Health Care Law Blog

Pivotal Question for 2014: Are you a Large Employer?

While originally scheduled to start in 2014, now beginning in 2015, "large employers" will be required to provide adequate health care coverage to their full time employees or pay a penalty. This requirement is known as health care reform’s Employer Mandate. In order to assess whether your company is subject to the Employer Mandate, you must first determine whether your company is a "large employer."

In general, a "large employer" is a company that employs an average of at least 50 full time employees during the preceding calendar year. While this definition seems straightforward, please consider several often unknown items that may cause your company to meet the 50 employee threshold.

• Fifty full time employees mean 50 full time equivalent employees. The hours worked by part time employees are considered and thus, part time employee's full time equivalency must be determined.
• Full time employees are those who average at least 30 "hours of service" per week (or 130 hours per month).
• "Hours of service" include those hours for which employees may be compensated, even if they are not working. Examples include paid vacation time and paid sick leave.
• Only common law employees are considered in calculating the 50 employees. Leased employees or independent contractors are not considered.
• The calculation is made on the basis of last year’s employee census. The large employer determination, therefore, is made after a retroactive review of employment records.
• Certain controlled group rules apply. This means that commonly owned companies may be required to combine employees when making the large employer determination.
• There is an exception for seasonal workers. If you employ seasonal workers, you should ask your advisor about this provision.

Taking these considerations into account, the following formula should generally be used to determine large employer status:

1. Determine the number of full time employees in a given month (those working more than an average of 30 hours per week or 130 hours per month);
2. Determine the number of full-time equivalent employees in a given month (count all hours of part time employees and divide that number by 120);
3. Add together the numbers from steps 1 and 2, above;
4. Repeat steps 1, 2 and 3, above, for the remaining 11 months of the year;
5. Calculate the total sum over 12 months and divide the aggregate number by 12 (disregard any decimals);
6. If the final number is 50 or greater, you are a large employer subject to the Employer Mandate.

If you would like assistance in understanding how the Employer Mandate applies to your company and to avoid any penalties, contact Mindi Johnson at (616) 726-2252 or mjohnson@fosterswift.com 

Categories: Employee Benefits, Employment, Health Care Reform