Employer Shared
Responsibility
Version: October 18, 2013
1
Disclaimer
This training material is for informational
purposes only and is not intended as tax or legal
advice. Please talk with your attorney or tax
professional for specific questions related to
your Tribe or Tribal entity as an employer.
2
This Training
• Seven sections to this training:
– Overview of Tribes and Tribal Entities as
Employers under the ACA
– Small Business Health Options Program (SHOP)
– Small Business Tax Credit (Tax Credit)
– Employer Shared Responsibility
• Look Back Measurement Method
• Transition Rules
– IRS Reporting and Other Requirements
3
Employer Shared Responsibility
Topics
•
•
•
•
Employer Shared Responsibility Mandate
Determining Large Employer Status
IRS Assessable Payments
Avoiding Assessable Payments
4
Employer Shared
Responsibility Mandate
5
Shared Responsibility Mandate
• The Employer Shared Responsibility mandate means
that an employer will be subject to an “Assessable
Payment” or “Shared Responsibility Payment” (taxes)
for not offering health insurance coverage that is
affordable or that does not provide minimum value
to its full-time employees.
• Applies to employers with 50 or more full-time
employees.
• The IRS rules are not final yet.
6
Employer Shared Responsibility
Mandate Delayed
Until 2015
• IRS Notice 2013-45 announced a one-year
delay of implementation of the:
– Employer Shared Responsibility provisions under
§ 4980H; and
– Reporting requirements under §§ 6055 & 6056.
7
Shared Responsibility Mandate
• Tribal governments and subdivisions of Tribal
governments are not exempt.
– The rules specific to governmental entities (which includes
Tribal governments and subdivisions of Tribal
governments) have not been issued by the IRS.
• All Tribal entities will have to comply with these
provisions to avoid Assessable Payments.
– Tribal businesses, organizations and all other entities such
as casinos, retail businesses, health centers, nursing homes
and non-profit organizations.
• See 26 U.S.C. § 4980H and 78 Fed. Reg. 218.
8
To Avoid Assessable Payments
• A large employer must offer to its full-time
employees and their dependents the opportunity to
enroll in health insurance coverage:
– That provides Minimum Essential Coverage under an
Eligible Employer-Sponsored Plan;
– That is Affordable; and
– That provides Minimum Value.
• If offered, a full-time employee would not be eligible
for a premium tax credit or cost sharing reduction.
• The assessable payment is triggered by the
employee’s receipt of a tax credit or cost sharing
reduction.
9
Determining Large
Employer Status
10
Determining Large Employer Status
• Many employers will know they are a large employer
without having to count their full-time employees.
• For employers at or near the threshold, the number
of full-time employees must be counted.
• If it is determined that the employer employed 50 or
more full-time employees in a calendar year, the
employer is considered a large employer for the
following calendar year.
11
Determining Large Employer Status
(continued)
1. Calculate the number of full-time employees (including
seasonal workers) for each calendar month in the prior year.
2. Calculate the number of full-time equivalent employees
(including seasonal workers) for each calendar month in the
prior year.
• Full-time equivalent employees = Add the total
number of hours of service of part-time employees in a
calendar month and divide by 120.
3. Add the number of full-time employees and full-time
equivalent employees for each month of the calendar year.
4. Add up the 12 monthly numbers and divide by 12.
12
Determining Large Employer Status
(continued)
• The Result
– If the result is less than 50, the employer is
not a large employer.
– If the result is 50 or more, the employer is a
large employer.
• Employer may not be considered a large employer if
the Seasonal Worker Exception applies.
13
Example: Large Employer Determination
1. Tribal business calculated the number of fulltime employees (including seasonal workers)
it employed for each calendar month in the
prior year.
– Reminder:
• A full-time employee is employed an average of 30 hours of
service per week (or 130 hours of service per months).
• Methods to count hours of service provided in Overview.
FT
Jan
Feb
Mar Apr
May Jun
Jul
Aug
Sep
Oct
Nov Dec
29
28
29
45
45
45
28
28
29
28
45
29
14
Example: Large Employer Determination
(continued)
2. Tribal business then calculated the number
of full-time equivalent employees (including
seasonal workers) it employed for each calendar
month in the prior year.
