Employer Classifications and Obligations Under PPACA

Under PPACA, employer may be classified according to two separate standards. Depending on a given classification, the law affects employers very differently. Thus, proper classification is an integral first step in planning for PPACA as differently affected businesses will benefit from different strategies and plan designs down the road.

To determine how your business is affected, we must classify your business. PPACA has two general classifications for businesses. The first, and most commonly known, is based on the number of full-time employee equivalents a business employs. The second is based on the market through which the employer purchases insurance.

Employer Classifications One

PPACA imposes different obligations on employers of different size. For the first classification, we must determine if your business is an applicable large employer or a small employer.

PPACA uses controlled group and attribution rules that have existed for many years. These rules prevent gaming of PPACA by, for example, splitting one business into myriad subsidiaries, all of which are deemed “small employers” under the law. If your business owns subsidiaries, or if individual owners of the business even partially own other businesses, please consider contacting us or another advisor for controlled group analysis. This analysis is relatively simple and can help you determine whether PPACA views your businesses as separate and distinct or as one entity.

Under PPACA, an employer is an applicable large employer if it employs 100 or more full-time employee equivalents. If an employer employs less than 100 full-time employee equivalents, then the employer is a small employer. Though this test seems simple, and indeed many businesses can make this determination with ease, the test is fraught with nuances which could greatly affect some. For more on calculating this number, please see Calculating the Full-Time Equivalency.

A full-time employee equivalent is not a full-time employee. Full-time employee equivalency is a value calculated by adding the number of full-time employees plus the number of part-time and seasonal employee hours worked in a given time period, such as one month. PPACA very clearly defines what it considers to be a full-time employee at an average of 30 hours a week. Part-time workers work less hours per week, while seasonal workers (for this test) work 120 days or less per year.

By adding the hours of part-time and seasonal workers, full-time equivalency rises. For instance, consider a business with 40 full-time employees and 20 employees who average 15 hours/week. In this case, each part-time worker is about ½ a full-time worker, according to PPACA. To find the full-time equivalency, add 40 (the full-timers) and 10 (20 part-timers whose hours add up to ½ a full-time worker each) to get 50. The business in this example is thus an applicable large employer.

Of course, for most businesses on the edge of being deemed an applicable large employer, this test is never quite as simple as the example above. Strategies such as managing hours with look-back/stability periods or utilizing leased employees are critical to achieving a desirable classification. We encourage businesses with the goal of reducing PPACA liabilities or being a small employer, for PPACA purposes anyway, to look into these strategies and utilize assistance wherever helpful.

As an applicable large employer, a business is subject to the PPACA employer mandates (covered in Step One). PPACA has two employer mandates. The first requires an offer of minimum essential coverage to at least 95% of full-time employees. Failure to meet this mandate entails a penalty of $2,160/full-time employee/year less the first 30 full-time employees. The second mandate requires an offer of affordability and minimum value to prevent public exchange subsidy access. For each employee who qualifies for a subsidy, a $3,240/year penalty will be assessed on the employer, up to a cap of the “opt out” penalty.

Small employers are not subject to employer mandates. Thus, small employers have far greater freedom in making decisions about offering a health plan to their employees. If a small employer decides to offer a plan, they must do so in accord with PPACA’s other regulations. Even a small employer can be penalized for violating provisions of PPACA besides the employer mandates.

Small employers also tend to face greater restrictions on the types of coverage they can offer. This inflexibility is due to Classification Two, which we will discuss presently.

Employer Classifications Two

Classification Two separates employers based on the insurance market in which the employer participates. PPACA defines four distinct insurance markets:

the individual market
the small group market
the large group market
the self-insured market

Terminology becomes very specific and important between classifications. A small group market employer could be a small employer under PPACA, but a business may be a small group market employer and an applicable large employer. As even the most seasoned professionals can make mistakes with PPACA’s jargon, we strongly encourage caution when classifying your business and planning for PPACA.

