In 2016, small businesses across the country have had to get up to speed on the Affordable Care Act (ACA) employer mandate. This new mandate has left many businesses reeling as they attempt to navigate the more confusing areas of compliance, such as determining full-time equivalents and shopping the new marketplace. Compliance regulations may change when crossing state lines, further complicating the situation. Most notably, the state of California has its own unique system for small group insurance.
Here's what you need to know about small group ACA compliance in California:
Which companies qualify as small businesses?
In California, a small business is defined as one with fewer than 100 full-time employees or equivalents. To determine if part-time employees actually qualify as full-time equivalents, the government provides a free online calculator. The calculator has two input fields, one for the number of full-time employees and one for the number of hours worked each week by part-time employees. An additional worksheet can help employers determine the number of hours worked. Take a look at the example below:
Company X has three full-time employees and four part-time employees. The owner of Company X needs to determine how many full-time equivalents they have, so they input the average weekly hours worked by their part-time employees. It looks like this:
- Employee 1: 25hr/wk
- Employee 2: 25hr/wk
- Employee 3: 30hr/wk
- Employee 4: 15hr/wk
First of all, Employee 4 should not be included in the final tally. Employees who work less than 20 hours a week are excluded. Therefore, the total number of hours worked each week comes to 80. The employer therefore has two full-time equivalent employees for a total of five when added to his standard full-time employees. Company X is well below the limit for small businesses.
ACA compliance can cause headaches for unprepared employers.
Minimum responsibilities of small businesses
The federal government requires that small businesses provide 10 minimum benefits, which are:
- Prescription drugs.
- Infant care.
- Emergency care.
- Outpatient care.
- Pediatric services.
- Lab tests.
- Preventative services.
- Injury recovery services.
- Mental health services.
- Inpatient care.
Additionally, the cost of this coverage is required by California state law to remain the same for a 12-month period. Members of the group plan are also guaranteed renewal of their benefits, even if they receive a major injury or have a serious illness.
Employer contributions and employee participation
According to Covered California, employers that contribute 50 percent of employee premiums may be eligible for a tax credit. In general, those employers with fewer than 25 full-time equivalent employees making under $50,000 a year will be eligible for a tax credit. Those with fewer than 10 full-time equivalents making under $25,000 a year are typically eligible for the maximum tax credit.
"Participation requirements may vary by provider."
Participation is extremely important because all California insurance companies have minimum requirements. According to Benefits Cafe, the majority of California-based insurance companies require at least 70 percent of employees participate in the group plan. However, some companies may require fewer - some plans go as low as 50 percent - and others, such as Covered California, require 100 percent participation.
Affordability and responsibility
Not all small businesses are required to provide health insurance. In fact, any small business with fewer than 50 full-time equivalents is not required to provide insurance. That said, providing insurance and other benefits is a key way for small businesses to acquire top talent. Such incentives will make the enterprise more appealing to job seekers who have the luxury of only applying to a few desirable positions. Startups in need of skilled labor may consider providing group plans for this reason.
According to the federal government, health care coverage is affordable if the lowest cost self-only plan is less than 9.66 percent of the employee's household income. Penalties occur when employers fail to pay for their share of the coverage costs. The Internal Revenue Service stated that employers with 50 or more full-time equivalents will face penalties for failing to provide the minimal coverage explained above. If an employee who is eligible for coverage seeks insurance through the marketplace, the employer must provide evidence that affordable coverage was offered.
Managers who are already busy controlling the day-to-day activities of a business can easily miss an important step of this compliance obstacle course. Without proper guidance, many small businesses could face steep fines and penalties for noncompliance. Working with a professional employer organization can ensure that all compliance issues are met and managers will be free to focus on growing the business.
Want to learn more about the Affordable Care Act (ACA) employer mandate? Prepare your business with AlphaStaff's latest eBook, "Five Biggest Challenges to Small Business ACA Compliance"