– In January, 25 part-time employees worked a total of
2,258.5 hours which was then divided by 120 for a total of
18.8 full-time equivalent employees in January. Fractions
must be included.
Jan
FTE
Feb
Mar Apr
May Jun
Jul
Aug
Sep
Oct
Nov Dec
18.8 19.2 20.3 21.5 21.1 22.5 18.9 18.2 18.6 20.4 19.5 20.5
15
Example: Large Employer Determination
(continued)
3. Tribal business added the number of full-time
employees and full-time equivalent employees for
each month of the calendar year.
Jan
FT
FTE

29
Feb
28
Mar
29
Apr
28
May Jun
45
45
Jul
45
Aug
45
Sep
28
Oct
28
Nov
Dec
29
29
18.8 19.2 20.3 21.5 21.1 22.5 18.9 18.2 18.6 20.4 19.5 20.5
47.8 47.2 49.3 49.5 66.1 67.5 63.9 63.2 46.6 48.4 48.5 49.5
– Then added the numbers in the last row and divided the
total by 12 for a result of 53.9 or 53 full-time employees.
In this example, Tribal business is a large employer.
16
Seasonal Worker Exception
An employer may not be considered a
large employer if:
– The employer’s work force only exceeds 50
full-time employees for 120 days or less
during the calendar year; and
– The employees in excess of 50 who were
employed during that 120 day period or less
were seasonal workers.
17
Seasonal Worker
• Seasonal worker = “…a worker who performs labor or
services on a seasonal basis as defined by the Secretary of
Labor, including (but not limited to) workers covered by 29
CFR 500.20(s)(1), and retail workers employed exclusively
during holiday seasons.” 78 Fed. Reg. 242
• Until further guidance is issued, an employer may use a good
faith interpretation of seasonal worker under DOL Regulations
29 CFR 500.20(s)(1).
• Per IRS guidance:
– The 120-period may be applied using four calendar months (whether
or not consecutive) or a period of 120 days (whether or not
consecutive).
– Not limited to agricultural or retail workers.
18
Example: Seasonal Worker Exception
Tribal business hired seasonal workers in summer months for
120 days or less. It applied the seasonal worker exception and
determined that:
• Its workforce only exceeded 50 full-time employees for 120 days or less
during the calendar year (last row); AND
• The employees in excess of 50 who were employed during the 120 period
were seasonal workers (second row), i.e. 18 full-time seasonal workers
employed May through August.
• Tribal business is not a large employer.
Jan
FT
FTE
29
Feb
28
Mar
29
Apr
28
May Jun
45
45
Jul
45
Aug
45
Sep
28
Oct
28
Nov
29
Dec
29
18.8 19.2 20.3 21.5 21.1 22.5 18.9 18.2 18.6 20.4 19.5 20.5
47.8 47.2 49.3 49.5 66.1 67.5 63.9 63.2 46.6 48.4 48.5 49.5
19
Companies with a Common Owner
• Parent corporations and subsidiaries
• To determine large employer status, total the
number of all full-time employees (including full-time
equivalent employees) working at all companies.
• If the total number of employees is at least 50 fulltime employees, then each separate company is
considered a large employer.
– Even if each separate company employs less than 50 fulltime employees
20
New Employers
• An employer that did not exist in the entire
preceding year is considered a large employer if it is
reasonably expected to employ an average of at least
50 full-time employees (taking into account full-time
equivalent employees) on business days during the
current calendar year.
• The rules are not final as to new employers.
21
IRS Assessable Payments
22
How Assessable Payments Can
Be Incurred
If a large employer:
(1) Does not offer coverage to at least 95% of its
full-time employees (and their dependents), OR
(2) Offers coverage to at least 95% of its full-time
employees (and their dependents) but the
coverage is not affordable or does not provide
minimum value
AND at least one full-time employee receives a
premium tax credit or cost sharing reduction in the
Individual Marketplace.
23
Employees with Access to
Coverage
Employees with access to an eligibleemployer sponsored plan that is
affordable and that provides minimum
value cannot obtain a premium tax
credit or cost sharing reduction in an
Individual Marketplace.
