“ACA is not something that happens overnight. It’s something you need to plan for.”

In episode #98 of Mission to Grow, the Asure podcast that serves as small business owners’ guide to cash, compliance and the War for Talent, Principal at Jackson Lewis PC, Brian Shenker, joins host Mike Vannoy to dive into all things Affordable Care Act (ACA). Brian breaks down the classification requirements for applicable large employers, the nuances of forms 1094C and 1095C, and the different safe harbors employers can choose from when determining affordability.

• The most important thing small business owners need to understand about the ACA is whether they are subject to the law. For businesses that are growing, they need to be planning for ACA compliance.
• The ACA does not require applicable large employers to provide healthcare, but will impose strict fines on companies that do not comply. While you can pay the fines to avoid providing healthcare, it is often more expensive to not comply.
• The ACA defines an applicable large employer as a company with more than 50 full time employees and equivalents. While the distinction seems fairly straightforward, ALEs are calculated by the hours each employee works, rather than just headcount.
• ALEs need to not only provide healthcare, but report on their providing as well. ALEs need to provide forms 1094C and 1095C to report on details including if coverage is offered and the value of the plan.
• It’s important to understand that forms 1094C and 1095C are different forms with their own filing requirements and date. These are not stapled to quarterly 941’s or your income tax return on April 15th.
• The ACA says that care offered to employees must be affordable, which is measured by 3 different safe harbors to choose from. Affordability is measured against either the federal poverty level, employee’s monthly pay, and employee W2 wages.

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Read the Transcript:

Brian Shenker:
We always think of the typical repercussions of misclassification of independent contractors like unpaid overtime or unemployment insurance and workers’ comp contributions. But this is another one where you could unknowingly be subject to ACA penalties for not offering coverage where you have a large independent contractor

Mike Vannoy:
Population. Welcome to Mission to Grow the Small Business Guide to Cash Compliance and the War for Talent. I’m your host, Mike Vannoy. Each week we’ll bring you experts in accounting, finance, human resources, benefits, employment law and more. You’ll learn ways to access capital through creative financing and tax strategies. Tactical information You need to stay compliant with ever-changing employment laws and people strategies you need to win. The War for Talent Mission to grow is sponsored by Asure. Asure helps more than 100,000 businesses get access to capital, stay compliant and develop the talent they need to grow. Enjoy the show. The Affordable Care Act rules, records and repercussions. So this is an important topic for small businesses that are especially growing. When you start out as a really small employer, maybe your first employee, your first 10, 15, 20 employees. This isn’t something that you’ve necessarily had to comply with.
You probably have heard about the Affordable Care Act passed in 2010, sometimes called to Obamacare. And for you that was always the thing about larger businesses. But businesses who are growing, you’ve got to understand because there’s legal requirements and these legal requirements have teeth, as soon as you cross over a certain threshold, we’re going to break down what that threshold is and everything else, small growing businesses need to understand about the Affordable Care Act. My guest today, if you’re running their watcher of the show, you know who this is. He is got extensive experience defending class and collective action lawsuits under federal, state, and wage and hour laws. His practice focuses on representing employers in a wide range of workplace matters as he as well as preventative advice and counseling. He has successfully defended wage and our audits conducted by the US and New York State Departments of Labor, and he regularly handles cases before courts and administrative agencies involving claims of discrimination, sexual harassment and retaliation. Welcome back to the show principal at Jackson Lewis. Brian Shenker.

Brian Shenker:
Thanks for having me, Mike.

Mike Vannoy:
Alright, Brian, from the top, what’s the number one thing small growing businesses need to understand about the Affordable Care Act?

Brian Shenker:
Yeah, so I think that the biggest thing, as you really mentioned in your opening is to determine whether they’re subject to this law because especially for growing businesses that may grow in size this year versus last year, there can be huge repercussions if you cross that threshold. And you shouldn’t be surprised when you do. There should be planning in place because compliance with ACA is not something that happens overnight, right? It’s something that you need to plan for. It’s definitely doable. It’s not overly complicated in some regards, but planning has to go into it. So understanding what employers are subject to it is certainly a big thing. And then once you are subject to it, understanding who you need to offer coverage to, all very important things. And I think look for even those companies viewing this today that are not large employers and applicable large employers, and we’ll discuss what that is. You should still be paying attention to this obviously for the first reason that you might one day grow and become a large employer. But also there are reasons that companies may want to offer health insurance and other types of medical coverage to their employees even if they are a smaller employer. And so understanding what potentially your competitors who are large employers are offering is a good starting point for analyzing whether that’s something your company might want to do on a voluntary basis.

Mike Vannoy:
Right. Hey, Brian, let’s maybe just start with a definition. I mean, this isn’t a new law by this point. We’re plus 14 years in to this thing. We’re going to call it by its name, the Affordable Care Act. Some people call it Obamacare in admiration for the man in the process that led to the law. And I’d say truly, whether you think it’s great or you hate it, groundbreaking, it was a tipping point for our country. But there are folks who use it in the affirmative. They also use the name in a pejorative sense. So we’re going to call it the Affordable Care Act. Our mission here today is not to give our opinions whether we like it or don’t like it. The reality is it’s the law and you got to comply with it. So our job is to unpack what it means for small businesses. So let’s just start with the definition of the Affordable Care Act. What the heck is it, Brian?

