Published from the Springfield Business Journal
|John Osborn: Coverage is deemed affordable if the premium costs don’t exceed 9.5 percent of an individual’s income.|
Tracking employees’ hours is more important than ever due to the impending federal Affordable Care Act. With ACA’s implementation set to begin Jan. 1, 2014, area businesses are becoming more mindful of quantifying the full- or part-time statuses of employees.
Employers already should be tracking employees’ hours per Department of Labor regulations that have been in place for several years, said Greg Kollmeyer, vice president of The Payroll Co.
But many employers may not be aware of the changing definitions and inclusion of full-time equivalents into criteria determining employers’ obligations to provide health care insurance.
“In the past, I think the collective consensus was that full-time was around 35 to 40 hours a week, and anything less was considered part-time,” said John Helms III, an accountant with Abacus CPAs LLC. “Part-time, now often called variable hour, takes on a whole new definition whereby companies deemed to meet the criteria of large employers could be responsible for offering medical coverage to employees that average 30 or more hours a week during specific, defined measurement periods.”
Employers must track employee hours prior to ACA implementation to determine their work status and companies with more than 50 full-time employees will be required to provide health insurance.
Dining By Design Co. LLC owner Ryan Tiller said his company has about 38 employees evenly split between full- and part-time workers. Tiller said he tracks his employees’ hours through a timecard system, which he started paying more strict attention to about a year ago.
However, Jerry Parnell, APlus Payroll’s director of business development in Springfield, said manual timecard systems are going to be difficult to maintain when ACA reporting goes into effect.
“The reporting capabilities with an automated system are going to be essential for staying in compliance and for proving compliance efforts,” he said.
When considering ACA’s new definitions of part- and full-time status, nearly 75 percent of Dining By Design’s employees will be considered full-time or full-time equivalents come January.
Because of the changing definitions, Tiller said he has “scaled back” the number of part-time employees on his serving staff. Dining By Design went so far as closing in February its three-employee retail operation The Pie Box, in part with ACA regulations in mind, Tiller said.
“We are striving to stay below that 50-person threshold,” Tiller said. “Once you cross that threshold, business has to increase substantially to offset the costs of providing health care to employees.”
Tiller’s concern is grounded on the ACA mandate that employers with more than 50 full-time employees or full-time equivalent employees – defined broadly as large employers – must provide affordable health insurance or potentially face fines.
“If a large employer fails to offer coverage to a 30-plus variable-hour employee and has a staff of 50 full-time or full-time equivalents, the penalty can mount to more than $40,000 in a year,” accountant Helms said. “The bottom line is that at some point employers are going to have to get down to tracking, monitoring and managing hours on a per employee basis. Unfortunately, it’s not as easy as taking a look at an employee’s work history and figuring up their average hours. (ACA) sets out very specific periods in which the measurements must occur.”
Helms said ACA lays out specific measurement periods of at least three months but no longer than 12 months, during which hours are tracked for variable hour employees. The administrative period, lasting less than 90 days, is the period in which average hours are tabulated per employee and a company determines if an employee qualifies for insurance coverage. This is also the period in which open enrollment would take place. During the following stability period, coverage is offered based on measurements and calculations in the two proceeding periods. The stability period is six to 12 months, but not shorter than the measurement period.
“All businesses will have an initial six-month measurement period,” Parnell said, noting each employer must consider the measurement period carefully because it will be different for each entity. “After that is when they will need to set their own measurement period. It will be important to have done the analysis prior to Jan. 1.”
Parnell said businesses should be analyzing their periods now, noting the sooner they know what period to use, the better.
“If employees work heavily three months of the year, but not the rest, you may want a 12-month measurement period,” said APlus Payroll CEO Brian Weimer. “If they work heavily nine months, you may want a six-month measurement period where it breaks that nine months up into four-and-a-half months in one measurement period and four-and-a-half months in the other.”
Once an employer determines if it has the critical number of full-time or full-time equivalent employees, Kollmeyer said employers also must determine whether current insurance is considered adequate coverage.
Minimum coverage is deemed affordable if the premium costs don’t exceed 9.5 percent of an individual’s income.
“However, the commentary to the proposed regulations state that future rules are expected to specify that where an employee obtains family coverage through his or her employer, the affordability threshold will be based on the employee’s contributions toward that family coverage,” said John Osborn of Osborn & Associates LLC.
“So, for now, even if the employee’s contribution toward a family plan exceeds 9.5 percent of his or her household income, but his or her contribution toward individual coverage otherwise would not, the employee will not be entitled to a subsidy for health insurance purchased through an exchange and the employer will not be subject to any penalties.”
Helms said while employers such as Dining By Design that have stayed below 50 full-time equivalent employees aren’t required to provide health care insurance, there may be tax incentives available to do so.
With its multifaceted gourmet food services, including corporate cafes and catering services, Tiller said Dining By Design could “easily break into different companies” to ensure a single business stays below the threshold of full-time or full-time equivalent employees.
That would most assuredly end with more paperwork, Tiller noted, which is why he would like to avoid such a scenario and is taking precautions with the number of part-time staff through strategic expansion.
Tiller said he currently spends about $225 per month, per employee who receives health insurance. With about half of his employees covered, he said, ““It would be a substantial cost to offer health care to more,” and would not necessarily result in more revenue.
“Once you cross the threshold, more business doesn’t necessarily mean more profits,” Tiller said. “The revenue would have to offset the costs of providing health care, which may not happen.”