Fundamentals Of The Affordable Care Act For Growers
The passage of ‘The Patient Protection and Affordable Care Act’ (PPACA) and its implementation will affect employers and employees of large and small agricultural operations growing both agronomic and specialty crops. This publication provides a summary of the basic facts and figures of the PPACA which employers and employees should be aware of before implementation.
Many of the regulations associated with healthcare reform are assigned based on business size, measured by the number of full-time equivalent (FTE) employees. Conversely, the inclusion of an employee in a business’s health care plan will be based on the employee’s work status; either as a seasonal, part-time or full-time employee.
This article uses these metrics to describe employer or employee responsibilities and provides answers to questions frequently asked by both. Please note that all businesses, regardless of size and despite the delay in the large-employer insurance mandate to Jan. 1, 2015, were required to begin reporting to the federal government beginning on Oct. 1, 2013.
Understand “Controlled Groups”
Many business owners, in an attempt to reduce employee numbers and avoid penalties, have inquired on splitting a business into separate business entities (e.g. a growing business and shipping business). Doing so will not effectively avert ACA-related mandates, due to the “controlled groups” regulations in ACA. There are three classifications of a controlled group:
1. A “parent-subsidiary” controlled group exists when a parent company directly or indirectly owns 80% of a subsidiary organization;
2. A “brother-sister” controlled group exists where the same five or fewer persons own more than 80% of two or more other entities and own more than 50% when taking into account the ownership of each person only to the extent that it is identical with respect to each such entity; and
3. A “combined” controlled group exists where a group includes
both parent-subsidiary and brother-sister members.
Companies that are part of the same controlled group generally must be combined for the purpose of determining whether they collectively employ 50 or more full-time or full-time equivalent employees under the ACA. Where the combined total of full-time or full-time equivalent employees in a controlled group is at least 50, each individual employer is subject to the employer mandate, even if such employer itself does not employ enough employees to meet the threshold.
Full-time Employees, FTEs, And Seasonal Workers
An employee is defined under the law as including citizens and those lawfully in the U.S. A full-time employee is any employee who consistently or on average works 30 hours per week (130 hours per month) or more based on a month-to-month analysis using a “look-back” method.
An hour of service or work is defined as an employee who is paid or entitled to pay including vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.
A full-time equivalent (FTE) is comprised of a composite of employees, including seasonal workers, who work equal to 30 employee hours per week.
Seasonal workers are defined as those persons working either full-time or part-time for 120 or fewer days per calendar year. You should confirm the definition of a seasonal worker and seasonal employee annually.
How To Determine Your Number Of FTEs
Each full-time employee within a business is equal to one FTE. The hours for each worker employed less than (<) 30 hours a week are added together and then divided by 30 (hours per week) to calculate the quantity of FTEs. The sum of full-time employees and the calculated FTE of those working < 30 hours week yield the business total FTE.
For example, if an employer hires two part-time employees and each work 15 hours per week, this is the equivalent of one FTE (15 hrs. + 15 hrs. = 30 hrs. = 1 FTE). Three employees working 10 hours per week each will also equal one FTE (10 hrs. + 10 hrs. + 10 hrs. = 30 hrs. = 1 FTE). Three employees working 40 hours per week will equal three FTEs where 1 FTE is equal to ≥ 30 hours a week (1 FTE + 1 FTE + 1 FTE = 3 FTEs). A business’s classification in the current year FTE will be based on the previous calendar year’s FTEs (e.g. 2014 classification will be based on FTEs calculated in 2013).
To calculate the annual number of FTEs (for employees working no less than three months or no more than 12 months), businesses will be required to track the hours worked by full-time and part-time employees throughout the calendar year and calculate FTE numbers on a weekly basis. In high-activity periods, for example harvesting or shipping seasons, the number of FTEs may increase at a business to well over a given numerical FTE classification (size of business, discussed below) limit. However, when averaged over 52 weeks or 12 months, the number of FTEs can be low enough (e.g. at or under 50 FTEs) to avoid any penalties associated with PPACA.
Requirements By Size
Businesses with 25 or fewer FTEs: Regulations and Penalties: Businesses with fewer than 25 FTEs are not required to provide health insurance to their full-time employees, yet are encouraged to do so via tax credits (see below). There are no penalties associated with not providing health insurance to full-time employees. In this size business, the ultimate responsibility of health insurance falls upon the employee. If the employer does not provide insurance, the employee is to provide insurance for themselves and their dependents (children under the age of 26) via private insurance or government health exchange or possibly face an associated tax for not purchasing health care.