Brian Shenker:
Right? No. So what the Affordable Care Act does is it imposes penalties on certain applicable large employers if they do not offer health coverage that meets certain minimum value and affordability standards to a certain amount of their employees. So really what this means is that the Affordable Care Act does not require large employers to provide health insurance. There’s that term pay to play, pay or play, which we’ve all often heard, which really means if you’re not going to provide coverage and you’re required to, then you’re going to pay penalties and they could be very costly. So what we really need to remember then is that ales, which I’ll call ’em ales, that’s applicable large employers, and those are companies with 50 or more full-time employees and equivalents. We’ll break all that down soon enough that they need to offer health coverage that meets certain standards to at least 95% of their full-time employees.
If not, there are penalties. And so that’s in a nutshell, the setup. It’s a little more complicated than that and we’ll get into it. There are certain requirements for what the health plans need to meet, what they need to cover, the cost to the employees, because this was all part of these big changes to the law to health coverage in this nation where the goal of the Affordable Care Act is to get more people covered by health insurance and to decrease those costs for the employees. So that’s what we really see. So I think today much of our focus, at least at the beginning, we’ll talk about how do you determine if you are an ALE.

Mike Vannoy:
Yeah. So bottom line, the Affordable Care Act says if you’re an employer of a certain size, an ALE, that’s a legal term applicable large employer. So ALE we will call it. If you are an ALE, then you’ve got offer health insurance to your employees or you got to pay a penalty. So I suspect there’s not a lot of folks paying penalties intentionally as a choice, as an alternative to providing health insurance. But that’s it in a nutshell. So now we’re done with the easy part of this. So let’s maybe, and that’s who must comply. So all employers who are considered by law applicable large employers, you mentioned 50 plus full-time equivalent employees, help us unpack that and whatever other requirements there are to be an ALE,

Brian Shenker:
Right? So this is the big part of it. You need to have, and when we say full-time employees and full-time equivalents, the ACA has a special way of defining who’s a full-time versus who’s not a full-time individual. So just remember, if you’re an employer and you’re saying, oh, I’ve got less than 50 full-time employees, that doesn’t mean you’re not subject to this because our part-time employees are counted too. And so really what we use to measure full-time employees and their equivalents, we use this thing called the monthly measurement method. So we’re going to take a look back on a monthly basis over the prior calendar year to determine each month what number of full-time employees and equivalents the company had. And we’re going to take an average of that to see if the average for the prior year is more or less than 50.
Now there’s a lot we need to break down because it’s not as maybe simple as that sounds. The first question is what hours are we counting at? What hours of service are we recounting in determining what an employee works? So for hourly employees, that would typically be our non-exempt employees. That’s a pretty easy calculation. It’s going to be the actual hours of paid service. That’s what must be used. So you’re going to go back and look for the past year on a monthly basis, what hours they were compensated for. It’s a little different obviously for our non hourly employees. So these are going to be typically a lot of your exempt employees who might be salaried. And as a company you typically would not track the hours worked by those employees. So what the Affordable Care Act does is it gives us a few options.
You can use the actual hours of service for those non hourly employees if perhaps your company tracks that. If they don’t, then there are two different assumptions you can use. One is a day’s work, the equivalency where any day worked, we’re assuming if they worked at least one hour, we’re going to credit them for eight hours work that day, and we’ll add it up that way. Alternatively, you can do a week’s work approach where in any week in which the employee performed at least an hour of service, you’re going to credit that non hourly employee for 40 hour work week. So that’s the way we’re going to first figure out the number of hours. And so again, this count is very, very important as you mentioned, Mike, because we want to make sure, especially for growing employees, you may have been around 40, 45 in the past year and you need to know exactly when you’re going to be covered by these regulations.

Mike Vannoy:
So there’s going to be two, we’ll say there’s three groups here. There’s small employers who are safely inbounds, they’re under, let’s call it 30, 40 employees exempt and non-exempt. That’s not changing anytime soon. This doesn’t apply to you. And there’s clearly those larger employers that you already know that you’re well over 50 employees through either combo exempt or not exempt. It’s the folks that are in this, I’ll call it the gray area. It’s quite black and white by the law, but I think most business owners would see it as grayer. They’re not sure, and I’d say especially firms that are in transition, probably not so much larger firms that are shrinking in employees, they would’ve already had to comply. They’ll be familiar with the law probably. But smaller businesses that are growing, they need to plan and prepare for this. So let’s get into some more of the specifics around how this monthly measurement works. So maybe I think it’s probably easier if we stick with non, excuse me, exempt employees first because hourly you just calculate hours. But say I’m a growing professional services firm, I don’t have hourly employees. Everybody’s on salary. If I have 51 people fully employed for the month, no brainer.
I’m an A LE applicable large employer, I must comply. What about if, give me some use cases where I’m maybe on the edge, maybe my plan is to be at 52 or three employees, but I’ve got turnover and so somebody left on day three of the month and I don’t backfill them until day 27 of the month. How does all this math work?

