ACA Compliance – Employer Breakdown

This area of our learning center answers (5) questions:

  • Which employees must be offered coverage?
  • When do employers have to offer coverage?
  • How are employers supposed to treat leaves of absence and re-hires?
  • How are employers supposed to know if the coverage is “affordable”?
  • If an employer fails to offer affordable coverage to its full-time employees, what is the ACA Penalty?

The Affordable Care Act requires Applicable Large Employers to offer affordable minimum essential coverage to all full-time employees and their dependents.

For more information about what it means to be an Applicable Large Employer (ALE) see the Employer Basics area.

Once we’ve made it through the arithmetic for finding out if a business is an Applicable Large Employer, the Affordable Care Act journey has just begun.  Next, we need to know (1) who does the employer have to offer coverage to? (2) when does the coverage have to be offered? (3) is the coverage “affordable”? (4) are we properly counting leaves of absence and employees who are re-hired after suspension/termination, and (5) if the employer fails to offer sufficient coverage to its employees, what is the penalty?

To whom employers must offer coverage

The ACA requires employers to offer affordable minimum essential coverage to all Full-Time Employees and their dependents.  The IRS has made rules for determining if someone is a Full-Time Employee or not.  These rules are roughly based on the same rules as the calculations for ALE status, but have some very important differences.  The IRS has made three categories of employees for employers to analyze: New Full-Time employees, New Variable-Hour Employees, and On-going employees.  Any employee who averages at least 30 hours of service per week, or 130 hours of service per month (not 120, like in the Full-Time Equivalent calculation) is a Full-Time Employee, according to the IRS.  There are two other categories as well: Part-Time and Seasonal Workers.  For purposes of the Look Back Method, new part-time employees and new seasonal employees are treated in the same way as new Variable Hour employees.

New Employees

When an employer hires an employee, the IRS requires that the employer immediately decide if the employee is Full-Time or not.  Here is the language IRS regulations use: “if the employer reasonably determines, at the time the employee is hired, that an employee will average at least 30 hours of service per week or 130 per month, then the employer must treat the employee as full-time.”  On the other hand, if the employer cannot reasonably determine if an employee will average at least 30 hours of service per week or 130 per month, the new employee is called a “variable hour” employee (for all intents and purposes of the Look Back Method, seasonal employees and part-time employees are treated the same as Variable Hour employees).

The IRS leaves it up to employers to make the “reasonable determination” but lists out several factors to consider, like:

  • Is the employee replacing someone who was Full-Time?
  • Is the employee’s position similar to other employees who are Full-Time?
  • Was the job advertised (or otherwise represented as) being a Full-Time job?

If these factors point to “Full-Time” then the employer must treat the employee as Full-Time from day one.  See the next section on “when” to offer coverage to new Full-Time employees.  If, on the other hand, these factors do not point to “Full-Time” or if the factors conflict with one another (e.g. the job was advertised as part-time, all of the employee’s peers are part-time, but the person being replaced was full-time), then the employer should place the new employee in the “Variable Hour” category.

New Full Time employees must be offered coverage that is effective no later than the beginning of their fourth calendar month after they are hired (If the employee starts January 15th, coverage must begin by April 1st).

At this point we will preview the “Look Back” Method, explained in more detail in the next section.  Under the Look Back Method, the employer does not have to offer coverage right away.  Instead the employer measures the new Variable-Hour Employee’s hours of service over several months (called the Initial Measurement Period).

If, at the end of the Initial Measurement Period, it turns out that the Employee averaged at least 30 hours of service per week or 130 per month, then the employer must treat the Employee as Full-Time, and offer coverage for a period of several months called a Stability Period (we call this the “Initial Stability Period” to help separate it from the regular Stability Period).

Employers get to choose how long the Initial Measurement Period will be, however the longer the measurement period, the longer the Stability Period.  The trade-off here is that even though the employer was let off the hook for providing coverage to the employee during a time where the employee actually worked full-time, during the Stability Period, the employer must continue to offer coverage even if the employee drops down below Full-Time.  This principle works (basically) the same for Variable Hour employees who come up short of the 30 hours per week or 130 hours per month average (see our Look Back Method section for details).

