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misconceptionsTHE AFFORDABLE CARE ACT
BIGGESTTHE
about
It’s cheaper to pay the excise tax than to offer coverage to employees.
REALITYThere’s a big difference between providing coverage and offering coverage. To meet the requirement, you need only to offer coverage to 95% or more of your full-time employees (70% in 2015); it doesn’t matter how much you charge them or if any of them accept the coverage.
WARNINGMissing the 95% coverage requirement — even narrowly — can be costly, because compliance is all or nothing. A company with 1,000 full-time employees that offers coverage to 949 employees, or 94.9%, instead of 950 employees, would still owe an excise tax of $1.94 million (1,000 full-time employees minus the first 30, multiplied by $2,000).
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to a minimum
95%
of full-time employees
Don’t worry about offering coverage to workers from staffing agencies.
REALITYWorkers from staffing agencies may be considered common law employees, and if any of them are, you’ll need to add them to your total employee count in your Affordable Care Act calculation or risk incurring a hefty excise tax.
IT GETS COMPLICATEDGenerally, the IRS considers individuals to be common law employees if you’re authorized to direct and control the way they perform their services. (Actual control isn’t required.) The IRS looks at three main areas. The first is behavioral control — whether the business has a right to direct or control how the worker performs specific tasks for which he or she is engaged. The second is financial control — whether the business has a right to direct and control the financial and business aspects of the worker’s activities. The third is the relationship of the parties — how the parties perceive their relationship.
1 Behavioral control 2 Financial control 3 Relationship of the parties
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It’s easy to figure out who is a full-time employee.
REALITYAn employer has to make a lot of decisions about how to calculate whether an employee is full-time or part-time. In the simplest form, a full-time employee works an average of at least 30 hours per week. To determine that, an employer has to count an employee’s paid hours, including paid time off, and must count hours worked by the employee for any related employers.
TWO WAYS TO COUNTThere are varied ways to determine if someone works more than, or less than, 30 hours. For hourly employees, an employer has to use actual hours. For nonhourly employees, the employer can count actual hours or use an equivalency method: the weeks-worked equivalency method or days-worked equivalency method. To use actual hours for nonhourly employees would require a time-keeping system, which most employers would find cumbersome.
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Offer coverage
3 main areas
Hourly employees
Nonhourly employees
