Determining Employer Size for the Purpose of the Employer Mandate

With regards to the Affordable Care Act (ACA), employer “size” refers to the number of full-time and “full-time-equivalent” employees employed within the company. This is vitally important for a few reasons. In order to determine whether or not your company is required to offer medical insurance, as well as which market segment your company falls into, you must determine employer size.

In the world of the Affordable Care Act, size matters. It is universally understood the law includes an “employer mandate” which requires certain employers to offer health insurance coverage to their full-time employees…but which employers are exempt, and what are the ramifications for those employers who are not exempt? It depends on the size of the employer.

A determination has to be made based on how many full-time employees a company has, plus how many “full-time-equivalent employees” or “FTE’s” the company has. In order to determine how many “FTE’s” an employer has, you must take all of the hours worked in a month by all of your part-time and variable-hour (non-full time) employees, and then divide that number by 120. This will give you an “FTE” count. This calculation must be made for each month of the year.

For each month, you then take your “FTE” calculation and add that number to your number of full-time employees. If the average for a calendar year is over 50, then in the following calendar year, your company will be required to offer health insurance to your full time employees (30 hours per week) only.

There are scenarios in which an owner of a company may also own a substantial portion of another company or companies. In certain situations where ownership owns more than one company, the aggregate count of full-time and “FTE” employees must include employees from all of the companies owned by that particular owner for the employer mandate determination. Consulting with a CPA or tax attorney is advised for scenarios like these in order to determine if this rule applies.

Of course, it wouldn’t be a mandate if there weren’t additional requirements and penalties involved, would it? Indeed, there are a number of financial penalties an employer could be subjected to for not complying with the requirements set forth under the law. The most obvious penalty is the one for not offering health insurance to your full-time employees when, under the law, you were required to do so. The penalty for this is $2,160 per employee for 2016 (this amount increases each year), with the first 30 employees being exempt.

This is far from the only penalty employers could be subject to, however. There is also a penalty related to affordability, which is discussed in this segment. If the employee’s portion of the cost for health insurance coverage through the employer is deemed “unaffordable,” and that employee receives a premium tax subsidy on the government marketplace, then the employer is also subject to a $3,240 penalty for each employee that receives a “subsidy.”

Watch the video interview with industry expert and contributing author Kathy Garza as she touches on minimum value standards defined under the law, a subject popularly described as bronze, silver, gold, and platinum level plans. The lowest-priced options are generally known as the bronze level plans and are intended to cover a minimum of 60 percent of healthcare-related charges over a large population. The ACA has defined these bronze level plans as offering “minimum value”. If an employer offers a plan below the minimum value, an employer may be open to additional penalties.

Nationally syndicated financial columnist Steve Savant interviews employee benefit specialist Kathy Garza on the Obamacare Update. Right on the Money is a weekly one-hour online broadcast for TV and radio distribution. The show contains five ten-minute segments that are redistributed online as individual video press releases.