24
First Type of Assessable Payment
under 4980H (a)
• An employer may incur a liability for:
– not offering or offering less than 95% of its full-time
employees (and their dependents) the opportunity to
enroll in minimum essential coverage under an eligible
employer-sponsored plan; and
– at least one full-time employee receives a premium tax
credit or cost sharing reduction in the Individual
Marketplace.
• This is an employer that does not offer health
insurance coverage or does not offer coverage to at
least 95% of its full-time employees.
25
First Type of Payment (cont’d)
• Assessable Payment: $2,000 per employee x
(number of full-time employees – 30) ÷ 12
(assessed monthly). This is approximately
$166.67 per employee, per month.
– Example: An employer with 80 full-time
employees would owe an assessable payment of
$8,333.33 per month [i.e., $2,000 x (80 – 30) ÷
12 = $8,333.33].
26
Second Type Assessable Payment
under 4980H (b)
• An employer may incur a liability for:
– offering at least 95% of its full-time employees (and their
dependents) the opportunity to enroll in minimum
essential coverage under an eligible employer-sponsored
plan that is not affordable or does not provide minimum
value (MV); and
– one or more full-time employees receives a premium tax
credit or cost sharing reduction in the Individual
Marketplace.
• This employer makes the offer as required but the coverage is
either unaffordable or does not provide MV.
27
Second Type of Payment (cont’d)
• Assessable Payment: $3,000 x (each full-time
employee that receives a premium tax credit
or cost sharing reduction) ÷ 12 (assessed
monthly). This is $250.00 per employee, per
month.
– Example: If 5 employees receive a premium tax
credit, then the employer would owe an
assessable payment of $1,250 per month [i.e.,
$3,000 x 5 ÷ 12 = $1,250].
– Cap: Cannot exceed the assessable payment for
not offering coverage (first type).
28
Avoiding Assessable
Payments
29
Offer of Coverage
• A large employer must:
– Make an offer of coverage to at least 95% of its
full-time employees and their dependents.
• 95% is a margin of error applied at the end of the tax
year. An employer must offer coverage to all but 5%, or,
if greater, five of its full-time employees.
– Provide the “effective” opportunity to enroll or
decline to enroll no less than once during the plan
year.
– Offer must be made within three months of hire.
• A group health plan may not apply any waiting period
that exceeds 90 days.
30
Dependents
• Offer of coverage to dependents:
– Dependents includes children under 26
years of age, but does not include spouses.
– Employer does not have to pay for
dependent coverage.
31
Eligible Employer-Sponsored Plan
• The ACA requires individuals to have minimum
essential coverage (MEC) by January 1, 2014.
• A person can meet the individual responsibility
mandate through coverage under an eligible
employer-sponsored plan which includes:
– A group health plan or group health insurance that is a
governmental plan (such as FEHBP),
– Any other plan or coverage offered in the small or large
group market, or
– A grandfathered plan in the group market.
32
Eligible Employer-Sponsored Plan:
Grandfathered Plan
• A plan in effect on March 23, 2010, date of the ACA.
• Plan does not have to comply with most of the new
requirements imposed on other plans.
– Except that it must not have annual limits, no rescission if an insured
gets ill, and must be offered to dependents up to age 26.
• It can lose its grandfathered status with changes to coinsurance, co-payments, deductibles, or employer
contribution.
• A plan is able to make some changes due to inflation and can
still maintain its status.
• Requirements for grandfathered plans were issued in 2010
and are available at 75 Fed. Reg. 34538.
33
What is Minimum Value?
• Minimum value = a plan has to cover at least
60% of the total allowed cost of benefits that
are expected to be incurred under the plan.
• Per recent proposed rules, there are four
methods an employer may use to determine
minimum value. See 78 Fed. Reg. 25909.
34
Minimum Value
Four methods an employer may use to determine MV:
• The MV calculator made available by HHS and the IRS
provided at:
http://www.cciio.cms.gov/resources/regulations/index.html#
pm.
• One of the safe harbors established by HHS and IRS.