Individual markets are reserved for purchasers who are single individuals, families, or self-employed, single-employee enterprises. Most businesses are not eligible to purchase off the individual market, which, while seemingly obvious and unimportant, dramatically affects certain strategies for PPACA surrounding private exchanges. Private exchanges typically offer employees individual market coverage, which is distinct from the employer offering small group, large group, or self-insured coverage. For this and other reasons, private exchanges have difficulty satisfying the employer mandates.

The small group market is used by employers with 2-100 employees who purchase fully-insured plans. The employees may be of any variety (full-time, part-time, or seasonal), and qualification for this market is based on the average number of employees over a year-long period. A fully-insured plan is one backed by an insurance company licensed to offer fully-insured products in a given state. Fully-insured plans place the ultimate liability for paying claims on the insurer as opposed to the employer.

The large group market, as you may have guessed, is reserved for employers with more than 100 employees who purchase fully-insured plans.

The self-insured market is not defined by the number of employees serving a given business. Instead, the self-insured market is defined by how the health plan is insured. As noted above, fully-insured plans place the ultimate liability for paying claims with an insurance company. Self-insured plans place the ultimate liability for paying claims with the employer. Employers who self-insure typically purchase reinsurance, which may be thought of as insurance for insurance. Reinsurance may come in the form of medical stop-loss policies, which are purchased to “stop the loss” on the ultimate liability for paying claims to which the employer is obligated. Thus, employers who self-insure health plans can retain some safety with reinsurance from a catastrophic claim event, such as a single medical claim on the plan for $1,000,000, or an aggregate of claims, such as 1,000 claims for $1,000 each.

Note that since PPACA places no employee number restriction on the self-insured market, even businesses with as few as two employees could theoretically self-insure. Smaller businesses (colloquially speaking) tend to avoid self-insuring plans due to the higher risk of catastrophic claims or “shock years,” which can be costly in some cases even with reinsurance. However, self-insured plans can offer incredible value and flexibility compared to fully-insured plans, and investigation of such arrangements is highly encouraged when planning for PPACA.

Under PPACA, two markets are much more heavily regulated: the individual market and the small group market. These require plans which provide all “essential health benefits,” a list of coverage options which plans may have not offered in the past. Large group and self-insured market plans need not provide all of these essential health benefits, allowing employers in the latter two markets much more flexibility. Small group market purchasers thus could save significantly by transitioning to a self-insured plan, if appropriate. Such transitions are not encouraged without a full investigation into the structure and obligations associated with a self-insured plan, but after such an investigation, businesses which can benefit from self-insured plans typically elect to form them.

From our analysis thus far, we can conclude that small employers (from Classification One) will be small group market employers (from Classification Two) unless they self-insure their plans. This means that, assuming a fully-insured plan, small employers must provide all essential health benefits in their plans, among other inflexibilities. Some applicable large employers also fall into this trap, as they may have more than 50 full-time equivalents but less than 101 total employees. These employers are stuck between a rock (the employer mandates) and a hard place (an inflexible fully-insured solution). However, relief may be available under Classification Three.

A word of caution for large group market purchasers. Your status is very powerful in terms of flexibility, as you do not need to provide all essential health benefits in your plans. That being said, an unfortunate number of insurance products are sold to large group market purchasers which comply with all small group market purchaser regulations. Of course, on the product sales side, this process makes sense, as the salesman sells a more expensive product. Insurance companies benefit as well by having larger risk pools for a smaller number of plans. Large group market employers, however, do not benefit. They spend more money for unnecessary features. Large group market employers are strongly encouraged to use their size to their advantage when investigating PPACA solutions.

Applicable Large Employers ACA Reporting Requirements

Employers with over 50 employees will be required to file ACA information returns with the IRS.

The Affordable Care Act has arrived and the first reporting requirement will be in early 2016 for the 2015 calendar year.

For furnishing employees with the 2015 Form 1095-B (Health Coverage) and Form 1095-C (Employer-Provided Health Insurance Offer and Coverage), the deadline has been extended from Feb. 1, 2016, to March 31, 2016.

