A Payroll Manager’s Guide to the Affordable Care Act (ACA)

As a payroll manager, understanding ACA is crucial, especially if your company has 50+ full-time equivalent employees (FTEs). Under the ACA, you’re required to provide health insurance to full-time employees—this is known as the employer mandate.

What is the ACA?

The Patient Protection and Affordable Care Act (ACA), passed in 2010, aims to make healthcare more accessible and affordable. It sets guidelines for employers, individuals, and health insurance carriers to ensure comprehensive coverage.

For employers, the key component is the employer mandate, which requires Applicable Large Employers (ALEs) (those with 50 or more FTEs) to offer affordable health insurance that meets Minimum Essential Coverage (MEC) to full-time employees and their dependents (children, not spouses).

Failing to comply with this mandate can result in penalties known as the employer shared responsibility payment.

❓Does the Employer Mandate Apply to Me?

To determine if the ACA applies to your company, you first need to calculate your total number of FTEs. Here’s how:

1. A full-time employee works at least 30 hours per week or 130 hours per calendar month.
2. A part-time employee works less than this.

To calculate your FTE number, use this formula:

(Total hours worked by part-time employees each week ÷ 30) + number of full-time employees = Total FTE

Once you have your total, check where you fall:

• 49 or fewer FTE employees: You’re not required to provide health coverage, though many companies still choose to offer it to maintain a healthy workforce.
• 50 or more FTE employees: You must offer coverage to at least 95% of your full-time employees.

Additional Considerations:

• Seasonal employees working less than 121 days don’t count toward the 50 FTE threshold.
• If your company is part of a group of related companies, the IRS may consider them as a single employer for ACA purposes.
• New businesses with 50 or more expected FTEs for the current year are also considered ALEs.
• Employees with coverage through the Veterans Affairs (VA) or TRICARE are not included in the FTE count.

⚕️ What Kind of Health Insurance Must Be Provided?

If you are an ALE, the health insurance you offer must meet the following ACA requirements:

1. Affordability: For 2023, the cheapest plan for a single employee must cost less than 9.12% of the employee’s household income. You can use the employee’s W-2 wages, rate of pay, or the federal poverty line to determine affordability.
2. Minimum Value: The plan must cover at least 60% of expected healthcare costs.

🕘 How Quickly Must You Provide Coverage?

If you qualify as an ALE, you must offer health insurance to eligible employees within 90 days of their start date. This includes all calendar days—weekends and holidays.

If employees have variable hours, you can take up to 12 months to assess whether they meet the full-time criteria before offering coverage. However, coverage must begin no later than 13 months after the employee’s start date.

🚫 What If the Employer Mandate Doesn’t Apply?

For small employers (those with fewer than 50 FTEs), the ACA offers benefits, such as potential tax credits through the Small Business Health Options Program (SHOP). You may be eligible for up to 50% of the premiums paid for employee coverage if you meet the following criteria:

• Fewer than 25 FTEs
• Average annual wages of less than $50,000 per FTE
• Offering a qualified health plan through the SHOP marketplace
• Paying at least 50% of your employees' premium costs

❗What Happens If You Don’t Provide Coverage?

If you are an ALE and fail to offer health insurance to at least 95% of your full-time employees, you could face penalties. In 2023, the penalty is $2,880 annually per employee, excluding the first 30 employees. Here’s an example:

If you have 50 FTEs and don’t provide coverage:

(50 employees - 30) x $2,880 = $57,600 per year in penalties

Penalties also apply if the coverage offered is not affordable or doesn’t meet minimum value requirements. Additionally, if one of your employees qualifies for federal subsidies through the health insurance marketplace, you may face further penalties.

📄 Reporting Requirements

Under the ACA, ALEs must file Form 1095-C with the IRS each year to confirm compliance with the employer mandate. This form provides details about the health insurance offered and is also sent to employees for tax purposes. If you fail to file these forms by the deadline, the penalty can be $290 per form not filed, doubling to $580 if no filing occurs.

For any additional questions, please reach out to us at help@goco.io 💚