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Small Business Employee Benefits and HR Blog

Quick Guide to Calculating Employer Shared Responsibility Fees in 2015

March 13, 2014

The Affordable Care Act (ACA) requires certain employers to either offer employees health insurance, or be subject to a penalty. This is called the "Employer Mandate" or "Employer Shared Responsibility" fees.

calculate employer mandate fees

Originally set to begin in 2014, the Employer Shared Responsibility fees now begin in 2015 and are being phased in more slowly. This article provides updated information on how to calculate the Employer Shared Responsibility fee in 2015.

Employer Shared Responsibility Fee Rules for 2015

The administration has offered transitional relief in 2015 for the Employer Shared Responsibility fee. Here are the rules for 2015.

For 2015, if an employer with at least 50 full-time employees (including full-time equivalents) does not offer "minimum essential" and "affordable" coverage -- or offers coverage to fewer than 70% of its full-time employees (and their dependents) -- the employer will owe an Employer Shared Responsibility fee IF one of their employees purchases a health plan through the exchanges and receives a federal tax credit or subsidy.

The rules are not simple, and we'll go into more detail below. To summarize, for 2015:

  • The employer shared responsibility fee only applies to employers with 50+ FTE employees.

  • The employer is subject to the fee if they do not offer minimum essential, affordable coverage to at least 70% of full-time employees.

  • The Employer Shared Responsibility fee is equal to the number of full-time employees the employer employed for the month (minus 80) multiplied by 1/12 of $2,000, provided that at least one full-time employee receives a premium tax credit/subsidy for that month. 

How to Calculate the Employer Shared Responsibility Fee in 2015

In order to calculate the Employer Shared Responsibility fee for 2015, you must answer the following questions:
  1. Do you have 50+ FTE employees?

  2. What qualifies as “minimum essential coverage”?

  3. What is the fee if I do not offer “minimum essential coverage”?

  4. What is the fee if I offer “minimum essential coverage”, but it is not “affordable” for some of my employees?

1) Do you have 50+ FTE employees?

The Employer Shared Responsibility fee only applies to applicable large employers with 50+ FTE employees. In 2015, there is transition relief available for employers with 50-99 FTE employees.

If you employed 50 or more full-time employees on average during the preceding calendar year, they are an applicable large employer for the current calendar year.

You are NOT subject to the Employer Shared Responsibility fee in 2015 if you:

  1. Employed fewer than 50 full-time employees on average during the previous calendar year, or 

  2. Employed more than 50 full-time employees no more than 120 days during the previous calendar year due to a seasonal workforce.

Calculating the number of full-time employees.

Generally, a full-time employee is an employee who is employed on average at least 30 hours of service per week in a given month. However, for purposes of determining whether a company is an applicable employer, the company must include all full-time employees plus the full-time equivalent of its part-time employees.

To calculate the full-time equivalent of part-time employees, a company should add the number of hours worked by part-time employees and divide the total by 120.

The sum of the full-time employees and the full-time equivalent of the part-time employees is the number used to determine whether a company is an applicable large employer.

Simple translation: If you have fewer than 100 employees, you are not an applicable large employer. If you have 50 or more employees, you probably are an applicable large employer.

2) What qualifies as “minimum essential coverage”?

For purposes of the Employer Shared Responsibility fee, minimum essential coverage is the minimum amount of health insurance coverage an applicable large employer must offer to avoid paying the maximum fee (see #3, below). 

In order to avoid paying the maximum fee, the employer must offer each employee the ability to enroll in minimum essential coverage through an eligible employer-sponsored plan, which is:

  1. Any plan or coverage offered in the small or large group market within a State (including small business exchanges),

  2. Coverage under a grandfathered health plan, or

  3. A qualified governmental plan.

3) What is the penalty if I do not offer “minimum essential coverage”?

An applicable large employer who does not offer minimum essential coverage to at least 70% of full time employees may not have to pay a penalty in 2015.

The employer only pays a penalty if at least one employee enrolls in a health insurance exchange and also qualifies for tax credits or subsidies from the federal government.

If at least one employee receives federal assistance due to purchase of health insurance through an exchange in a given month, the employer must pay a monthly penalty based on the number of full-time employees employed during that month.

IMPORTANT: When calculating the amount of the penalty, the employer receives a credit of 80 full-time employees in 2015. (For example, a company with 100 full-time employees only has to consider 20 employees for purposes of the penalty).

The annual per employee penalty is $2,000.

To get the monthly per employee penalty, you simply divide the annual penalty by 12.

To calculate the total monthly penalty, you multiply the # of full-time employees employed during the month minus 80 by the monthly per employee penalty.

Example. 

In February, ABC Manufacturing employs 110 full-time employees and does not offer minimum essential coverage. In February, at least one employee purchases health insurance through the exchange and receives premium subsidies from the federal government.

The annual per employee penalty is $2,000.

The monthly per employee penalty is $2,000*(1/12).

For purposes of this calculation, we only need to consider 30 full-time employee due to the 30-employee credit. 

The total monthly penalty is equal to 30*2,000*(1/12) which is $5,000. 

4) What is the penalty if I offer “minimum essential coverage”, but it is not “affordable” for some of my employees?

An applicable large employer that offers minimum essential coverage to at least 70% of full-time employees may still be required to pay a penalty if the coverage is not “affordable” for one or more employees.

An employer’s coverage is considered unaffordable for any full-time employees who, in a given month, enroll in a health plan offered through their state exchange and are eligible to receive federal assistance. An employee is only eligible for federal assistance through the exchange if their required contributions for their employer's plan is greater than 9.5%.

If one or more full-time employees receive federal subsidies due to purchase of health insurance through an exchange in a given month, the employer must pay a monthly penalty based on the number of full-time employees who receive federal assistance.

The annual per employee penalty for not offering affordable coverage is $3,000.

To get the monthly per employee penalty, you simply divide the annual penalty by 12.

To calculate the total monthly penalty, you multiply the # of full-time employees who receive federal assistance by the monthly per employee penalty.

The penalty is capped at a maximum of $2,000 per full-time employee per year.

Example. 

In February, ABC Manufacturing employs 110 full-time employees and does offer minimum essential coverage. In February, three (3) employees purchase health insurance through an exchange and receive premium subsidies from the federal government. Thus, the coverage is unaffordable for three (3) employees for the month of February.

The annual per employee penalty is $3,000.

The monthly per employee penalty is $3,000*(1/12).

For purposes of this calculation, we only need to consider the 3 full-time employee who are receiving federal subsidies.

The total monthly penalty is equal to 3*3,000*(1/12) which is $750. 

Source: IRS Q&As on Employer Shared Responsibility Provision

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