Pay or Play Penalties Have Increased. Is Your Business At Risk?

The Affordable Care Act has recently increased Pay or Play penalties for applicable large employers. This means any applicable large employer who does not offer affordable health coverage to full-time employees can be subject to increased penalties. Penalties that could equal hundreds of thousands of dollars.

Some employers are unaware they are considered a large employer by the Affordable Care Act and don’t realize they need to offer a health plan to their employees. If this classification is not determined by the employer or broker these businesses could be at risk.

A true count of who in the company is eligible for a health plan must be discovered.

An employer is considered an applicable large employer by the Affordable Care Act if they employ over fifty full-time employees in a calendar year, including full-time equivalent employees. As seen below:

  • A full-time employee is one who works 30 or more hours each week. In a calendar month, per the Affordable Care Act, 130 hours is considered the equivalent of 30 hours a week.
  • Hours worked by part-time employees, or employees who work less than 30 hours per week, are counted and divided by 120 per month. This number will determine how many full-time equivalent employees a company has.
  • If the total of full-time employees and full-time equivalent employees are over 50, a company can be considered an applicable large employer.

Although counting the number of hours employees work can seem straightforward, there are specific criteria within the rules that need to be considered. With the help of a trusted advisor, an in-depth look at the specifics of the company is crucial and because every company is unique, all worker relationships within the business, as well as how the company operates, needs to be taken into consideration.

For example, whether a company is independent or affiliated with other companies is important as two or more businesses that have related ownership can be treated as a single employer. Seasonal workers and employees working abroad have specific criteria for eligibility and non-working hours, including vacation, illness or leave of absence, need to be added to an employee’s total number of hours. There are many details within the Pay or Play rules that employers need to be aware of. Additionally, any plans that are already offered by large employers must be affordable and reach minimum value coverage requirements.

Penalties are calculated based on certain criteria.

Each year employers need to consider their status as an applicable large employer and determine their current number of employees for the following year. Compliance is important. If just one employee qualifies for a premium subsidy through the Exchange, as a larger employer, one of two penalties could be applied,

  • Under Section 4980H(a), an applicable large employer could be subject to penalty if they do not offer coverage to the majority, at least 95%, of their full-time employees and one employee receives a premium subsidy by buying a plan in the Exchange. The penalty would be issued for an employer that does not offer coverage to all full-time employees. The monthly penalty is calculated by multiplying the number of full-time employees (minus 30) by 1/12 of $2,000 (as adjusted) for any applicable month.
  • Under Section 4980H(b), if an employee receives a subsidy from the exchange because their large employer did not offer affordable coverage or minimum value coverage. The penalty would be issued for each employee who receives a subsidy. The monthly penalty is 1/12 of $3,000 (as adjusted) for each full-time employee who receives a subsidy, for any applicable month. However, the total penalty will not exceed the 4980H(a) penalty amount.

Unfortunately, not all brokers are diligent about compliance updates and rarely talk about Pay or Play penalties when discussing coverage options to employers. This can be problematic for employers who do not offer a health plan to their employees and are unaware they are considered a large employer by the Affordable Care Act.

At Conner Insurance, we take compliance seriously and have a network of specialists we work with to ensure each employer is in compliance with Pay or Play regulations. Once the number of eligible employees is known we can begin to examine data to ensure the company is compliant.

If you have questions about Pay or Play penalties or need help to determine whether you are an applicable large employer, let’s chat.


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