The IRS also places limits on the length of the Initial Measurement Period.  The IMP can be no shorter than 3 Months and no longer than 12 months.  Also, the Initial Stability Period has to be at least 6 months, and must also be at least as long as the IMP.

The IRS does give employers a short “Administrative Period” in between the IMP and Initial Stability Period.  This is time for the employer to do all the calculations it needs to do, and get the paperwork done in order to enroll the employee in health coverage.  Generally, the Administrative Period can be up to 90 days.  However, the IRS includes one last wrinkle for covering New Variable-Hour employees: the Initial Stability Period cannot start later than one-year and one month after the employee’s hire date (meaning the IMP and Administrative Period together cannot be longer than 13 months).

For simplicity’s sake, and to give employers the greatest possible Administrative Period, after a long Initial Measurement Period, we typically recommend a 9-month IMP followed by a 90-day Administrative Period.

For information on how to do the calculations during the Initial Measurement Period, please read our section which details the entire “Look Back” Method.

Ongoing Employees

For how to treat On-going employees, check out our section on the “Look Back Method,” next.

 

The Look Back Method

Anyone already familiar with ACA Compliance likely hears a booming Hollywood voiceover when they read the words “Look Back Method!”  For everyone else: the Look Back Method is where IRS regulations tend to get a little technical and complex, so take this slowly, and in bite-sized pieces.  It might help to pull out a pencil and notebook and start drawing pictures (or just look at ours.

For those readers joining us from the last section, we previewed the Look Back Method’s application to newly hired variable-hour employees.

The short-version of how the Look-Back Method works is this: the employer measures the hours of service for each employee over the course of several months (a “measurement period”).  After the measurement period the employer can use a brief administrative period (no more than 90 days), to do the calculations and paperwork to start enrolling full-time employees in health coverage.  At the end of the administrative period, every employee who averaged full-time status during the measurement period must be offered affordable minimum essential coverage for a term called a “stability period,” even if they later fall below full-time status.  Any employees who fell below full-time during the measurement period do not have to be offered coverage during the stability period, even if they later go above full-time status (subject to an important exception).

 

Here are some basic definitions:

Initial Measurement Period: The measurement period that applies to a new Variable Hour Employee.  The employer can choose the length of the measurement period it uses, however, once chosen, the employer has to consistently apply the same length to all employees (employers can create categories for different kinds of employees, but that is beyond the scope of this learning center).  The minimum length is 3 months, and the maximum length is 12 months.  During the IMP the employer does not have to offer health coverage to the new Variable Hour Employees.  The IMP can start on either: the date the employee is hired, or the 1st day of the month following hiring.  The IMP and any Administrative Period after it must end before 13 calendar months have passed since the employee was hired.

Standard Measurement Period:  A measurement period used to determine which on-going employees are Full-Time employees who must be offered affordable minimum essential coverage.  Employers may choose their own Standard Measurement Period, beginning with a specific calendar month, and ending with a specific calendar month.  However, the Standard Measurement Period must be at least 3 months long and cannot be more than 12 months long.

Stability Period: A period of time that comes after either an Initial Measurement Period or a Standard Measurement Period where all employees who meet or exceed the Full-Time threshold (during the measurement period) must be offered affordable minimum essential coverage, and where any employees who did not meet the Full-Time threshold (during the measurement period) do not have to be offered coverage.  Stability Periods can be any length the employer chooses, however they must be at least 6 months long, at least as long as the measurement period they are linked to, and cannot exceed 12 months.

Administrative Period:  An optional timeframe after a measurement period where the employer calculates which employees are or are not Full-Time employees during the measurement period and accomplishes the administrative tasks for enrollment.  Administrative periods are optional but cannot exceed 90 days (also see the 13-month limit in the Initial Measurement Period section).

