Are You an “Applicable Large Employer” for Health Care Reform?
As you are no doubt aware, many aspects of the Affordable Care Act become effective on January 1, 2014. One of those requirements is the “shared responsibility” (sometimes called the “pay or play”) penalties that may be assessed on “applicable large employers.” An “applicable large employer” is an employer that has 50 or more full-time employees and/or full-time equivalent employees (FTEs). An applicable large employer may be subject to a penalty if the employer does not offer group health coverage to its full-time employees and their dependents, or if the employer does not offer group health coverage that is affordable and provides minimum value. An employee is “full-time” if he or she works, on average, at least 30 hours per week. Part-time employees also count for purposes of determining the number of FTEs.
We wanted to alert you to a special rule that applies when determining whether you are an “applicable large employer.” Under the current regulations, you must take into consideration other entities that are part of your “controlled group” or that are otherwise affiliated with your organization. For example, banks and bank holding companies are usually part of a “parent-subsidiary” controlled group. A “controlled group” can also exist if two or more companies have common owners. Organizations that are members of a controlled group must add the number of employees together. If the total number of full-time employees and/or FTEs is 50 or more, then every member of the controlled group is deemed to be an “applicable large employer.”
For example, assume that Bank Holding Company has 10 employees, and owns 100 percent of Bank B and 100 percent of Bank C. Bank B has 30 employees, and Bank C has 20 employees. All employees are full-time employees. Because Bank Holding Company, Bank B and Bank C are members of a controlled group, the number of employees at all three organizations must be added together. In this example, the combined number of full-time employees is 60. Thus, all three organizations are deemed to be an “applicable large employer,” even though none of them, on its own, has 50 or more full-time employees and FTEs.
But, that’s not the end of the story. The shared responsibility penalties apply to each organization separately. For example, if Bank Holding Company and Bank B offer affordable health coverage that provides minimum value to their full-time employees and their dependents, they will not be subject to potential penalties. If Bank C does not offer any group health coverage, Bank C, and only Bank C, could be subject to penalties. Bank Holding Company and Bank B will not be liable for any penalties assessed against Bank C.
As they say, the “devil’s in the details,” and January 1, 2014, is just around the corner. The Compensation Planning & Employee Benefits Group is available to help you navigate these rules and understand how they may apply to you.