Brian Shenker:
Yeah, so great question. And that’s where then we’re going to take the averages. So we talked about figuring out the hours worked, so we know how we’re going to calculate that for hourly versus non hourly. And so now we have to keep in mind, so what the Affordable Care Act tells us is that full-time employees are those who work at least 30 hours in a given month. And anyone other than that goes into the full-time equivalence, right? So it’s very easy then to determine how many full-time employees you have, and it’s often the full-time equivalent. So for instance, I could be a business owner with 55 employees, but maybe only 35 or 40 of them are full-time, and then the others are full-time equivalents, and we’re going to have to do ACA calculation. So that calculation is really as follows. So as I mentioned before, the easiest part is counting our full-time employees who work over 30 hours a week or 30 hours per week.
Correct. So what the A says then is that anyone who works at least 30, 130 hours a month is full-time. So essentially anyone who works 30 hours a week or more is in that category. So you first count up all those full-time employees for each month for the prior calendar year. So right, we’re in 2024 now, you’d go back to 2023, all 12 months, count up how many of those full-time employees you have at 30 plus hours a week. Then you have to do the full-time equivalents, right? So again, you’re going back to the previous calendar year, and for each calendar month, you’re going to add up all of these service hours for the non full-time employees. So these can be salaried, hourly, whatever they are, but we’re adding up all their service hours for each month. And now the one thing here, one we’re going to do is cap it at 120 hours. So even if we have one of these non full-time employees who may work 125 hours in a particular month, when we’re calculating this, we’re only crediting them up to 120 hours. And then what we do, we add all of these service hours for all the non full-time employees, and we then divide that by 120, and that will give us our full-time equivalents. So obviously two equivalent to part-time employees could sometimes equal one full-time employee, but it really depends in this calculation on the number of hours they work, the average number of hours worked each

Mike Vannoy:
Month. Brian, am I right saying this is the place where people get in trouble because they think they count human beings? And so, oh, this person is a 20 hour work week person. This person is a 35 hour a week person, say a 40 hour a week person. And so I have one FTE, but the reality is I have 40 hour plus 20 hours at 60, that works out to 30 a week. I have two FTEs, right?

Brian Shenker:
Right. And this is a big difference between the Affordable Care Act and most other employment statutes that we look at almost everything we deal with, a person is a person, an employee is an employee. When we’re talking about the number employees needed to be subject to Title vii, it’s not

Mike Vannoy:
COBRA more than 20 human beings working for you, you’re going to have to provide COBRA, right? But this has got a different calculation.

Brian Shenker:
Exactly. And so you’re absolutely right. We need to look at them less as the individual, more as let’s look at the hours and what does that mean? And that’s really what this calculation is about. So once you’ve added up your full-time employees, you’ve calculated your full-time, equivalents hours and divided those by 120, then whatever those two figures are, you add those together and you divide by 12 to get your monthly average for the prior year. And simply put, if that result is over 50, your company is an applicable large employer for this year, and if it’s under 50, then you are a small employer, not subject to the pay or play requirements of the

Mike Vannoy:
Law. So interesting, and I know where you’re going to go with this, but in the downstream, but you said for the prior year. So why is it important that you’re calculating this based on the prior year?

Brian Shenker:
So essentially that’s what the Affordable Care Act tells us, right? That when we’re making this determination of whether your company is covered, that we’re looking at the previous calendar year and taking those averages, it’s not about what we expect will happen this year. It’s not whether, oh, but January of 2024 we laid off some employees, so we’re under 50 Now that’s not the question. It’s about what occurred in the prior year, which determines whether your company will be subject to ACA for the current. So yeah, very important to remember that and that you can’t look at necessarily changes that occurred in the current year as impacting your A LE status or not for the prior year.

Mike Vannoy:
Okay. Anything else around determining if you are an A LE? So you talked about the hourly, a k, a exempt, you can talk about the, excuse me, the hourly, the non-exempt, the salary, the exempt folks, how those calculations work and is based on hours, not bodies to determine. And you simply follow the formula and either is binary, you either are or not an A LE applicable large employer. If you are, then you must comply. Anything else going into that? There’s anything about industry.

Brian Shenker:
So I think a couple things. So industry is a good one. So there is one exception to all this stuff we’ve discussed, which is accounting employees, which is applicable to seasonal workers. And so when I say seasonal, that doesn’t just mean maybe a summer camp, but seasonal could very well be retail industry where you’re in retail and you hire a bunch of employees for the holiday season in December for a month or two. So there’s an exception that basically says that if the workforce exceeds 50 full-time employees for only 120 days or fewer, and those people in excess of 50 were those seasonal workers and seasonal workers, they’re just going to be working for 120 days or less, then we’re not counting those in terms of becoming an A LE. So again, if you have employees that are hired for 120 days or less, it is possible they could be seasonal workers and they wouldn’t necessarily count towards the calculation of whether or not your company’s

Mike Vannoy:
Large. Brian, would that be true? Regardless of how many employees? So obviously you have a six to eight week holiday shopping season from say mid-November through the first January 1st you have more extreme cases. I’m literally thinking, so maybe it’s not so extreme, but a pop-up Halloween store might be a four or five week season. You could have a fireworks stand that may have zero employees. Maybe you’re self-employed year round and for three weeks you might have a big staff. Does it matter how many employees you have during that seasonal period?

Brian Shenker:
It doesn’t matter the industry that can apply in any of those circumstances.

