The Truth About ACA Compliance

The final phase of the employer mandate under the Affordable Care Act went into effect on January 1, 2016. This provision called on all companies with at least 50 full-time employees, or FTEs, to provide health insurance coverage or face penalties. For small to medium size companies, complying with the mandate is more complicated than a superficial reading of the guidelines would allow. Understanding when the mandate is triggered for your business is key to planning your compliance strategies.

Crossing the FTE Threshold

The ACA was enacted to ensure access to affordable and quality health care for all consumers, but it was not intended to burden business owners unfairly or unnecessarily. In fact, the law provides generous tax credits to qualified employers through the Small Business Health Options Program.

ACA clarified that the minimum FTE requirement is based on hours worked and employee head count. A full-time employee logs about 2,080 hours per year. If your online payroll system shows 49 FTEs, your business is exempt from the mandate. Half-time employees log about 1,000 hours, and FTE math counts 99 half-time employees as 49.5 FTEs, which is still short of the 50 FTE threshold. With 80 half-time employees and 10 full-time workers on your payroll, your business would meet the mandate threshold, and you would have to comply with health insurance coverage requirements.

Compliance Watch with an Online Payroll System

Clearly, your online payroll system is the key to determining your health insurance responsibilities as an employer. This is especially true for businesses whose manpower needs fluctuate throughout the year. Note that seasonal employees do not count as FTEs. The employment contract of seasonal workers should not exceed 120 days.

Companies that split their organizations into two distinct entities to report separate payrolls with 45 FTEs each may be required to report as a controlled group for purposes of Obamacare. In the example cited, the company would have to comply with the ACA mandate as a business with at least 50 FTEs. To clarify, a full-time employee based on ACA definition is one who works at least 30 hours in a week or at least 130 hours monthly with employment exceeding 120 days. Full-time equivalent as used in FTE math to determine if an employer meets the health coverage compliance threshold means something else.

Offering ACA-compliant Coverage

The ACA defines the type of coverage that employers must provide. The coverage should account for at least 60 percent of the member’s healthcare costs, which is about the level of a bronze-level policy obtained in the healthcare marketplace. This means that a bare-bones catastrophic coverage is a non-compliant plan, the use of which may lead to fines amounting to $2,000 per occurrence with some credits deducted from the final amount. An employer who voluntarily provides coverage even if ACA compliance is not required must still offer policies that meet the minimum coverage value.

If your company is on the bubble with regards to ACA compliance, consult a professional payroll company like us to review an online payroll system suitable for your organization. In many cases, ACA compliance solutions are already part of the system.