Does the Affordable Care Act’s Employer Mandate Apply to Your Business?

By Leah Davis, CPA

The employer provisions of the Affordable Care Act (ACA), also known as “Obamacare,” have now been in effect for more than five years. Although the law is decidedly old news, it’s worth a mention as we begin 2019. While the ACA’s individual mandate was repealed in early 2018, the employer mandate, which requires all applicable large employers to provide minimum essential medical coverage to all eligible employees and to provide annual reporting to both employees and the IRS, still stands. Unfortunately, many employers are unsure how—or even if—the mandate applies to their business.

Does the ACA’s employer mandate apply to your business? Here are a few basic questions to help you determine whether or not your business could be affected.

Are you an applicable large employer?

The employer mandate applies only to applicable large employers (ALEs), which are defined by the ACA as any employer or group of employers with common ownership that employ 50 or more full time and/or full time equivalent (FTE) employees during the prior calendar year. If you averaged 50 full-time employees for the first time during 2018, you would not be considered an ALE until calendar year 2019.

How many FTE employees do you employ?

Calculating your FTE count can be a little tricky. Let’s say you have 25 full-time employees who work 40-plus hours per week. To supplement your full-time staff, you also employ 45 part-time and seasonal employees who worked a total of 44,200 hours throughout 2018. (We’re not worried about the number of hours worked by your full-time employees, as they always count as 1 FTE.)

The ACA defines an FTE employee as an employee who works more than 30 hours per week. Here’s how to calculate the number of FTEs represented by your part-time and seasonal staff:

Divide the total hours worked in 2018 (44,200) by 12 months, which equals 3,683.33 per month, and divide this by 130. This equals 28.333 FTEs. Add this number to your 25 full-time employee count, and you’re sitting at 53.33 full-time employees for the purposes of the ACA provisions.

It’s worth mentioning again that employers must consider ALL OTHER organizations with common ownership when calculating their FTE count. For example, say Tom is a 100-percent owner of ABC Company that employs 30 FTEs, and he also has an 80-percent ownership in XYZ Inc. that employs another 25 FTEs. In this case, both companies would be regulated by the ACA because, together, they form an applicable large employer due to the common ownership rules.

If the employer mandate applies, are you meeting its requirements?

Per the ACA, “minimum essential medical coverage” must be affordable per IRS affordability standards, and employers must report compliance with the requirements annually on Form 1094C/1095C. The form is typically due each year on January 31, but t the IRS has extended the filing deadline to March 4, 2019.​ In addition, employers must offer medical coverage to all eligible employees and dependents (spousal coverage is optional) within 90 days of eligibility.

Additional reporting requirements apply to employers with self-insured medical plans and those issuing more than 250 Form W-2s. Regarding the latter, the employer must report the total annual cost, including the employee portion, of employer-provided health coverage on each employee’s W2. This includes medical, dental, vision, and other health-related employer coverage.

Don’t let the ACA catch you by surprise.

The idea that ACA’s employer mandate is no longer around is a common misconception. Don’t let it cost you! If you’re out of compliance with the ACA, you could face steep penalties, so it’s important to know whether or not it applies to your organization. If you’re unsure of how you may be affected, give AEM Workforce Solutions a call. We can help you understand how these regulations could impact your business and what you should do next.

Leah Davis, CPA

President of AEM Workforce Solutions, Partner

As President of AEM Workforce Solutions, Leah develops customized solutions to help employers solve their people challenges.

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