Mike Vannoy:
What about in agriculture where your seasonality might happen a couple times? I might have a spring planting and a fall harvest, so I have a spikes as long as those employees are within the 120 day window. What about the time between?

Brian Shenker:
Right? So it’s going to be key that in total we’re talking about 120 days. You can’t have two 120 day periods throughout the year. That’d be too much. And then the key, right, is that in between that between the time period when you don’t have these seasonal workers that you’re under 50, right? So if you are hitting 50 in the months when you’re not employing those seasonal workers, then you’re subject, that’s

Mike Vannoy:
A no-brainer. Let’s just say it’s an agricultural based business. You got 10 employees year round, but you spike up to over 50 for the month of April and you spike up over 50 for the month of August, September during a harvest, you could have two seasons and still not be considered an A LE,

Brian Shenker:
Right? As long as that’s still within the 120 day window that ACA provides for this exception. And then look, I think one last point I would make on this employee count, and Mike, I feel like this is something that somehow we mention in almost every topic we discuss, is that if your company is Misclassifying employees as independent contractors, that could have an enormous impact on your compliance with the Affordable Care Act.

Mike Vannoy:
You know what, you and I have done it, Mary Simmons and I have done this topic. We got a bunch of content, if you dunno what we’re talking about, go watch a show on classification exempt versus non-exempt. There’s no such thing as a legal classification as hourly versus salary. Those aren’t legal constructs. There are requirements if someone is exempt from overtime or not, and you got to be compliant there. So safe to say, we’re talking about W2 employees, not 10 99 contractors,

Brian Shenker:
Right? Exactly. And so look, if your company has a good number of 10 99 independent contractors and it would potentially be enough to put you over that threshold to become an A LE, then I would suggest that you take a look that you audit your independent contractors to make sure you’ve classified them correctly. We always think of the typical repercussions of misclassification of independent contractors like unpaid overtime or unemployment insurance and workers’ comp contributions. But this is another one where you could unknowingly be subject to ACA penalties for not offering coverage where you have a large independent contractor population that would put you over if they’re misclassified.

Mike Vannoy:
Right. Okay, very good. I want to come back to, okay, so now I’ve determined I’m an A LE and now we have to determine what kind of benefits we offer, what kind of benefits and to whom we offer those benefits. But I’m going to skip ahead for just a second. What are the reporting requirements? Going back to your comment about prior year, so I have to calculate it for the prior year. What do I now have to do as an A LE to make sure that I’m compliant with the law?

Brian Shenker:
Right? So there’s certainly various reporting requirements and those are going to be separate from the actual provision of health coverage. But let’s go through those. So we are mainly looking at this form called the 10 95 C and that form essentially all ales, all large employers under ACA that are required to provide coverage are required to complete two forms, this 10 95 C and I believe a 10 94 C. And these forms indicate to the IRS whether the company has offered qualifying coverage to its employees. And these are the forms that are going to be the basis of whether the company gets penalized for non-compliance with the law. So these forms are going to show who is offered coverage, who waived it, and so it’s important to file these. There are filing deadlines missing. The filing deadline can result in a penalty not filing at all is certainly will certainly subject to company to a penalty. And so it is definitely important to understand that if you’re providing health insurance coverage, that you’re going to have reporting requirements. And this goes also for small employers who provide health insurance. There are also going to be reporting requirements for small employers such as the value of the plan on tax forms, things like

Mike Vannoy:
That. Without getting into all of the details of the tax return tax form, maybe first timing, does this get filed with the annual income tax return of the business? I mean as employers, we think 9 41 quarterly returns the timing on this?

Brian Shenker:
Yes. So interestingly enough, so it’s different. I believe the deadline for filing the 10 95 form is the end of February of each year. And so I think the RS may have moved that into March now and since it went electronically, so I believe now if you’re filing electronically, there’s an end date at the end of it would be March 31st to get these things filed.

Mike Vannoy:
I think that’s right. And I think the important, and I’ll ask the producers here to make sure we include that in the show notes, please, so everybody gets the right information. I think the point that we want everybody to understand this is not get stapled to your quarterly 9 41, this doesn’t get stapled to your income tax return on April 15th. This is a separate documents, the 10 95 C, 10 94 C, these are separate IRS documents that have their own filing requirements and filing dates that are annual. Right?

Brian Shenker:
Exactly. Exactly. And what I would also mention is there are not many states, but there are still a couple, maybe a handful of states that may require a separate state filing. So it’s important to know, I believe California is one of those. Washington DC might still be one Massachusetts, and there may be one or two others. So just be sure because at this point when you have to file, you’ve already done the hard work, you’ve ensured you provided coverage to everyone, and now you just need to get it right and report that so that you’re not subject to any penalties for compliance that you’ve already done.

Mike Vannoy:
Now to have the ability to do it, the forms I want to say, I’ll give my unqualified, I’m not A-C-P-A-I, I’ll say conceptually, they’re relatively straightforward, just like any tax form they’re used to filling out, put an amount in line A, add the line B, subtract line C, and if line D is greater than a, then here’s your number. It’s that kind of fairly straightforward logic. But the record keeping required to actually do the calculation to all this hourly that we talked about earlier here, that’s probably the much more complex component. Would you agree?

