Are there penalties for large employers who don't provide coverage?
Yes. An employer who is covered by the law may choose not to provide coverage, but will be subject to a penalty of $2,000 per full-time employee annually. Employers may exclude 30 full-time employees in calculating their penalty. For example, a covered employer who has 60 full-time employees and chooses not to provide coverage would face an annual penalty of $60,000. [60 total full-time employees - 30 full-time employees excluded = 30. 30 x $2,000 penalty = $60,000).
What is the individual mandate?
The individual mandate requires everyone to obtain minimum essential coverage for themselves (and their dependents) beginning in 2014 or pay a penalty. The penalty is phased-in from $95 in the first year to $695 per calendar year or as much as 2.5 percent of income in 2016 and beyond. There are income exemptions. Only people younger than 30 can purchase catastrophic plans to satisfy that mandate. The law doesn’t allow employers to offer catastrophic plans and claim they satisfy the requirement for minimum essential coverage.
The requirement for individuals to obtain minimum essential coverage can be satisfied by participating in an employer-sponsored plan, purchasing individual policies, obtaining coverage through Covered California, or gaining coverage through Medicare, Medicaid, MediCal or other governmental programs.
Am I subject to the employer mandate?
The employer mandate covers employers who employed an average of at least 50 full-time-equivalent (FTE) employees on business days during the preceding calendar year. To calculate whether you are covered, you must look at each of the preceding 12 months to determine the average number of FTEs you employed over those months.
To calculate FTEs:
First, for each of the last 12 months, look back and determine how many employees worked 130 hours or more in the calendar month. That will be the number of FTEs the employer had during that month.
Next, add together the hours of all other employees, but not count more than 120 hours per person. The total hours worked by all others is then divided by 120. That determines a FTE number for part-time employees.
Next, must add the number of full-time employees to the number of equivalents, to get the total number of full-time-equivalent employees.
Finally, repeat the process for each of the remaining 11 months.
Add each of the 12 numbers together.
Divide by 12 for the average annual full-time employee equivalent number. That is the number that employers must use to determine whether an employer is considered an applicable large employer.
If the total number of full-time-equivalent employees is 50 or higher, the employer is subject to the mandate. Learn more about the employer mandate. If the number is below 50, the employer is not considered a large employer subject to the mandate, but does have reporting and employee outreach duties as outlined in the law.
Businesses should look at the preceding calendar year to determine if they meet the threshold of 50 full-time-equivalent employees for the following year, according to the Treasury Department. The annual calculation is performed monthly and then averaged over the 12 months.
How does the law affect me as a small business?
On average, small businesses pay about 18 percent more than large firms for the same health insurance policy. Small businesses also lack the purchasing power that larger employers have. The new law includes cost saving provisions to keep premiums low and improve quality. These include tax credits and an affordable insurance marketplace, also known as the California Health Benefit Exchange.
If you have fewer than 25 employees:
Business with fewer than 25 full time equivalent employees and average annual earnings wages of less than $50,000 that pay at least half of the cost of health coverage for employees are eligible for a federal tax credit.
If you have fewer than 50 employees: Businesses with fewer than 50 employees are exempt from penalties faced by larger employers that do not offer coverage.
If you have fewer than 100 Employees:
Small businesses with fewer than 100 employees will be able to purchase coverage through the California Health Benefit Exchange’s Small Business Health Options Program (SHOP) beginning in 2014. The state-based exchanges are intended to allow employers to shop for qualified coverage and more easily compare prices and benefits. In 2017, states will have the option to allow businesses with more than 100 employees to purchase coverage through the SHOP Exchanges.
Penalties for larger employers (50 or more employees) will go into effect in 2014.
If I provide coverage, do I have to offer it to new full-time employees on day one?
The law limits waiting periods to no more than 90 days. For full-time employees whom you know will work an average of 30 at least hours per week over a month, an offer of coverage must be made by day 91. However, for employees with variable hours, the Administration is contemplating additional rules. The IRS in Notice 2012-59 suggests some guidance on how waiting periods would be calculated for these employees, and in Notice 2012-58 offers guidance on how to figure out the full versus part-time status of variable-hour employees.
Should I change my employees to part-time to avoid the cost of coverage?
Moving employees to part-time may appear to save you money but it will likely increase costs in productivity and quality. Consider the following:
Part-time employees often have less employer commitment, longevity and engagement than full-timers
Employees want to work one employer. When employee’s loyalty is split among employers, scheduling and other conflicts occur.