*NOTE: Stability periods tied to Standard Measurement Periods have to “touch” so that there are no gaps.  There may be a “gap” between the end of a Stability Period after an IMP and the beginning of a Stability Period after a Standard Measurement Period (in that case, the IRS has said to treat the gap as though the Initial Stability Period extended to the beginning to the next Stability Period).

 

Who does the look-back method apply to?

Employers use the Look Back method to determine which employees must be offered coverage for all employees except newly hired Full-Time employees*.  In other words, new Variable Hour employees and ongoing employees are all tracked through the Look Back Method.

*NOTE: Some ACA systems and commentators apply Look Back to new Full-Time Employees at the end of an Initial Measurement Period, however IRS regulations clearly state that the Look-Back Method only applies to new Variable Hour Employees and On Going Employees.

 

When does someone become an “on-going” employee?

The most basic answer is that an on-going employee is any employee* who has been working for the employer for at least one full Standard Measurement Period.  Remember the SMP is a fixed timeframe (January through September, or February through November, for example).  If a company has an SMP From January through September, and hires someone on June 1st, 2015, they would become an ongoing employee as of the end of September 2016.

*NOTE: “Any” employee truly means every employee including Full-Time employees, Variable Hour employees, Part-Time employees, and Seasonal Employees.

 

Here are a couple of examples to help out:

Example 1:

Ink, Inc.

Initial Measurement PeriodAdministrative Period (after IMP)Initial Stability PeriodStandard Measurement PeriodAdmin Period (after SMP)Standard Stability Period
9 months (beginning on first of the month after hiring)90 days12 monthsJanuary 1st through September 30th90 daysJanuary 1st through December 31st

 

Fergie Fulltime is hired on June 22nd, 2016 as an office assistant.  Her position is a new position, but all of the other Office Assistants are full-time employees, and she was told it would be a full-time position.  Ink, Inc. has no option other than to classify Fergie as a new Full-Time Employee.  Ink, Inc. must offer Fergie affordable minimum essential coverage that takes effect no later than September 1st and runs through December 31st the following year (the 12-month Initial Stability Period, plus the gap until the beginning of the next Stability Period).  As of September 30th 2017, Fergie becomes an ongoing employee.  As it turns out, Fergie averaged less than 130 hours of service per month between January and September 2017.  Beginning January 1st, 2018, Ink, Inc. is not required to offer Fergie coverage under the ACA.*

*NOTE: This whole analysis applies only to Ink, Inc.’s duties under the ACA, the company’s plan document, it’s contract with Fergie, and other factors may come into play to determine whether they must continue to offer Fergie coverage after 2017

Example 2:

Barkley Corp

Initial Measurement PeriodAdministrative Period (after IMP)Initial Stability PeriodStandard Measurement PeriodAdmin Period (after SMP)Standard Stability Period
9 months (beginning on first of the month after hiring)90 days12 monthsJanuary 1st through September 30th90 daysJanuary 1st through December 31st

 

Victor Variable is hired on June 22nd, 2016 as an office assistant.  He is replacing an employee who averaged exactly 30 hours of service per week, however most office assistants are not Full-Time, and Victor was specifically told he would be working Part-Time because he would be working for a Vice-President who was going into partial retirement.  Barkley Corp can make a solid case that Victor is a new Variable Hour Employee, and does not need to offer Victor coverage until at least the end of his initial measurement period.  His initial measurement period begins on July 1st and ends March 31st 2017.  During that time Victor averages only 25 hours of service per week.  Barkley Corp does not need to offer Victor coverage at this point, and the stability period runs through March 31st 2018.  However, in January 2017, Victor begins being measured under the Standard Measurement Period.  Between January and September 2017 Victor averages more than 130 hours of service per month.  Although his first stability period doesn’t end until March 31st 2018, Victor will be eligible for the Stability Period beginning January 1st 2018, and Barkley Corp must offer him coverage effective as of January 1st, 2018.