Brian Shenker:
Right, right. It’s the compliance that comes before doing that, having thought through a way that you’re going to comply with aca, that’s what allows you to be able to file these tax forms so easily. It’s not something that’s pulled out of thin air. It’s based on your substantial records of who you’ve offered to, who’s waived coverage, value of coverage. So it is very simple things if you’ve complied and gotten yourself that far.

Mike Vannoy:
Yeah. Alright, so we might come back to that because reminding me of other things in the tax form about who’s accepted versus you’ve offered, et cetera. This isn’t just, Hey, tell me how many people are in your org? Were you required to comply or not? So going back, we talked about the basics, what ACA is, who must comply, it’s those who are considered les applicable. Large employers walk through the math of that. It’s basically the hourly hours worked calculation average, the monthly average. Let’s move to once you’re considered an A LE, who must you offer these benefits to and what are the requirements within those plans?

Brian Shenker:
Yep. Great. Great question. So I’ll start out with the overarching requirement, which is right, as an applicable large employer, you’ll be required to comply with the employer mandate, which is offering health insurance to 95, at least 95% of your full-time employees. That’s both affordable and provides minimum value so we can get to the affordable and minimum value. There are a lot of requirements there with respect to minimum value. Often your broker can assist you in finding those correct plans affordable. We’ll get to that, but Right. The question is now that you’re in LE, which employees are you offering coverage to? Right? And that’s very important because what we have discussed are the amounts of the penalties, but there are penalties if you don’t offer coverage to everyone. And so you certainly need to then figure out who these employees are. And so I had to just go through that real quick because it can be as somewhat of a different calculation than what we previously discussed in terms of figuring out if you are an applicable large employer.
So just going through that, there are two different methods that can be used for determining which are your full-time employees. So we need to figure out now that you’re an A LE, who are our full-time employees that we’re offering this to? So these are going to be only employees who are full-time based on the 30 hour per work week threshold. And so employers can use two different methods for doing this. And really as I’ll explain is there’s really only one method that you’ll actually use because one method is not realistic at all. So one method that you can do this for is the monthly measurement period. So similar to what we were discussing earlier, you look at average hours worked, our average hours of service worked each month to determine if they should be offered health coverage for that month. If they’ve worked over 130 in an applicable month, then they would be a full-time employee for that month.
Now using that method, because this is not looking back as we were talking about before, this would be looking at if we’re in April, then we’re going to look at the hours this employee worked in April, and everyone listening right now is probably asking the same question. Well, early in the month in April when I have to pay health insurance premiums and tell the health insurance company who’s covered for this month, how am I going to make that determination if I haven’t seen the hours worked by this employee that month? And that’s exactly why the monthly measurement period is more used to audit and look back at things than as a tool to determine who we’re going to offer the health coverage for. So the way we’re going to offer health coverage then is by using what’s called the look back method. And so the look back method is somewhat similar to what we discussed before, right? We’re not going to go back and look at a full calendar year. There’s a slightly different thing we’re going to do here. So first we need to figure out a stability period, and that can be anywhere, I believe from a three to 12 month period where that’s the period we’re going to look back at and see is this employee on average hitting 30 hours per week or more during this measurement period?
So we’re going to have a uniform measurement period for all employees. So that can be three months, 12 months. You can set that up as you determine, right? There’s obviously a measurement period that’s too small, could be impacted by, hey, we’ve measured the busy season and so everyone’s working more hours. So we have a lot more full-time employees. Then we really might have, if we use an eight month measurement period or a 12 month measurement period. So based on your company’s realities, you can look into what measurement period would be the best for determining full-time employees. And I’ll just mention we can have different measurement periods, but they’ve got to be broken down for employees. But the difference could be salaried versus hourly employees in different states can be treated differently with measurement periods or non-union versus union employees. But those are really the only differences. Other than that we’re really treating everyone the same.

Mike Vannoy:
Brian, forgive me if I step out, I’m just trying to do some math in my head because I’d forgotten some of this. I’m really glad we’re having this conversation. There’s a big difference in the determinations. The concept is the same, but it’s falsely commingled here, right? Right. I think I was doing this coming into our conversation that I had forgotten. There’s the hourly calculation of FTEs to determine if you’re an A LE applicable large employer, but that’s different than the FD calculation of whom you now must supply the benefits, right? So tell me if my math is right here, I can see myself as a small employer. I’ve got, let’s say I’ve got 10 full-time salaried people that run the core business, and maybe I have a hundred part-time workers that work on average 20 hours a week. And so in my mind, I’ve got a hundred part-timers that 20 hours a week, that’s not a stuff. They’re not 30 hour FTEs. I’ve just got 10 people, so I don’t have to, I’m not an A LE, but if I have a hundred people that work a hundred people working 20 hours a week, that’s 2000. Well, I’ll do the math a hundred employees times 20 hours a week times 52 weeks a year divided by 12 months, that’s 8,666 hours divided by my 120 hour rule. I would’ve 72 FTEs.
So first of all, I am an A LE in that scenario, right? Right. Okay. And so yes, I’m an A LE, but whom I must provide benefits to. Now those a hundred people, I don’t have to provide benefits to them because they are less than 30 hours a week. But I do have to supply, provide benefits, at least offer benefits to the 10 quote, full-time exempt people I have, right?