For filing with the IRS the 2015 Form 1094-B (Transmittal of Health Coverage Information Returns), Form 1095-B, Form 1094-C (Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns) and Form 1095-C, the deadline has been extended from Feb. 29, 2016, to May 31, 2016 if not filing electronically, and from March 31, 2016, to June 30, 2016 if filing electronically. Any employer filing 250 or more information returns during the calendar year must file the returns electronically. For employers with fewer than 250 returns, electronic filing is voluntary.

To meet the impending reporting requirements under the ACA, employers should consider the ACA recordkeeping processes they will need to have in place in order to collect and report the required information. Unfortunately, this data collection isn’t an easy task. It can require various internal departments to “connect” and share information. Employers must also be keenly aware of the number of hours worked by each employee as well as the ACA classification of each employee. ACA compliance also necessitates that an employer review its group medical plan to verify that the offered plan meets the required minimum value standard and is affordable to its employee population.

The size of your company does make a difference. Employers with less than 50 full-time and full-time equivalent employees are considered a small employer and are not subject to the ACA reporting for 2015. Employers with 50 or more full-time and full-time equivalent employees during the year are considered an “Applicable Large Employer” (ALE) and are subject to the ACA reporting for 2015. Relief will soon follow due to a change in the definition of an ALE in 2016. Following the change, only employers with 100 or more full-time and full-time equivalent employees will be considered an ALE and subject to the ACA reporting. In order to ensure ongoing compliance, maintaining reliable and consistent records of your payroll and benefits information is a necessity. A complete audit trail of all information utilized should be maintained and easily accessible in the event of a federal inquiry or an assessed ACA penalty.

Filing Requirements for ACA Form 1095-C

The IRS has granted employers an extension for mailing ACA forms, thus providing a little breathing room for those involved in preparing the forms.

Who Must File the ACA Form 1095-C?

As most business owners are now aware, under the ACA Employer Shared Responsibility Provisions, employers who average more than 50 full-time plus full-time equivalent employees during the previous calendar year must prepare and mail a Form 1095-C to each full-time employee. Although the form is not required for tax filing purposes, it can be viewed as the W-2 for medical insurance coverage.

How to Know if You Are Required to Provide the Form 1095-C

An employer must first determine if they are required to provide the Form 1095-C to their employees. This determination involves a specific formula for counting the employees. Additionally, other variants must be considered such as seasonal employees, variable hour employees, and understanding the IRS’s definition of a full-time employee.

What does the Form 1095-C Include?

The Form 1095-C reports the monthly offer of qualifying medical coverage (or the lack of), employee eligibility, enrollment or waiver decision, affordability of the monthly premium to the employee, and the employee’s employment status. Complicating this bounty of required information, the IRS has established a complex system of codes used to describe each of these reporting elements.

To sum it up, preparing the Form 1095-C entails the understanding of the intricate requirements, definitions, formulas, and reporting codes of the provisions. The process can involve payroll vendors to determine an employee’s full-time status and affordability of coverage, as well as benefits or human resources departments for identifying offers of coverage, cost of coverage, and enrollments.

How Can LBMC Employment Partners, LLC, Help?

This is a substantial task for a business owner who would prefer to spend his or her time running the business. LBMC Employment Partners, LLC, can help with this filing requirement, including calculating the number of employees, confirming if a filing is required, as well as preparing and mailing the forms to employees.

If you need assistance with your ACA Employer Shared Responsibility requirements, contact LBMC Employment Partners today to learn more!

Small Employer Defined Under PPACA

Perhaps the biggest change to ACA in 2016 is the accepted definition of “small employer.” Previously, a “small employer” was defined as a business with between one and 50 full-time equivalent (FTE) employees. However, for plans starting in 2016, the definition has expanded to include businesses with 100 employees. Employers with 51 to 100 employers will now have to comply with ACA requirements, including plans that cover essential health benefits and meet ratings requirements.