 

Leaves of Absence

According the IRS ACA Regulations Paid Vacation, Paid Sick Leave, Jury Duty, Military Service, and other paid leave must always be counted towards Hours of Service.  But what about unpaid leave? What if the employer lays off an employee (or the employee quits, is fired, or otherwise leaves the employ of a business) and is later re-hired?

 

Paid Leave

First, we’ll look at Paid Leave.  IRS Regulations state that employees must be credited Hours of Service for each hour the employee is paid (or entitled to be paid) of Paid Time Off, Paid Sick Leave, Jury Duty, Military Service, and other paid leave.  For hourly employees this means dividing the money they earn on Paid Leave by their hourly wage.  For Non-Hourly employees this means crediting 8 hours (or 10 hours for alternative work-schedule employees) for each day of Paid Leave.

 

Unpaid Leave and Re-Hires

Next, we will look at how to treat unpaid leave for employees who are expected to return to work at the end of leave.  Unpaid leave can take many forms, such as FMLA, disability, unpaid sabbatical, etc..  The general rule for measuring Hours of Service during unpaid leave is that the Employer must average the employee’s hours of service throughout the rest of the measurement period (do not take into account the zero hours of service during the leave of absence), and uses that average to determine if the employee is a Full-Time Employee.  However, if the leave of absence lasts too long, the employer can treat the employee as a newly hired employee when they come back to work.

For educational institutions, the threshold is 26 weeks.  (Meaning if an employee of an educational institution has an unpaid leave of absence lasting 26 weeks or more, they can be treated as a new hire).  For all other employers, the threshold is 13 weeks.

 

But wait, there’s more! 

The IRS also adopted the “Rule of Parity” which allows employers to treat employees as new hires if the leave of absence is longer than (4) weeks and longer than the employee’s entire time working for the employer (e.g. an employee who works for only 5 weeks before taking a 10 week leave of absence) can be treated as a new hire when they come back to work).

Why does all of this matter? It matters because new Variable Employees would completely restart their Initial Measurement Period (up to a year), and new Full-Time Employees do not have to be offered coverage until the 1st day of their fourth calendar month on the job.

 

How are Employers Supposed to Know if the Coverage is “Affordable”?

According to the ACA, to be “Affordable” the cost (to the employee) must not be greater than a certain percentage of the employee’s household income (the percentage depends on the income level and is adjusted from time to time by the IRS based on health insurance costs).

Recognizing that Employers cannot reasonably be expected to know the household income of all of their employees (even unmarried Full-Time employees may have above-the-line deductions which impact “household income”), the IRS came up with safe harbors.

Employers must choose which safe harbor to use, and can use different safe harbors for different categories of employees.*  If an employer satisfies the safe harbor it has selected, the IRS will consider the coverage affordable at least with respect to that particular employee.  Because of this, it is possible for the employer to have offered “affordable” coverage to the employee (from the standpoint of the employer), but the employee still be considered eligible for a tax credit due to no “affordable” coverage from the employer.

Lastly, the employee’s “cost” only includes the amount the employee would have to pay for their own insurance coverage (meaning take out the costs for spouses, children, and other dependents).

 

There are three safe harbors:

Federal Poverty-Line:  The Federal Poverty Line safe harbor is the easiest to implement, but is also the least favorable to employers.  If the employee’s share of their own insurance premium is equal to or less than 9.5% of the Federal Poverty Line for a single individual ($11,770 for 2016).  In other words, if the employee’s share of their own premium is $93.18 per month or less (for 2016), the employer satisfies the Federal Poverty Line safe harbor (assuming this is the one the employer chose to begin with).

 

Rate of Pay:  The Rate of Pay safe harbor is the second-easiest to implement, and the one we recommend most-often.  Under the Rate of Pay safe harbor, for hourly employees, we multiply their hourly wage by 130 and then find 9.5% of that to find the affordability threshold.  If the employee’s portion of the self-only premium is equal to or less than that threshold, the employer satisfies the Rate of Pay safe harbor.  For non-hourly employees, the employer simply uses the monthly salary instead of multiplying an hourly rate by 130.  For employees paid on commission or some other basis, the IRS unfortunately offers no guidance.  For these employees we recommend using another safe harbor, because even if the IRS intended for the Rate of Pay safe harbor to apply, the unpredictability in these employee’s earnings makes applying the Rate of Pay safe harbor risky.