Brian Shenker:
And when we go back and do this measurement for determination of who we’re going to offer coverage to, I mean if our only full-time employees, our only people working 30 plus hours more per week are exempt salaried people. It’s very simple. It’s not going to be complicated at all, right? But when using this lookback method, if we have hourly employees who are sometimes working on 30 hours a week, sometimes working 40, sometimes working 20, right? This is really designed to capture our people who might have variable hours and it gives us ACAlculation to determine, all right, that employee who works between say 25 to 35 hours a week, is that person going to be considered a full-time employee and someone we need to provide coverage to? So then we have that measurement period. So under this a look lookback method, we have a measurement period.
Let’s say we have a six month measurement period, then we’re going to have essentially most likely an equal amount of time for the stability period. We measure their hours for those six months. And now, so we’ve looked back at those six months for this hourly employee whose hours fluctuate, alright? Now we’ve determined they average, let’s say 32 hours a month. So now they are a full-time. So then we had the six month measurement period. Now that’s immediately followed by a six month stability period. So for those six months, that employee is going to then be considered a full-time employee, and they will need to get health be offered health insurance coverage for those six months. Now on the flip side, if that same employee, let’s say the average came out to 28 hours a week or rather or less than 130 hours a month. Now this person is not a full-time employee, but only for that stability period.
So we measured the six month measurement period, and now for that associated stability period, they will be considered to not be a full-time employee. And it’s important to remember this because even if their hours change, so even let’s say we calculated it that they fall below the 130 hours, so they’re not a full-time employee. Then during that six month stability, they may be working over 130 hours every single one of those months. But because that is the stability period and the previous measurement, they were not a full-time employee. What they work during the stability period doesn’t matter. They maintain their status as a non full-time employee for that entire stability. Once that stability period ends, then we’re looking at, then we do another measurement, another stability period. And this just kind of goes on and on like this where you continually measure. And so the benefit of doing longer periods right up to 12 months could mean once you take the measurement, you have a stability period of 12 months that you don’t need to change anything, which as we went through, that could be good or bad because the measurement could make them a full-time employee for the next 12 months.
Now you have to offer them coverage, right?

Mike Vannoy:
I’m going to ask this. This gets to be a deep ocean really, really fast on the calculation of whom we must offer benefits to in your practice. Where do employers get in trouble more frequently? Is it they know they’re an A LE, but they don’t offer it to the right people, or they thought they weren’t an A LE and it turns out they are? Which of those two buckets do people get in the most trouble?

Brian Shenker:
So I think now that enough time has passed since this all took effect, I think more of what I actually see is employers, they understand their A LE, but they make mistakes in possibly not offering to everyone they should have. And I think a common one is just thinking that you’re going to offer only to your salaried employees. And then we forget about those non-exempt hourly employees that might actually be considered full-time because of the hours they work.

Mike Vannoy:
I guess that makes sense. At first I was thinking based on just complexity of the concepts, it’d be the other way around. But once they’ve determined, and so maybe it’s these companies that are in transition, they’re growing and so they’re newly aware or they should have been aware and now become aware that there’s some folks on the bubble there. But once you are an a LE, now it’s probably about improperly applying the law in an attempt to contain cost, but that you’re some inhumane capitalist pig, but offering benefits costs a lot of money and you’re trying to control costs. And so you think, oh, I’m just going to give it to this pool of employees, exclude this pool. And turns out the law may require you to offer it to some of those folks unwittingly, right?

Brian Shenker:
Yeah, Mike. Yeah, exactly. I think the real interesting thing is that if you do these analysis, and like we said, there’s some flexibility that employers have here when you can determine the measurement period here, and that could impact who you might need to offer coverage to. So there is room to make decisions like that, and that’s why good planning and looking at the method you’re going to use and how long is that measurement period? And look for almost every business, the answer is going to be different because the realities of each type of business will dictate what measurement period we’ll use. So a landscaping and design company, we probably wouldn’t want to take a three month measurement period from May, June, and July. That might not be good. We’re going to get very high hours. You might want to spread it out. So a lot of

Mike Vannoy:
It is you probably also don’t want November, December, January,

Brian Shenker:
Right? So a lot of it is looking at your workforce and understanding what the law requires and seeing how that applies to your business and what’s the best way to apply that.

Mike Vannoy:
I think everybody listening in the last 15 minutes can appreciate how complex it could be to determine which groups that you must provide benefits for as black and white as the law may be. Two other concepts though, insurance, the health insurance that you offer, not necessarily provide that you offer because people can decline it, it must be affordable and provide minimum value, two different legal concepts. Can you take us through those?