It's harder to attract and retain good employees.
Employees may move to different industries that offer full-time employment
The guest experience could potentially suffer.
Reducing employee hours may increase turnover. The cost of turnover is approximately $1,500 to $2,000 per hourly employee. Other costs include: recruiting, training, uniforms, quality control issues, lost productivity and lower morale.
Additional part-timers require more work for the employer with more W-2s to process and people to schedule.
Shift may result in increased unemployment compensation claims or litigation over wrongful termination or hour reduction.
The California Restaurant Association strongly suggests you consult with legal counsel before modifying or restricting positions or hours worked.
How will the California Health Benefit Exchange help businesses?
The California Health Benefit Exchange, or Covered California, will allow small businesses to compare health plans, get answers to questions, find out if they are eligible for tax credits for private insurance or health programs, and enroll in a health plan that meets their needs. The exchange will also level the playing field, offering better choices at lower costs, similar to the purchasing power larger employers enjoy, which keeps the cost of insurance down. Learn more about Covered California now.
I heard there are small business tax credits available. When do they begin, and am I eligible?
In 2010, certain small businesses with up to 25 full-time-equivalent employees became eligible for a tax credit for contributing to their employees' health coverage. The IRS has issued guidance and tools to help small employers determine whether they are eligible.
The tax credit is for employers with fewer than 25 FTEs and who pay at least 50 percent of the cost of coverage for their full-time salaried and hourly workers. This section of the law considers full-time employees to be those working at least 40 hours a week. The maximum small-employer tax credit ranges from 35 percent through 2013 to 50 percent after 2014. However, employers must purchase their coverage through Covered California after 2014 to be eligible for the tax credit. The amount of the tax credit is based on the number of employees and their pay. Employers with fewer than 10 FTEs and average salaries of less than $25,000 per FTE would qualify for the highest tax credit. Employers with more than 10 FTEs or average salaries greater than $25,000 are eligible for a credit reduced from the maximum based on size and salary. The IRS website includes extensive information on the credit and which employers qualify for it.
If I choose to provide health care coverage, how much do I have to provide?
Covered employers will have to provide "minimum essential coverage" with at least a 60 percent actuarial value to meet the requirements of the law. This will be defined through the regulatory process.
My company already offers employee health coverage, how does the law affect me?
Grandfathered health plans – those in existence on the date of enactment of the health care law on March 23, 2010 – are exempt from some, but not all, of the new insurance market reform requirements.
To maintain its grandfathered status, a plan cannot reduce or eliminate benefits to treat particular conditions, increase employee cost-sharing (including deductibles, co-insurance and co-payments) above certain thresholds, reduce the employer share of the premium cost or change insurers. Once a plan loses its grandfathered status, it will have to comply with all the new rules.
Changes to a grandfathered plan that will cause your plan to lose its grandfathered status include:
loss of all membership in the plan
elimination of all or a majority of all benefits to diagnose or treat a particular condition
adding an overall annual limit on the dollar value of benefits to a plan that had no overall annual or lifetime limits on March 23, 2010
adding an overall annual limit on the dollar value of benefits which is lower than the dollar value of the lifetime limits that were in effect on March 23, 2010
decreasing the dollar value of an overall annual limit below the level in effect on March 23, 2010.
Changes to a grandfathered plan that will NOT cause a plan to lose its grandfathered status include:
changes to premiums, as long as the overall percentage contributed by the employer remains the same or higher than what was in effect on March 23, 2010
changes made to comply with federal or state legal requirements
changes made voluntarily to comply with the Affordable Care Act (ACA)
changes made voluntarily to increase benefits
changing third party administrators
adding family members to existing coverage
adding new employees (whether newly hired or newly enrolled) and their families to existing plan
employees switching from one grandfathered plan option to another grandfathered plan option offered by the employer (for example, from HMO to PPO)
an individual or group changing carriers.
If I have three restaurant companies, are they each considered separate employers under the health care law?
Not necessarily. For the purposes of health care reform, a single employer is defined by the “common control” clause in the tax code [IRC Sections 414 (b), (c), (m), (o)]. Consult your tax adviser to see how the provision applies to you. If you are considered a single employer, all the employees must be combined together for purposes of calculating whether an employer is above or below the 50 full-time-equivalent threshold.
Find quick answers to your questions about the CRA and navigating calrest.org.