How to do a head count for health care reform
For most businesses, 2013 will be a virtual countdown to health care reform regulations that take effect next year. Starting on Jan. 1, large companies – those with 50 or more employees – could face penalties for not offering health insurance.
The first step is determining whether your business is considered large or small under the Affordable Care Act.
“You’re going to have to figure out what size business you are, which sounds like an easy thing except the definitions within this law are complicated and confusing,” Bob Graboyes, senior fellow for health and economics at the National Federation of Independent Business Research Foundation, said last month in an NFIB webinar.
For example, what’s a “full-time equivalent” or FTE? How about temporary or seasonal workers? Many employers are struggling with those very questions. And they need answers sooner rather than later, since next year’s requirements are based on 2013 employee counts.
“The average of full-time/full-time-equivalent employees in the preceding calendar year will determine whether the employer is an applicable large employer for the current calendar year,” said Gwen Wellman-Flick, an employee benefit specialist at The Pinnacle Group, a division of USI Insurance Services in Virginia Beach.
Here’s how to do a head count without losing your head:
ADDING UP EMPLOYEES …
1. Figure out how many full-timers you have. Remember that the Affordable Care Act defines a fulltime employee as one who works at least 30 hours per week. As an example, let’s say the “John Doe Technology Group” has 25 fulltime workers.
2. To factor in part-time employees – those who work under 30 hours a week – use the following formula to calculate their monthly labor into full-time equivalents or FTEs:
- Add up the monthly hours for all part-timers. Say John Doe has 30 part-time employees. They each work 80 hours a month. So the total number of monthly part-time hours is 2,400.
- Divide the total number of hours by 120. In this case, Doe divides 2,400 by 120.
- The result is your number of full-time equivalents. Doe determines he has 20 FTEs (2,400/120=20).
3. Add up the number of full-time employees and FTEs. For John Doe, that would be 25 full-time plus 20 full-time equivalents.
4. So, the John Doe Technology Group has 45 full-time/FTE employees. The company has fewer than 50 employees and is therefore exempt from the employer coverage requirements.
But what about special circumstances, such as seasonal workers or an employer who owns multiple businesses? Here’s where things get a little trickier, but last month the IRS released some proposed regulations that address these sticking points.
Different companies with the same owner will be counted as one large employer if the combined number of employees is more than 50.
“You might have a business owner who owns three separate companies, and all of them may have 25 employees,” said Anthony Jernigan, president and CEO of The Pinnacle Group. “Well, for the purposes of health care reform, in that situation, he owns a company with 75 employees, and he’s subject to the penalties that can be imposed on larger employers.”
Many businesses need extra help during busy times of the year. Retailers typically hire holiday workers in November and December. Companies in the tourism and amusement industry increase their payrolls during the summer.
But what if such workers bump you over the 50-employee threshold during those time periods? Does that mean you’re considered a large employer? No, the IRS says, as long as the seasonal labor doesn’t exceed 120 days a year.
“I’ve got a company right now that hires a lot of people in January and April – they do taxes,” Jernigan said. “Based on what I know right now, they’re not going to have to pay the penalty.”
TEMPORARY OR ‘LEASED’ WORKERS
Before the IRS released its Dec. 28 regulations, many assumed that employers would not have to include temporary workers in their total employee counts, that those workers would be the staffing agency’s responsibility. The NFIB suggested as much in its Dec. 12 webinar, though it cautioned listeners to wait for final government rules.
Indeed, the IRS has since proposed an anti-abuse regulation to prevent employers from trying to reduce their employee count by hiring workers from such agencies.
For more information, visit the IRS website.
But business owners should not try to figure this out by themselves, experts say. The Affordable Care Act regulations are daunting. Jernigan and others recommend investing in professional help.
“We’ll push you in the right direction,” said Graboyes of the NFIB, which provides Affordable Care Act “crib sheets” and other resources on its website. “But ultimately the people you actually pay – your accountants, your attorneys, your brokers – those are the ones that really have the fiduciary responsibility and are going to know a lot of the fine print. “Just make sure you keep in very, very close touch with these professionals that you pay to help run your business.”