With the end of September behind us, the opportunity for repealing and replacing the Affordable Care Act (“ACA”) under the 2017 budget resolution has expired. This is a good time for a reminder to employers that until Congress acts to repeal or change the ACA, it is still the law. This article reviews some of the employer shared responsibility provisions (better known as the employer mandate) of the ACA and provides some compliance tips to both small and large employers.
Small Employers Should Revisit the ALE Determination Annually
An employer is subject to the employer shared responsibility provisions of the ACA for a calendar year if it is an applicable large employer (or “ALE”), which means that it employs an average of at least 50 full-time employees (including full-time equivalent employees) during the preceding calendar year. See Q&A-5 of the IRS’s webpage at https://www.irs.gov/affordable-care-act/employers/questions-and-answers-on-employer-shared-responsibility-provisions-under-the-affordable-care-act#Employers for more detailed information on how to determine ALE status.
A small employer that is close to the 50-full-time employee threshold should review the size of its workforce on an annual basis to determine whether it will be subject to the employer mandate for the coming year. Small employers that do not offer group health plan coverage and that have experienced recent growth should be aware that they may need to gear up to begin offering coverage once ALE status is attained in order to avoid an assessable payment under Section 4980H of the Internal Revenue Code (the “Code”). In addition, employers newly subject to Section 4980H will need to prepare to implement the employer shared responsibility reporting rules.
The Controlled Group Determination Is Essential.
Employers should keep in mind that the size of an employer’s workforce for purposes of ascertaining ALE status is determined on a controlled group basis applying the rules under Code Section 414(b), (c) and (m). An employer that is mistaken about the membership of its controlled group may experience a nasty surprise if it finds that its workforce is required to be aggregated with the workforce of a seemingly unrelated company in applying the rules for determining ALE status. If an ALE has failed to offer group health plan coverage to at least 95% of its full-time employees, an assessable payment under Code Section 4980H(a) may be triggered. Liability under 4980H(a) ($2,260 per full-time employee for 2017) is based on the total number of full-time employees – not just those who are not offered coverage.
It is also important for large employers to get their controlled group determinations correct. An ALE is subject to the employer shared responsibility reporting rules under Code Section 6056, and as such, it is required to report, under penalty of perjury, all members of its controlled group. The controlled group rules that apply for reporting purposes are the same rules that are used for retirement plan purposes. So, make sure that your controlled group determination is correct and that it is consistent with the position you have taken for retirement plan purposes.
Check Your Contingent Workforce.
If you use independent contractors, temporary workers, workers from a staffing firm or a PEO (professional employer organization) and they represent a significant portion of your workforce (more than 5%), evaluate their status periodically. Mischaracterizing workers as employees of another employer or as independent contractors when they should be treated as your employees can trigger an assessable payment under Code Section 4980H(a), as described above.
Protect Yourself from Employee/Employer Mischaracterizations.
If you are using workers provided by a temporary agency, staffing firm or PEO, you can protect yourself by including certain provisions in your agreement with the agency or firm that provides the workers to you. First, the company providing the workers must be obligated under its agreement with you (the recipient) to offer group health plan coverage to the workers. Second, under the agreement, the fee that you pay to the agency or firm for a worker enrolled in health coverage under the plan must be higher than the fee you would pay to the agency or firm for the same worker if the worker did not enroll in health coverage under the plan. This requirement is called the “higher fee requirement”. If the agency or firm actually offers group health coverage that provides minimum essential coverage to the workers, as required under the agreement, and the higher fee requirement is met, then the offer of coverage made by the company providing the workers is treated for Code Section 4980H purposes as an offer of coverage made by the recipient. So, even if the workers are recharacterized by the IRS as employees of the recipient, the recipient can take credit for the offer of coverage made by the temporary agency or staffing firm and thereby potentially avoid an assessable payment under Section 4980H. In addition to the provisions described above, the recipient should include a paragraph providing that the temporary agency or staffing firm will indemnify the recipient for any taxes or penalties that are triggered by the failure of the agency or firm to follow the provisions of the agreement, such as the obligation to offer group health plan coverage.
If you would like further information about any of the issues or tips described in this article, please contact Alison Fay or any of the other attorneys with Boutwell Fay LLP.
© Boutwell Fay LLP 2017, All Rights Reserved. This handout is for information purposes only, and may constitute attorney advertising. It should not be construed as legal advice and does not create an attorney-client relationship. If you have questions or would like our advice with respect to any of this information, please contact us. The information contained in this article is effective as of October 2, 2017.