Implementing the Affordable Care Act will be a top priority for employers in 2014. The shared responsibility requirement, effective January 1, 2015, requires employers with 50 or more full-tme equivalent employees to provide “affordable” care that meets minimum value specifications (as determined by minimum value calculations) or may face penalties. Under the Affordable Care Act, employer-provided coverage is considered “unaffordable” if it: 1) costs more than 9.5% of the employee’s W-2 wages or 2) doesn’t cover an average of 60% of the employee’s medical expenses.
How To Calculate the Number of Full-Time Equivalent Employees (with example)
Employers calculate hours worked by full-time equivalent employees by adding the total number of hours worked by full-time equivalent employees per month and dividing that number by 120. Employers can exclude seasonal, temporary and retail employees that work fewer than 120 days during the calendar year (I.R.C. § 4980H(c)).
Employer has 32 full-time employees who work on average more than 30 hours per week during the year. Employer also has 28 part-time employees; 20 part-time employees work 24 hours per week (24 x 4 weeks per month = 96 hours per month per employee) and eight part-time employees work 12 hours per week (12 x 4 weeks per month = 48 hours per month per employee). Employer calculates the hours worked by the 28 part-time employees as the equivalent of 19 full-time employees as follows: 20 employees x 96 hours = 1,920; 1,920 ÷ 120 = 16; eight employees x 48 hours = 384; 384 ÷ 120 = 3; 16 + 3 = 19. Accordingly, although employer only has 32 employees who work more than 30 hours per week, employer has more than 50 full-time equivalent employees (32 + 19 = 51).
It is anticipated that employers will spend a lot of time on analysis and compliance of the Affordable Care Act. According to BNA, sources generally agree that the employer shared responsibility and reporting requirements aren’t likely to be delayed again by the Obama administration.
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