Believe it or not the ACA is already over four years old (signed into law on March 23, 2010) yet there is still a lot of confusion and uncertainty among benefit managers and in HR departments. Given the number of extensions and misinformation out on the internet it is easy to understand why questions remain. Today we’ll help clear up some questions regarding Employee Shared Responsibility (ESR),
ESR provision applies to businesses that exceed an Full Time Employee (FTE) threshold and do not provide employer sponsored health insurance or offer a plan that does not meet minimum standards:
- Minimum Value Coverage: Employer pays for at least 60% of covered healthcare expenses; and
- Affordable Coverage: Employees do not pay more than 9.5% of their wages for employer sponsored coverage; or
- Offer coverage to less than 70% of FTE and their dependents
If one of their employees purchases a health plan through an exchange and receives a subsidy or Federal tax credit.
ESR requirements are key provisions in the Affordable Care Act (ACA) that have the potential to have a negative financial impact on employers who fail to meet the standards. Developing a benefits strategy requires that your benefits team have a clear understanding of the provisions, terms and definitions of these requirements.
Three Key Employee Shared Responsibility Questions:
- When does ESR go into effect?
ESR goes into effect on January 1, 2015. Employers will use the FTE and PTE employee numbers during 2014 to determine whether they are subject to ESR beginning in 2015. To phase in the provisions gradually, the final rules state that in 2015 only large firms with 100 or more FTE are subject to ESR. In 2016 with Applicable Large Employers with 50 or more employees will be subject to the provision.
- How many employees does it take to be subject to ESR?
Employers that employed at least 100 (50 in 2015) FTE in the previous calendar year are defined as an Applicable Large Employer and fall under ESR. Sounds simple, right? But Part Time Employees (PTE) also factor into the equation.To begin your calculations you first you need to be understand that a FTE is defined as anyone who has worked 30 or more hours per week on average.For PTE it’s simply a matter of adding up the total number of hours worked by PTE and then dividing by 30 hours (equivalent of a FTE).
For example: Your business currently employs 80 FTE and 50 PTE who average 15 hours per week. To determine if ESR applies to you you need to see if you exceed 100 FTE based on the guidelines. The following equation will help you determine your FTE with regards to ESR.
# of FTE + (Total PTE Hours / 30 hours)
We already know that we have 80 FTE employees so we just need to calculate how many additional FTE we have based on the number of PTE hours worked.
In this example we had 50 PTE averaging 15 hours for a total of 750 PTE hours per week. Dividing by 30 (750/30) gives a 25 additional FTE to add to our total …80 + 25 = 105.
This business would be subject to ESR.
Seasonal workers also add to the hours used to determine FTE, but if your business only exceeded the threshold for 120 days or fewer a calendar year then you would not be subject to ESR.
- How do we determine if we are subject to ESR if we are a new business?New businesses will not be able to rely on last years employee count to determine if they are subject to ESR. Instead the employer is considered to be an Applicable Large Employer if it can be reasonably expected to exceed the threshold based on FTE and PTE an average of 50 employees in the current calendar year.
If you still have questions about regarding the Employee Shared Responsibility provisions, contact us at 310-414-9524, via email at email@example.com, or by completing our Fast Form below.