A small employer employs less than 100 full-time employee equivalents. Full-time employee equivalents are measured by adding the number of full-time employees into a formula with the hours worked by part-time employees and seasonal employees. Independent contractors and leased employees do not contribute to full-time equivalency.

Small employers are not subject to the employer mandates. Thus, small employers are not subject to excise tax penalties for choosing not to offer healthcare coverage to full-time employees. Note, however, that if small employers do choose to offer healthcare coverage, the plan would be subject to PPACA and all its related provisions.

Small employers who approach a full-time equivalency of 100 should be cautious in expanding employment due to the implications of becoming an applicable large employer. Planning is encouraged for this transition, and alternative hiring methods such as leased employees or independent contractors may be useful either during the transition or on a more permanent basis.

Correctly Classifying Your Workers

Employees are highly important to classify due to the fact that some employees trigger requirements under PPACA, and others do not. Knowing on which employees to focus will save employers time and efforts that will otherwise not save money. By “employer” we mean “applicable large employer,” or an employer subject to the employer mandates. Knowing how to take advantage of various employee classifications will assist the employer in better managing eligibility for the health plan, which will drive down costs.

Employees fall into one of the following general classifications:

full-time employee,
part-time or seasonal employee
variable hour employee, and
leased employee

Special rules, some of which have been issued by the federal government, empower employers to control employee classification to a certain extent. These rules include the look-back measurement method and break-in service rules.

The debate over classifying workers as employees, independent contractors, or freelancers has changed quite a bit since the summer of 2015. After the California Labor Commission ruled that drivers for Uber Technologies, Inc. were true employees, instead of independent contractors, the U.S. Department of Labor decided it was time to get involved with their own 15-page Administrator’s Interpretation (effective July 15, 2015) of the Fair Labor Standards Act (FLSA).

Before the Administrator’s Interpretation, issued by Dr. David Weil, the FLSA’s definitions of worker-types and guidelines associated with each worker-type were quite vague — employee is literally defined as “any individual[s] employed by an employer.” That’s quite an ill-defined term. The Department of Labor issued the Administrator’s Interpretation to clear up the confusion of misclassifying workers, so let’s take a closer look at how it classifies the three types of workers and what distinguishes them from each other.

1. Freelance Workers

Technically, a freelance worker is someone who is hired on a per-project basis. Usually, the freelancer manages multiple projects from different clients and is paid per project (as opposed to hourly). The freelancer reports and withholds their own taxes, and they typically itemize their deductions. Freelancers do not receive employee benefits from the companies they work with. If your team needs some extra help with a big project, a freelance worker is the way to go.

With an increase of over 700,000 over the last year, there are now almost 54 million freelance workers in America. That’s over a third of America’s workforce. Most freelancers choose this option for the flexibility it provides. Being able to work on your own time, move around as you please, and choose the projects you work on are just a few of the benefits that come with being a freelance worker. However, with all the benefits, freelancing does have its downsides. Freelancers do not have access to unemployment insurance, tax withholding, employer-sponsored health care, or retirement savings programs — they have to provide all of these safety precautions for themselves.

2. Independent Contractors

Independent contractors are workers who exchange services for compensation with employers without an employment relationship. PPACA’s employer mandates do not apply to independent contractors. Independent contractors can work similarly to freelancers, but they typically work more with one or two companies for an extended period of time (the contract) and are paid by the hour. Like their freelance peers, independent contractors also report their own taxes and lack unemployment insurance, employer-sponsored health care, retirement savings programs, and paid time off. Independent contractors are typically highly skilled in a particular area, like coding and design, writing, public/media relations, electrical engineering, and marketing. Independent contractors can fill in holes and help round out an already established team.

