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Going by the name Affordable Care Act or Obamacare, the ACA is one of the most controversial bills that ever came out of the Legislative Branch. Along with that controversy is a law that could have serious implications on your business depending on where in your growth you currently are.
Right off the bat, the important thing to keep in your mind is the number 50. According to the ACA, no small business with fewer than 50 full-time employees (FTE) or full-time equivalents is required to offer group health plan coverage. This is a key impact of the Affordable Care Act on startups. One detail that many fail to represent is that part-time employees do count towards your total employee count, they just count differently than full time employees.
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Defining a Full-Time Employee
The easiest way to define what a FTE really means is to first disqualify a bunch of potential candidates.
What is NOT a full-time employee:
- A partner, owner, shareholder owning more than 2% of an S corporation
- Certain seasonal employees
- An independent contractor
- COBRA and retired benefit plan enrollees
Once you’ve crossed all of those people off the list, you’re left with what could be full-time employees. In the government’s eyes, a FTE is someone that works an average of 30 hours or more a week. In most cases, anyone who averages less than 30 hours a week will be considered a part-time employee.
Part-Time Employees Count Toward ACA Minimums
Perhaps you only need a part-time designer and a part-time marketer based on where you are in your business’ growth. This is where hours really come into play because you have to combine all the hours of your part-time employees and determine how many “more” full-time equivalents you have (in the form of part-time employees).
Let’s say you have three PTEs who each work 20 hours a week over the course of a month. That’s three employees working a combined 60 hours a week. Therefore, if you divide a monthly total of 240 by 120, you’re left with 2 - this is the number of additional FTE you have for ACA purposes.
The Rules Depend on the Magic Number
Above I said that 50 was the magic number. Therefore, if your average combined full-time employees and full-time equivalents equal 50 or more, then you are going to be impacted by the Affordable Care Act. If you’re under 50, for the most part, you’re unaffected.
The primary effect for those averaging 50+ employees is what’s called the Employer Mandate. This mandate demands that employers offer qualified health plans—a phrase we’ll talk about more below—to their full-time employees. If they don’t, they may have to pay a penalty of over $2,000 per year for every full-time employee (excluding the first 30).
The number of full-time employees (and full-time equivalents) at your company will directly impact how you must comply with the ACA.
Now let’s think about it for a second … If the penalty is $2,000 and you have 50 full-time employees, you could be stuck having to pay a bill of $40K to the government every year if you don’t offer group health insurance coverage. And if you have 100 FTEs, that bill is more than twice as high.
Offering Group Health Insurance Coverage If Your Business is Smaller Than 50 Employees
What might be surprising to you is that the majority of businesses in the United States are really small. They may only have a few employees working for them. Therefore, many of them are not mandated to offer health insurance coverage. However, the ACA still requires those employees to get health insurance on their own.
Another option as well, is for employers with fewer than 50 FTEs to still cover their employees and the government is offering some tax incentives to do so. The program offers tax credits for certain businesses under 25 employees that provide insurance to their employees. This tax credit is available if you pay at least 50% of your employee’s health insurance premium and if the average employee salary is lower than an indexed $54,200 per year. This is government’s way of trying to entice small businesses into offering their team health insurance.
Qualified Health Plans & Rules
Now that you know you may have to provide group health insurance coverage, the next step is to find the correct insurance. It has to be what’s called a “Qualified Health Plan,” which simply means that it meets the requirements put forth by the Federal government.
Primarily, the rules require that there is a cap on cost sharing for the individual. There are rules on having to cover certain pre-existing conditions, removing caps on lifetime benefits, and for those that have children, they have to be eligible for coverage up until the age of 26.
To stay compliant, you have to provide your employees with a summary of benefits. This lets them know about what the costs are and how much is covered. Finally, in most cases, you have to offer coverage within 90 days of a full-time employee's hire date.
This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, legal or tax advice. If you have any legal or tax questions regarding this content or related issues, then you should consult with your professional legal or tax advisor.