 

W-2 Wage:  The W-2 Wage safe harbor works similarly to the Rate of Pay safe Harbor, but differs in one important way.  While the Rate of Pay safe harbor looks at affordability on a month-to-month basis, the W-2 safe harbor looks at the average pay throughout the entire year and applies that average to each month the health insurance coverage was effective.  To calculate the W-2 Safe Harbor, the employer takes 9.5% of the total wages earned by an employee for the year, and then adds up the total amount of the employee’s portion of premiums for the year.  If the employee’s portion is equal to or less than 9.5% of the total wages, then the employer satisfies this safe harbor.  If the employer only offered coverage for part of the year, we’re supposed to pro-rate the annual W-2 wages.  For employees on commission, or other employees whose pay might fluctuate, the W-2 Safe Harbor might be a better option.  However, one key thing to remember is that the W-2 Safe Harbor, because it takes the total wages, and the total employee’s share of his or her premium, is an all-or-nothing system.  Either the coverage was affordable for the entire year, or it was unaffordable for the entire year.

 

The Rate of Pay and W-2 Safe Harbors also have rules which disqualify their use in certain circumstances like: (1) for the W-2 Safe Harbor: employer contributions to the insurance premium must be consistent throughout the year (although it can vary based on a pre-set percentage of W-2 wages), and (2) for the Rate of Pay safe harbor: the salary (or hourly pay) may not be reduced during the year (including reductions to salary associated with reduced working hours).

 

Here are some examples:

Example 3:

Barkley Corp

(Contributes 66% of Employee Health Insurance Premiums)

Henry HourlyHenry is paid hourly at a rate of $15 per hour.  Henry works 40 hours per week, 50 weeks per year plus two weeks paid vacationHenry’s monthly Insurance Premium breaks down as follows:

Henry: $330

Spouse: $315

Child: $110

Here is how Henry’s situation works under each of the three safe harbors:
Federal Poverty LineAffordability Threshold: $1,118.15 (2016) or 93.18 per month

·       $11,770 / 12 = 1,118.15

·       9.5% of 1,118.15 = 93.18

Henry’s monthly contribution to his own premium is $112.20 per month.  BarkleyCorp fails the FPL safe harbor
Rate of PayAffordability Threshold: $185.25 per month

·       $15 per hour X 130 hours = $1,950 per month

·       9.5% of 1,950 = $185.25

Henry’s monthly contribution to his own premium is $112.20 per month.  BarkleyCorp satisfies the FPL safe harbor
W-2 Safe HarborAffordability Threshold: $2,964 per year

·       $15 X 40 hrs X 52 weeks = $31,200

·       9.5% of 31,200 = $2,964

Henry’s annual contribution is $1,346.40 ($112.20 X 12).  BarkleyCorp satisfies the W-2 safe harbor.

 

 

Penalties

Employers can suffer ACA Employer Responsibility Payment Penalties in (2) ways:

  • They fail to provide health coverage to at least 95% of their Full-Time Employees (plus dependents), or
  • They do provide health coverage to at least 95% of their Full-Time Employees (plus dependents) but it is not “affordable.”

 

For either penalty to trigger, at least one Full-Time Employee must apply for and receive an Advanced Premium Tax Credit through one of the state Exchanges (or the Federal Exchange healthcare.gov).  So theoretically a business may avoid the ACA Penalties if none of its employees get tax credits.  However, there are still penalties for businesses who try to threaten or coerce employees against obtaining the tax credit.

Finally, before getting into the calculations and what triggers the penalties, there are special rules for businesses that are part of “controlled groups.”  Loosely defined an employer is part of a controlled group if the business shares common ownership or control with another business.  The rules for control groups are beyond the scope of this learning center and the reader may contact us for more details.