3. Employees

An employee is an individual who is hired by an employer to contribute services to the employer in exchange for compensation. Although this definition of “employee” may seem obvious and intuitive, it carries potentially extensive liability or obligations for an employer under PPACA, particularly when employees are distinguished from independent contractors

Employees are typically distinguished from independent contractors through an analysis of the employment relationship, the level of control an employer has over the employee, and definitive documents such as employment agreements. An employee is someone outrightly hired by a company for an indefinite period of time. An employee is expected to work a certain number of hours each week (typically 40) in exchange for a salary and benefits, like paid time off and sick leave, matching 401k contributions, and health insurance. Overtime may or may not be required, and may or may not be compensated for, depending on the employment offer. Employment is also specified as at-will, which means that you or the employer can terminate employment at any time for any reason. Under PPACA, many classifications of employees exist. These classifications include full-time, part-time, seasonal, and variable hour employees. Depending on an employee’s classification, the employer faces different regulations and obligations under PPACA. Thus, proper classification of employees is critical to maintaining PPACA compliance.

What’s Changed?

The biggest changes with the Department of Labor’s (DOL) Administrator’s Interpretation occur with the distinction between employee and independent contractor. The DOL’s new interpretation explains that an “economic realities” test needs to be employed (pun intended) to determine worker classification. For this new test, the key question is to find out whether a worker is economically dependent on an employer, making the worker an employee, versus whether the worker is truly in business for him or herself, making the worker an independent contractor. This test should always be conducted on a case-by-case basis, as each worker’s situation is going to differ from the next. Factors typically include:

the extent to which the work performed is an integral part of the employer’s business
the worker’s opportunity for profit or loss depending on his or her managerial skill
the extent of the relative investments of the employer and the worker
whether the work performed requires special skills and initiative
the permanency of the relationship
the degree of control exercised or retained by the employer

Determining the right classification for your workers is vital to the success of your business. Not only does the wrong classification have negative effects on workers, like leaving them high and dry with no safety net, but misclassification of employees may result in substantial penalties, fines, and attorney/accounting fees. Determining the correct classification for your workers will save everyone a headache in the long run.

What is a Seasonal Employee Under PPACA?

Under PPACA, a seasonal employee is one who works 120 days a year or less for the employer. These days need not be consecutive.

For example, if an employee works only for the months of January, July, and October, then the employee is seasonal since that is less than 120 days. If an employee works for the months of January, February, June, July, September, and October, then the employee is not a seasonal employee, since that would be more than 120 days.

A seasonal employee is one who works for a specific period of time for a specific season of the employer. This season can be retail-based (the holiday season), demand based (harvest season for an agriculture-based employer), or based on individual employer needs. This period should not exceed six months, though no more specific time requirements have been issued in regulations.

Like part-time employees, seasonal employees need not be offered coverage by the employer. Thus, seasonal employees are “safe” from PPACA obligations. Despite this status, employers generally lack the opportunity to re-classify employees as seasonal from full-time, as seasonal status was generally determined prior to PPACA. Some employers may have a limited opportunity in examining certain job descriptions and examining whether a seasonal classification opportunity exists, but in general this strategy will be untenable.

Seasonal employees are not considered full-time employees under PPACA, and as a result do not affect the employer mandates to which applicable large employers are subject. Thus, an applicable large employer has no obligation under PPACA to provide minimum essential coverage, affordability, or minimum value to a seasonal employee.

Employers may voluntarily offer healthcare coverage to seasonal employees. If employers choose to extend coverage, the coverage must be compliant with PPACA.

Seasonal employees do partially affect employer classifications. Seasonal employee hours are used to determine an employer’s full-time employee equivalency, and subsequently the employer’s classification as a small employer or applicable large employer. However, if the employer is determined to be an applicable large employer solely because of the hours worked by seasonal employees, then the employer is a small employer. This rule is a powerful exception to the employer mandates for certain employers.

Complying with Seasonal Employees

Tips on Ensuring Compliance with Holiday Hires

With the holidays upon us, businesses are preparing for the holiday rushes by hiring seasonal employees. Due to the brief employment process, many seasonal employers overlook proper training for their seasonal hires and can even unintentionally avoid complying with labor laws. Here are easy ways to ensure seasonal hires are properly trained and that your company is in compliance with labor laws.