Brian Shenker:
Yeah, absolutely. And we’ll mention right, that failure to offer affordable or minimum value can result in a penalty, right? Yeah. So affordable is this is a key requirement of the Affordable Care Act, right? That the coverage be considered affordable for the employees. Now, unfortunately for employers, it’s not necessarily looking for it to be affordable to you. It would be great if that’s the way the law looked at it, but we’re talking about affordability for the employees. So for this test, we’re really just looking at the employees cost of enrolling in the least expensive coverage by the employer that also provides minimum value. And so what that means right now, a plan is affordable if contributions by the employee do not exceed a certain percent of their household income so that this year it is 9.12%. And so obviously employers we do not know are any employees household income.
We know what we pay an employee, we don’t know what other compensation they get. We don’t know what other compensation other family members bring in from that. So basically what the Affordable Care Act does is it gives companies three different safe harbors to choose from. And one is the federal poverty level safe harbor, where you are going to multiply that affordability threshold, the 9.12% by the federal poverty level. And basically you’re going to get a monthly amount. And the employee’s premiums can’t be more than that amount. Typically, the federal poverty level is going to give us the lowest number. So it’s generally not the best safe harbor to use because the lowest number means the lowest amount that you can require employees to contribute the next safe harbor. The rate of pay safe harbor. So pretty self-explanatory. It uses the employee’s rate of pay or monthly salary to determine affordability.
This safe harbor will give you a higher number than the federal poverty level, most likely. But it’s generally not good for companies that have a population of employees that have widely varying rates because it’s going to change what affordability is. So again, you can look at how these work for employees who work a lot of overtime, you have a lot of hourly employees who work overtime. The rate of pay harbor might not be the best because it doesn’t necessarily look at the overtime comp. So again, that can be an issue. And again, Mike, any of these could be a half an hour deep dive, right? So I’m just trying to really touch it so that you know what you should be looking at. And the last one is the wages, the W2 wages safe harbor, which uses the employee’s W2, the box one on the W2 form, and you can’t make them pay more than 9.12% of that.

Mike Vannoy:
What’s the most common safe harbor that people use?

Brian Shenker:
So I think W2 is probably a pretty good one that many use because especially for employers and industries where employees work generally the same amount of hours a week to week, the W2 safe harbor can be a good one, but yeah, usually it’s going to be the W2 or the rate of pay.

Mike Vannoy:
And just doing the math, I mean, this isn’t insignificant. This isn’t like some just big catchall number. I mean, if you’re 9% just for easy math, I’ll round it up to roughly 10%. If you have an employee making a hundred thousand dollars a year, that’s a decent job, and you can raise a family on that. But 10% of that, 9% of that is $9,000 a year. I mean, 9,000 a year doesn’t buy the top of line insurance. I mean, if you’re making 50,000 a year, if you’re making 40, so let’s say, and now it hasn’t taken effect yet, but the new minimum exempt salary is going to be what? 52, 50 3000. I mean, you’re not buying phenomenal insurance for, call it $4,000 a year, 9% of 53,000.

Brian Shenker:
And look, not to mention, you calculated what this could mean, how much this means for one employee. And if you’re an A LE minimally, you have 50 employees, if not many more that you’re paying for their insurance.

Mike Vannoy:
And I guess, so I’m used to insurance costs personally for family, which is obviously much more expensive. This 9.1% is for single coverage just for them probably, right?

Brian Shenker:
Right. So self only, right? That’s the test, right?

Mike Vannoy:
That makes way more sense. I’m like, the math ain’t math inform me otherwise,

Brian Shenker:
Right? So if they end up getting the coverage for dependent all that, right, you’re still going to be bound by that nine point something percent, but right, the dollar amount is going to be bigger, but right. That’s why you measure it up against that self only coverage and you’re looking at the least expensive self only coverage.

Mike Vannoy:
I’m going to accelerate this for time here, but so we talked about whether you are an A LE or not, and then if you are, what makes FTE classification for whom you must offer it? There’s three safe harbors for the affordable component requirement, 9.1%, roughly. It’s either federal poverty level, rate of pay, or W2 wages. Those are your three options. The last component is minimum value. How do you determine minimum value?

Brian Shenker:
Right? So minimum value, really it’s a standard for measuring the plans to make sure they provide at least a certain minimum amount of coverage. And so I don’t want to dig into this too much, but what often happens is that if you are getting a metallic tier plan, those will meet minimum value. So I believe bronze plans cover, I believe 60% of average in network medical costs. I think silvers 10% more at 70 gold, 80% platinum, 90%, right? Any of those are going to meet minimum value. So

Mike Vannoy:
Brenda, is it safe to say that this is probably the most complex area, maybe too deep of water to even attempt for the average small employer that this is what you really need to rely on your benefit broker to consult and advise and make sure that you are offering compliant plans?

Brian Shenker:
Absolutely. And so I think what employers need to know enough of is to ask the question and make sure that they are offering plans with minimum value, right? Because you don’t want to be sent by, pushed by a broker somewhere else. So you just want to make sure that you’re asking that, but right, the determination of what minimum value is, you can typically rely on your benefits broker and provider to ensure that that’s being met.

Mike Vannoy:
All right. So final question. Do you got two minutes to answer? What could be an hour long podcast? What bad thing happens if you don’t do all this stuff? What are the penalties? What are the consequences?

