also report.
2. Which employees are full time?
This is perhaps the trickiest part of the equation that you'll have to document. The IRS defines full-time employees as those who work a minimum of 30 hours per week, or 132 hours per month. But you also may be subject to the new regulations if you have a large number of so-called full-time equivalent employees.
Generally speaking, you calculate full-time equivalents by adding up the hours of your part time employees and dividing by 120, according to the IRS. For example, per the IRS, a business may have 40 full time employees and 12 part-time workers, and still come in under the requirement if the 12 staffers don’t log more than 60 hours per month. Benefits expert Jeff Plakans, founder and president of payroll and benefits management company Commonwealth Payroll & HR, in Marblehead, Massachusetts, says the determination can be further complicated in some scenarios by salaried employees who also work part-time. If you depend on payroll software to get worker hour information, some may overlook that difference. As a result, he says, these workers may be counted as full-time staffers when they’re not. You'll have to jump in manually to inspect your data if you know you have irregularities like this.
3. How far back do you need to inspect your data?
Generally speaking you’re required to examine your employment details for the preceding 12 months. Some seasonal businesses may have to choose a six-month look back period, depending on their peak hiring months. While doing your look back, it’s important to take into account workers who may be out on maternity or military service leave. Do you have someone out on a long grand jury trial? You’ll need to tally his or her hours too.