Train Your Managers: Your managers are going to be the direct point-of-contact for seasonal employees, so it’s critical they understand how to properly train and work with seasonal employees. Ensure that managers are clear on all company policies and are familiar with discrimination laws. Make sure they conduct thorough background checks and complete seasonal employees’ tax forms. A quick conference call is an easy and effective way to communicate this to your managers.
Provide Holiday Handbooks: Upon hire, provide a revised copy of your employee handbook that only contains information and policies relevant to the seasonal employee. To avoid unemployment claims, there should also be a document signed by the seasonal employee, indicating that the position is temporary, has an end date, and yet still leaves the employee “at will.” Ensure that the employee is reading over all policies, guides, or handbooks on paid time, and offer to answer any questions they might have.
Conduct Harassment Training: It’s crucial that employers provide information about who to contact in case of harassment or other employment-related issues. This can easily be accomplished by verbally communicating it to your employees when they start, providing a policy that employees must sign, or including it in a concise employee handbook for seasonal employees (learn to craft a regular employee handbook here). Non-harassment and nondiscrimination policies should always be provided to seasonal employees and include at least the title of the person to whom they report complaints, as well as an alternate person.
Remain Compliant with the Fair Labor Standards Act (FLSA): Perhaps the most significant compliance issue is with the FLSA. Most holiday hires will be considered “nonexempt” employees, and because of this, employers will need to accurately track seasonal hours and confirm that they are being paid the proper amount and for any overtime they work. To avoid misclassification liabilities, businesses should refrain from classifying seasonal workers as independent contractors and apply the same compensation policies as they do for full-time employees.

Providing the proper materials to seasonal employees goes a long way in guaranteeing they are efficiently trained and securing your compliance. It is critical that you document everything during the hiring process, provide copies of any applicable policies, and require employees to sign a form acknowledging that they have received, read, and understood the employer’s policies and rules.

If you have any questions about employee compliance or seasonal workers, don’t hesitate to contact your local LBMC Employment Partners representative!

What is a Part-Time Employee Under PPACA?

Part-time employees are defined very specifically by PPACA. Part-time employees are those who work less than 30 hours a week on average. This average is not calculated on a week-by-week basis. Instead, a measurement period, also known as a look-back period, is used by employers to determine the average hours an employee works per week. If the product of this examination is less than 30 hours per week, then the employee is classified as a part-time employee.

Part-time employees are defined very simply as non-full-time employees, working less than 30 hours a week on average. If an employee is part-time, no coverage must be offered by the employer, generating immediate savings for the health plan and reduced obligations under PPACA. Thus, by careful and controlled classification, employers can save money.

The look-back measurement method is the main means by which employees are classified. Thus, the importance of this method is again demonstrated for employers, as proper measurements will permit employers to better control eligibility in their health plans.

Part-time employees do not affect employer obligations under the employer mandates. The employer mandates to provide minimum essential coverage, affordability, and minimum value only apply to full-time employees. An employer has no obligation to offer a part-time employee a healthcare plan.

Employers may choose to offer part-time employees healthcare plans. However, if coverage is extended, other PPACA rules apply to the coverage, such as prohibitions on pre-existing condition restrictions or annual limitations on benefits.

Part-time employees do affect an employer’s classification as a small employer or applicable large employer. Part-time hours worked add to the calculation of an employer’s full-time employee equivalency, which then affects the employer’s classification.

What is a Variable Hour Employee Under PPACA?

Variable hour employees – those who work different numbers of hours from week to week — must be carefully monitored by employers, as they can have dramatic effects on the employer’s obligations under PPACA.

Depending on the number of hours a variable hour employee works per week on average, he or she may be classified under PPACA as either a part-time employee or a full-time employee. The method used to determine this classification is known as a look-back period.

If a variable hour employee is determined to work less than 30 hours per week on average, then the employee is deemed a part-time employee for the corresponding stability period. The employee will not cause an applicable large employer to have an obligation under either employer mandate.

