Employer Penalties under PPACA: Actions in 2013 Will Impact Penalties in 2014

On March 23, 2010, President Obama signed the Patient Protection and Affordable Care Act (“PPACA”) and the Health Care and Education Reconciliation Act of 2010 (“HCERA”) into law.  While various portions of the law have already taken effect, the most significant portion of the law for employers, the so called “employer mandate” and its corresponding penalties, will be effective on January 1, 2014.  Recent guidance issued by the IRS regarding complex safe harbor provisions indicates that an employer’s actions in 2013 will set a precedent and determine which employees will be capable of triggering an employer penalty in 2014.  All large employers, particularly those with large part-time and variable hour staff, must review and address this issue as soon as possible or risk losing the potential means to avoid or reduce any penalties.  

Summary of the Employer Mandate
Effective 2014, large employers will be required to offer “minimum essential coverage” to their full-time employees and their dependents or pay a penalty.  An employer is “large” if it employs an average of at least 50 full-time employees or full-time equivalents.  Under PPACA, the threshold for “full-time” employment is as an average 30 hours per week.  The penalty for failure to provide coverage is applicable if at least one full-time employee receives government-subsidized coverage through an exchange.  The monthly penalty is 1/12^th of $2,000 for each full-time employee employed by the employer, reduced by 30 full-time employees.

Even if an employer does offer “minimum essential coverage,” the employer must still pay a penalty if at least one full-time employee receives government subsidized overage through an exchange.  This could occur if the coverage offered by the employer:  (1) is not “affordable” for one of their full-time employees; or (2) does not have an actuarial value of at least 60 percent.  The monthly penalty under this scenario is equal to the lesser of: (1) 1/12^th of $3,000 multiplied by the number of full-time employees who receive government-subsidized coverage through the exchange; or (2) 1/12^th of $2,000 multiplied by the number of the employer’s full-time employees, reduced by 30 full-time employees.

Why 2013 Matters
The penalties under the employer mandate depend largely on the number of “full-time” employees an employer has and the benefits that it provides to them.  Employers with seasonal and variable hour employees, however, would have a difficult time determining whether an employee would meet the full-time threshold of 30 hours per week during the current benefit year.  Recognizing this difficulty, the IRS has issued guidance that allows employers to establish look-back measurement periods, followed by stability periods, in order to determine whether variable hour or seasonable employees will constitute “full-time” employees under the law. 

The safe harbor provisions are complex and vary for ongoing versus new hires.  Put simply, however, the safe harbor provisions allow employers to establish a measurement period of up to 12 months and a subsequent stability period of equal length.  If the employee averages at least 30 hours per week during the measurement period, then he is considered to be a full-time employee for the following stability period.  Accordingly, the measurement period used to determine whether an employee will be “full-time” in 2014, the year the employer mandate becomes effective, will start in 2013.  For this and other reasons, employers need to begin the process of reviewing their work force structure and employment practices immediately to ensure that they will be well positioned for January 1, 2014. 

For more information about the safe harbor provisions or about employer compliance with the Health Care Reform Law in general, please contact Daniel J. Moore at (585) 419-8800 / dmoore@harrisbeach.com or the Harris Beach attorney with whom you usually consult.

This alert does not purport to be a substitute for advice of counsel on specific matters.

Harris Beach has offices throughout New York state including Albany, Buffalo, Ithaca, New York City, Niagara Falls, Rochester, Saratoga Springs, Syracuse, Uniondale, White Plains and Yonkers, as well as Newark, New Jersey and New Haven, Connecticut.