Brian Shenker:
Sure, sure. So there are two different penalties really that we’re looking at. There’s one penalty, it’s called the 4 90 49 80 H penalty, and that’s the big one, section A, that’s where employers are subject to penalties. If they fail to offer 95% of full-time employees that chance to enroll in a plan that has minimum essential coverage. So basically, if you don’t do that, if you’re not offering that type of plan to 95% of your full-time employees, there is a big, big penalty. This is what essentially happens is for this year, I believe it’s almost $3,000 per year, about 200, a little less than two 50 per month per employee. And this is triggered if you fail to offer that minimum essential coverage to 95% of those full-time employees

Mike Vannoy:
Is the $3,000 per year per employee of just the FTEs that you should have offered it to, or all employees,

Brian Shenker:
Right? Yeah. So exactly. If you’re an organization with a hundred employees, and then you’ll be charged against those a hundred full-time employee count, and under this penalty, they take off 30 employees off the bat. So you go from a hundred to 70, but then it’s that almost $3,000 penalty multiplied by those 70 employees. So because it’s applied on that per capita basis for every full-time employee of the large employer, it’s a killer, right? Because all that you had to do is not offer it to this coverage to 95%. So you may have offered it to 90%. So many of these people you’re penalized for, you may have offered coverage to, but you’re getting penalized for every single full-time employee, regardless of whether you offered coverage because you didn’t offer it to at least 95% of your full-time employees.

Mike Vannoy:
I know we’re at time, so I’m going to see if I can recap this whole thing and I’ll give you a final word. Alright, so the Affordable Care Act, if you have more than 50 employees through the FTE hours worked calculation, so you could have a hundred part-timers working 20 hours a week, and that puts you over the calculation. So that’s got one type of FTE calculation. But if you’re more than 50 employees with an exemption just for some seasonal work, we talked a little bit about that, then you are considered an A LE applicable large employer. If you are an applicable large employer an A LE, then you must offer benefits to at least 95% of your full-time equivalents using a different calculation, not the same calculation to determine if you’re an A LE and those benefits that you offer. They must meet an affordability test.
We talked about the safe harbors for that and must provide a minimum value test. Our guidance here, work with a reputable insurance broker who can help you ensure that you’re choosing compliant plans, compliant offerings. And if you don’t do this, the fines are very steep. $3,000 per year per employee, maybe carve out 30% or 30 employees. I wasn’t sure what you said there, but just to think about $3,000 ahead, this is going to be damned expensive if you don’t comply. So this thing has a lot of teeth into it. It’s a super serious law. You know what? When it first passed the passed with tons of controversy, some for some against, the reality is this is a popular law from employees perspectives, employee, employers, doesn’t matter whether you like it or not, you got to comply. And I think people are generally over it and accepted as law of the land now. So arm yourself with as much information as possible so you can comply as hassle-free as possible. Brian, give me the last word.

Brian Shenker:
Yeah, no, look, I think you summed it up well. I think look, as an employer, whether you’re below or above this, understand this is your responsibility. You can’t 100% rely on a broker or benefits provider. You need to have some understanding of what this law requires of your organization and based on size and other factors where you fit into it. And yeah, I’d say that’s the most important part, determining whether part you’re going to be required to make insurance offerings based on this law. And then I think, Michael, a last point for small employers, don’t think that just because you’re small and maybe nowhere close to 50 yet, that you should ignore this topic in total. Because if your competitors are over 50, right, and they are ales, then they’re offering a huge benefit that your company isn’t. So even small employers look into this area, consider it because it’s a benefit that many companies are required to and do offer, which can certainly make them more competitive in the

Mike Vannoy:
Workplace. I know I told you, I was going to give you the last word. I’m going to steal it back from you. I think you just hit the nail in the head. Going back to the 2008 presidential election cycle, the 2010 when ACA became law, there was a cost of healthcare and how to bend the cost curve. That’s unfortunately, that hasn’t materialized, but there’s also just the humanity of it and making sure there were fewer people that weren’t covered by insurance, right? Today, a lot’s changed in 14 years based on birth rates twenty, thirty, forty years ago. We talk about this all the time. The available workforce is flattening, right? 2020, we think about the momentous year of covid. There was another really, really big thing happened in 2020 that was buried in the headlines. More people over working age 65 than under 65. That’s the first time in US history.
We have an aging population, we have a flattening workforce. And so this 3.7% unemployment rate, this is not the result of COD or Ukraine War presidential politics. This is the results of a growing economy and birth rates 30 and 40 years ago. The available workforce is flattening. In 50 years, the US population is set start to shrink. The punchline is that the available workforce isn’t changing, and the war for talent is a permanent fixture. If you’re going to recruit the best talent and retain the best talent, you’re probably going to have to provide some type of benefits, even if the law doesn’t require it from you. So, whereas 14 years ago, the ACA was to try to ensure coverage. I really kind of believe the marketplace is going to take care of this based on supply and demand and employers. You’re not going to be successful if you’re not offering some type of benefits to your employees.
So I’ll get off my high horse on that one. Brian, thanks. Always enjoy talking to you and learning from you and to everybody else. If you got value from this conversation today, if you learn something, I encourage you to comment, share, and subscribe on whatever platform you choose. Until next time, thanks again, Brian. Thank you. That’s it for this episode of Mission to Grow. Thanks for joining us today. For show notes and more episodes, visit us@missiontogrow.com. If you found this content valuable, I invite you to share it with a friend that subscribe to the show. If you really want to help, I’d love it if you left a five star review on Apple Podcasts, YouTube, or wherever you listen. Mission to Grow is sponsored by Asure. Asure helps more than 100,000 businesses get access to capital, stay compliant, and develop the talent they need to grow. To learn more about how Asure can help your business grow, visit Asure software.com. Until next time.