If a variable hour employee is determined to work more than 30 hours per week on average, then the employee may be deemed full-time, presuming the employee is not a seasonal employee. Due to the employer mandates, full-time employees must be offered minimum essential coverage, affordability, and minimum value within 90 days of this determination. Failure to comply with these mandates results in “A” tax and “B” tax liability for the applicable large employer.

Project-based employees are a type of variable hour employees who can be particularly difficult to measure with a look-back period. Project-based employees are those whose employment is linked to specific projects by the employer. For example, a home health care aid may be assigned to serve a specific patient’s medical needs. Once the individual no longer requires the aid’s services, the employer may not use the employee’s services until he or she is assigned to a new patient.

A common question surrounding PPACA is the treatment of new hires. Assuming the position is not seasonal, is a new hire full-time or part-time? The answer depends on the employer’s reasonable expectations of the position. If the employer has a reasonable expectation upon hire than an employee will average 30 or more hours a week, then the position should be considered full-time upon hire. If the employer has an expectation that the employee will average less than 30 hours a week, the position should be considered part-time upon hire. However, if the employer in unable to make such a determination one way or the other, the position is considered variable hour, and the employee is considered a variable hour employee.

Variable hour employees are a PPACA-created concept, and thus the idea may be unfamiliar to some employers. However, obtaining familiarity is highly encouraged, as variable hour status can create a potential 13-month delay in offering coverage via the look-back measurement method. For high-turnover industries, a delay of that length could effectively equate to a denial of coverage outright.

Importantly, employers control the initial classification of variability. This control, however, is somewhat tempered by what an auditor or litigious challenger would deem reasonable. Employers are encouraged to use their best judgment in making determinations upon new hire, but legal opinions and records justifying such determinations are highly encouraged, as challenges from employees who feel entitled to coverage or the federal government are likely in the coming years. Legal precedent has yet to be created, and unfortunately for some employers, time and expense litigating such precedents will be necessary.

What is a Leased Employee?

A leased employee is not actually an employee of the employer. Leased and co-employment arrangements permit an employer to hire full-time levels of hourly contribution without exposure to PPACA obligations. Leased employees can be an effective means of growing a business without additional legal burdens so long as the cost of leasing the employee is less than the cost of said legal burdens.

Break In Service

Building off the 13-month new hire measurement, employers may chain 13-month measurements if at least a 13-week break-in service occurs in between each measurement. New regulations permit employers to treat employees who have a break in service of at least 13 weeks as newly hired when the employee returns to work. The break in service may be employer or employee initiated under the current rules. Thus, in some cases, coverage could be delayed or denied altogether by aggressive use of this rule.

Conclusion

Once you have classified your business, your planning obligations and options will be available for scrutiny. Applicable large employers face mandates and need a plan to avoid excise penalties. These plans may come from the fully-insured market or the self-insured market, depending on suitable product identification, which we will tackle in a future step. The start date of these plans depends on qualification for special transition relief.

Knowing which employees require coverage can save an employer from potentially enormous excise tax penalties. Beyond this knowledge, however, knowing how to control eligibility to the greatest extent permitted under the law will permit employers to deny or delay coverage and control eligibility to either maintain maximum efficiency for the health plan or permit only employees the employer wishes to incentivize eligibility into a sponsored health plan. Thus, all employers are encouraged to classify every employee, either by status or through the look-back measurement method.

Relevant Citations:

IRC § 4980H
PPACA § 1304
PHSA § 2791

LBMC Employment Partners, LLC can assist you with all your ACA needs! We assist clients with identifying and gathering the data necessary to determine an employer’s and employee’s ACA status, as well as preparing the annual Forms 1094/1095-C. Applicable Large Employers must report various benefit and payroll activity, and we can guide you along the way. We understand the reporting requirements and how information should be retained and submitted. Both small and large employers benefit from our ACA consulting services. Please review our outline of the ACA services we provide and how we can assist you.

Let our team know if you would like to schedule a meeting to discuss your ACA compliant plan of action. Again, it is not an easy task and because reporting requirements require you to go back to January 2015, it is important to start the process as quickly as possible to avoid year-end resource constraints.