• An actuarial certification if an eligible employer-sponsored
plan has nonstandard features that are not compatible with
the MV calculator and may materially affect the MV
percentage.
• As to plans in the small group market, conformance with the
requirements for a level of metal coverage (bronze, silver, gold
or platinum) defined at 45 CFR 156.140(b).
35
What is Considered Unaffordable?
• An employer’s insurance plan is deemed unaffordable if
the “employee only” contribution towards the premium
is more than 9.5% of the employee’s household income.
– “Employee only” does not include dependent
coverage.
– 9.5% does not include the employer’s contribution.
– Household income is based on the modified adjusted
gross income (MAGI) of the employee and any
members of the employee’s family (including a
spouse and dependents) who are required to file a
return.
36
Affordability Safe Harbors
• Since an employer may be unable to ascertain an employee’s
household income, an employer may rely on an affordability
safe harbor to avoid the second type of assessable payment:
– W-2 Safe Harbor
– Rate of Pay Safe Harbor
– Federal Poverty Line Safe Harbor
• An employer may only use a safe harbor if it offers its full-time
employees and their dependents the opportunity to enroll in
– minimum essential coverage under an eligible employer-sponsored
plan that provides minimum value as to the “employee only”
coverage offered to the employee
37
W-2 Safe Harbor
• The “employee only” portion of the premium
is deemed affordable if the employer’s lowest
cost plan does not exceed 9.5% of the
employee’s W-2 wages.
• Application of this safe harbor is determined
at the end of the calendar year.
• Per Guidance: An employer could deduct
9.5%, or lower percentage, from an
employee’s W-2 wages each pay period.
38
Rate of Pay Safe Harbor
• The employee only portion of the premium is deemed
affordable if it does not exceed 9.5% of:
– For hourly employees, the employee’s hourly rate of pay as
of the first day of the coverage period multiplied by 130
hours for hourly employees.
• Example: Employee earns $12.00 per hour. Multiply $12.00 x 130
hours = $1,560 x 9.5% = $148.20. Employee only coverage cannot
exceed $148.20 per month.
– For non-hourly employees, the employee’s monthly salary
• Example: Employee earns $3,000 per month. Multiple $3,000 x 9.5%
= $285.00. Employee only coverage cannot exceed $285.00 per
month.
– Limitation on use of safe harbor: Employee’s wages cannot
be reduced during calendar year.
39
Federal Poverty Level Safe Harbor
• The “employee only” portion of the premium
is deemed affordable if it does not exceed
9.5% of:
– The Federal poverty line (for the State in which
the employee is employed) for a single individual
for the applicable calendar year, divided by 12.
• Employer would use the monthly FPL amount
as a limit on the employee only contribution.
40
2013 Federal Poverty Guidelines
Single Individual
States
Annual
Income
9.5%
Divided by 12
(employee only
contribution max)
48 Contiguous
States and D.C.
$11,490
$1,091.55
$90.96
Alaska
$14,350
$1,363.25
$113.60
Hawaii
$13,230
$1,256.85
$104.74
41
How will the Employer Find Out About
a Potential Assessable Payment?
• Per IRS Guidance, the IRS will notify the employer of
the potential liability and provide the employer with
an opportunity to address any liability before it is
assessed against the employer and before any notice
and demand for payment is made.
• IRS will contact the employer after:
– The employee files his/her tax return claiming the
tax credit for the previous year.
– The employer files its 6056 Return.
42
Recommendations
• Determine whether you will be considered a large
employer in 2014.
• If you will be considered a large employer:
– Keep apprised of regulations regarding transitional rules in
2014 in preparation for 2015 and other guidance.
– Talk with your attorney or tax advisor regarding
compliance.
• Learn more about the large employer requirements
at: ://business.usa.gov/healthcare.
• Determine your responsibility at:
http://tribalhealthcare.org/tribalemployers/determine-your-responsibility/.
43
Section Review
• Why is this important for Tribes?
• Who is subject to the Shared Responsibility
Mandate?
• Are part-time employees counted to
determine large employer status?
• Describe one type of assessable payment?
• Explain what an employer needs to do to
avoid an Assessable Payment.
44
Questions
45