Tax Credits. Businesses with 25 or fewer FTEs and an average employee wage of $50,000 or less (based on employee W-2s) will be eligible to claim a federal tax credit of up to 50% of employer-paid insurance premiums beginning in 2014 (35% in 2013). The primary qualification is that the employer must cover 50% or more of the cost of single (not family) health care premiums for all of the business’s full-time employees.
It is important to note that beginning on Jan. 1, 2014, in order to qualify for these tax credits a business must purchase insurance for their employees through the Small Business Health Options Program (SHOP) exchange. Non-exchange health premiums paid by small businesses will not be eligible for tax credits!
More information on this subject can be found on IRS Form 8941. Always check with your tax professional for details.
Businesses with 26–49 FTEs:
Regulations and penalties: Businesses with between 26–49 FTEs are also not required to provide health insurance to their full-time employees. Additionally, these businesses will receive no tax credit for paying 50% or greater of full-time employee health insurance premiums. There are no penalties associated with not providing health insurance to full-time employees.
In this size business, the ultimate responsibility of health insurance falls upon the employee. If the employer does not provide insurance, the employee is to provide insurance for themselves and dependents via private insurance or the government health exchange program. Failure to obtain health insurance could lead to a tax penalty.
Businesses with 50 or more FTEs:
Those businesses employing 50 or more FTEs are to provide health insurance to full-time employees, defined as averaging greater than 30 hours per week over a calendar year, or pay a penalty for failing to do so. Employers are not mandated to provide health insurance to part-time workers that average less than 30 hours per week over a calendar year or seasonal workers as defined above. For businesses employing more than 50 FTEs, the regulations become more complex and include the following employer options.
Employer Provides Insurance Deemed “Affordable”: The employer will pay
no penalties, but must track annual FTEs to determine the following year’s classification.
Employer Cannot Provide Insurance: the full-time employee is responsible for obtaining personal and/or family insurance through private insurance or a government health care exchange. If the employee receives health care through a government health care exchange, the employer will be charged a $2,000 penalty per full-time employee.
The penalty only applies to the total number of full-time employees minus 30. So, if a business employs 60 full-time employees and refuses to provide health insurance to its workers, it will only be penalized for 30 employees (60 total employees – 30 employees exempt = 30 employee penalty x $2,000 penalty per employee = $60,000 annual penalty).
Employer Provides Insurance Deemed “Not Affordable”: When the employer provides health insurance for full-time employees, that insurance must meet two affordability requirements. First, the insurance must cover a minimum of 60% of the actuarial value of the cost of benefits. If the employer’s health insurance does not cover a minimum of 60% of health care costs for the employee, the employee could purchase separate/supplemental health insurance. This supplemental insurance can be claimed as a tax credit on the employee’s tax return, triggering the IRS to penalize the employer for failure to provide “affordable” insurance.
Second, an individual employee’s health care premium cannot exceed 9.5% of the employee’s income. If either of these situations occurs, the employer will be penalized the lesser of $3,000 per full-time employee that does not receive “affordable” health care as noted above or $2,000 for every one of the full-time employees that work for the employer minus 30 employees (see example in previous scenario).
Conclusions
Each agricultural employer must be aware beginning Jan. 1, 2015 (reporting began Oct. 1, 2013), they will need to comply with ‘The Patient Protection and Affordable Care Act’. This requires employers to collect and analyze data in 2013 to determine full-time equivalents (FTEs) as well as full-time employee numbers. It is vitally important for employers to collect and calculate these figures to determine what level (if any) health care best fits the financial capacity of the business while protecting/benefiting employees. This publication focuses only on information available as of August 2013. Much information is still to be released on the PPACA, particularly relating to state and federal health care exchanges.
If you have questions, we encourage you to contact a business attorney, accountant trade associations and/or visit Healthcare.gov.
Note from the authors: This document was intended to be the “first steps” in understanding the Affordable Care Act by providing a synopsis of the legislative bill and subsequent proposed regulations by the Treasury Department and Internal Revenue Service. Please consult legal council and/or licensed certified accountant to ensure you have adequately determined and verified your business status with regard to PPACA regulations. Detailed IRS documentation of PPACA regulations can be found at www.irs.gov/pub/newsroom/reg-138006-12.pdf. This document was prepared on Dec. 15, 2012. This document was revised on Aug. 7, 2013. Information herein is subject to change and is not to replace or substitute information provided by legal council or a certified accountant.
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