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Understanding the Affordable Care Act: Calculating Your Headcount

 

affordable care actAs most employers know, many new provisions of the Affordable Care Act will become effective January 1, 2014.  What many employers do not know is that the “employer mandate” calculation will be based upon your 2013 staff headcount.

The Affordable Care Act is extremely complex.  One aspect, the so-called “employer mandate” is of particular importance to small to mid-size employers who are attempting to determine whether or not they are covered by this requirement.  Under the Affordable Care Act, only the smallest business will be exempt from penalties if they fail to offer health insurance in 2014.

Employer Mandate Headcount Calculation

In simple terms, the “employer mandate” imposes a penalty if an organization averages 50 or more – “full-time equivalent” (FTE) employees.  The Affordable Care Act mandates a new way of calculating FTE.  In order to determine the headcount of the organization, employers have a choice of calculating headcount by averaging the full twelve (12) months of the year, or by looking at a six (6) consecutive month period during the year (starting in 2013).  If a firm falls under the 50 FTE level, and chooses not to offer health coverage, it is exempt from the $2,000 per employee per year penalty. 

While there are no penalties if part-time employees are not offered coverage, part-time employees do enter into the calculation of FTE.  Here are the basics of the calculation:

  • Employers who average 50 or more FTEs, or 50 or more full-time employees during 2013, will be subject to the employer mandate.
  • A full-time employee is defined as one who is employed (hours worked or paid for) an average of at least 30 hours a week or 130 hours in a month.  Seasonal employees may be counted as full-time, based on these same hours calculations.
  • A full-time equivalent (FTE) refers to a combination of employees, each of whom individually is not a full-time employee.  For example, part-time or part-time seasonal workers must be combined to determine the total FTE headcount. 
  • To calculate the number of FTE in a given month, an employer must add all the hours worked, not more than 120 hours by any employee (still waiting for clarification if OT must be included), and divide the total by 120.  

Employer Mandate Penalty

If an organization falls under the employer mandate and does not offer “affordable” health coverage to its employees (including their children up to age 26), and if at least one employee receives federal insurance subsidies, the penalty is $2,000 per year for each full-time employee in excess of 30 full-time employees. There are no penalties if part-time employees are not offered coverage.

SharedHR will publish additional blogs and Bulletin articles as more information becomes clear on the Affordable Care Act.

 

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photo credit: Alex E. Proimos via photopin cc

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