The health care law requires employers with 50 or more full time equivalent employees to provide health care coverage or pay a penalty. An employer with 50 or more full time employers is considered a large employer. A full time employee is defined as an employee working 30 or more hours per week. The hours worked by part-time employees (i.e., those working less than 30 hours per week) are included in the calculation of a large employer, on a monthly basis, by taking their total number of monthly hours worked divided by 120.
Example: ABC Company has 40 employees who work more than 30 hours per week and 20 employees who work 24 hours per week. Each of the 40 employees working more than 30 hours per week is a full time employee. Full time equivalent employees are calculated as:
Number of part time employees (20) times the number of hours they work in a month (96, which is 24 hours per week times 4 weeks in a month). This product is 1,920. Dividing 1,920 by 120 equals 16 full time equivalent employees. The employer therefore has 56 full time equivalent employees (40 employees working more than 30 hours per week plus part time employees who are equivalent to 16 full time employees).
A NONDEDUCTIBLE penalty will be assessed on a large employer that:
- Fails to offer any full time employee the opportunity to enroll in minimum essential coverage under an employer plan if at least one full time employee is enrolled in an insurance exchange AND receives a premium assistance credit or cost sharing
- The monthly penalty is 1/12 * $2,000 * (the number of full time employees minus 30). The penalty would apply to employers with 50 or more workers, but would subtract 30 workers from the payment calculation.
- Offers its full time employees coverage in minimum essential coverage under an employer plan and any full time employee is enrolled in an insurance exchange and receives a premium assistance credit or cost sharing. Here, the employer offers health insurance coverage, but at least one employee decides to enroll in an exchange.
- The monthly penalty is the LESSER of:
- the number of full time employees receiving a premium assistance credit or cost sharing for purchase of insurance through an exchange multiplied by 1/12 of $3,000.
- the number of full time equivalent employees minus 30, multiplied by $2,000.
Bottom line: if you are approaching 50 employees, make sure to consult with a tax practitioner to determine how much any additional employees will cost you.
If you have any questions on how this applies to your business, please feel free to give us a call.
Buzzkill Disclaimer: This post contains general tax information that may or may not apply in your specific tax situation. Please consult a tax professional before relying on any information contained in this post.
Any tax advice contained in the body of this post was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions. Any information contained in this post does not fall under the guidelines of IRS Circular 230