With the end of the third business quarter quickly approaching, many businesses have begun planning for the 2015 calendar year. One of the many existing or newly enacted regulations that they will have to comply with is the Employer Shared Responsibility Mandate (ESRM) portion of the Patient Protection and Affordable Care Act (ACA).
The ESRM provides that an employer with at least a certain number of qualified employees which does not offer health coverage that provides a minimum level of coverage to their full time employees (and their dependents), may be subject to an Employer Shared Responsibility payment if at least one of its full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges. The ESRM provisions generally are not effective until January 1, 2015.
The range of employers subject to the ESRM is broad, including for-profit, non-profit and government entity employers. Equally broad is the type of exchange and other coverage sources that will potentially bring an employer under coverage. Qualifying exchanges include subsidiary as well as federal and state based exchanges. Also included within the scope of the ESRM are employees who are eligible for health coverage through another source including Medicare, Medicaid or coverage provided through a spouse.
Perhaps the biggest challenge will be for those employers teetering right on the cusp of the qualifying employee limit, as the IRS continues to consider additional rules for the determination of hours of service to qualify for full time employment, including commissioned sales people, layover time employees, on call employees and adjunct faculty.
The other major challenge will be the determination of affordability. The ESRM provides that if an employee’s share of the premium for employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee. To aid the employer in properly calculating affordability, the statute provides the employer one of three safe harbors for calculation.
The safe harbors for individuals or families are the (1) Form W-2 wages for the employee, (2) the rate of pay for the employee, or (3) the Federal poverty line safe harbor. The affordability test applies to the lowest cost self-only option available to the employee that also meets the minimum value requirement.
The ESRM payment itself is calculated slightly differently depending on whether the entity covers fewer than 70%, or 70% and greater of its full time employees. The calculation factors in the number of employees minus a set number multiplied by a monthly factor of either two or three thousand dollars. Not quite the tidiest of calculations.
Lastly, the IRS has adopted procedures that ensure employers receive certification that one or more of its employees have received a premium tax credit including instructions on how to make payments. As one can easily surmise, the regulations are complicated with several moving variables. For instance, in attempting to utilize options (1) or (2) of the safe harbors, the employer will face the difficulty of an accurate calculation without information or knowledge of the employee’s spouse’s income, if any.
Professional guidance and legal advice may be necessary. King Spry’s employment attorneys are familiar with the changing landscape of the requirements of employment law and are available for consultation.
The Eastern Pennsylvania Employment Log (EPELog) is a publication of the KingSpry Employment Law Practice Group. Jeffrey T. Tucker, Esquire, is our editor-in-chief. EPELog is meant to be informational and does not constitute legal advice.