 

The 4980H(a) Penalty

The formula for the 4980H(a) penalty is relatively straight-forward.  To be subject to this penalty an employer must have failed to offer coverage to at least 95% of its full-time employees (or all but 5 full-time employees, if the business has fewer than 100 full-time employees).  The penalty is assessed on a monthly basis, meaning that if the employer met its obligations for 11 months, and failed in the 12th month, the penalty amount is prorated for 1 month.

 

The formula goes like this:  Total Number of Full-Time Employees (calculated using the look-back method) minus 30 X $2,000 (this amount adjusts for inflation starting in 2015).  The reader may notice that the employer gets to subtract the first 30 full-time employees from the penalty calculation.

Here are two examples:

 

Example 4: Ink., Inc.

 

Ink, Inc.

Jan

FebMarAprMayJunJulAugSepOctNovDec

Total FTE

57

48494646

50

474849464649
FTE Offered Coverage4444444444444444444444

44

Penalty4,500.003,333.33 – – – – –

 –

 

Ink., Inc. explanation:

In each month except January and June, Ink, Inc. offered coverage to at least all but 5 Full-Time Employees (the 95% threshold does not apply because the company is small enough to use the “all but 5” standard).  So Ink, Inc. owes no penalty for these months.

January: Ink, Inc. failed to offer coverage to 13 Full-Time Employees who were eligible under the look-back method in January.  Therefore, Ink, Inc. owes a Penalty under IRC 4980H(a).  The total number of Full-Time Employees in January was 57.  57 minus the 30 FTE allowance equals 27.  27 (total FTE minus 30) X $2,000 = $54,000.  $54,000 (annualized penalty)  / 12 = $4,500 (penalty for the month).

June:  Eligible FTE not offered coverage: 6.  Penalty calculation: 50 FTE – 30 Allowance = 20 “Penalties”.  20 $ $2,000 = $40,000 (annualized penalty).  $40,000/12 = $3,333.33 (monthly penalty).

Ink, Inc. owes a total ACA Employer Shared Responsibility Payment under 4980H(a) of $7,833.33 for the year.

 

Example 5: Barkley Corp

 

Barkley Corp

JanFebMarAprMayJunJulAugSepOctNovDec

Total FTE

213

199200196197199209209203200198199
FTE Offered Coverage195195195195195195195195195195195

195

Offer %92%98%98%99%99%98%93%93%96%98%98%

98%

Penalty 30,500.00 – – – – – 29,833.33 29,833.33 – – –

 –

 

Barkley Corp explanation:

In each month except January, July, and August, Barkley Corp offered coverage to at least 95% of eligible Full-Time Employees and owes no 4980H(a) penalties for these months.

January: Barkley Corp only offered coverage to 92% of eligible Full-Time employees and therefore owes a 4980H(a) penalty for the month.  213 (total eligible Full-Time Employees) minus 30 (allowance) = 183 “penalties’.  183 X $2,000 / 12 = $30,500.

July and August: Barkley Corp only offered coverage to 93% of eligible Full-Time employees and therefore owes a 4980H(a) penalty for those two months.  209 (total eligible Full-Time employees) minus 30 (allowance) = 179 “penalties”.  179 X $2,000 / 12 = $29,833.33 for each month.

Barkley Corp owes a total Employer Shared Responsibility Payment under 4980H(a) of $90,166.66

Up next: the 4980H(b) penalty…

 

The 4980H(b) penalty

The 4980H (b) penalty kicks in only during months where the employer meets its 95% (or all but 5 Full-Time Employees) obligations under 4980H(a).  The 4980H(b) penalty is for when the employer offers coverage to at least 95% of its Full-Time employees, but the coverage is unaffordable to at least one employee.  Like the 4980H(a) penalty, an eligible Full-Time employee must obtain an ACA Advanced Premium Tax Credit from an exchange in order for the 4980H(b) penalty to “trigger”.

 

To suffer the 4980H(b) penalty, the employer must have:

  • Satisfied its obligations under 4980H(a) (or else it would be paying that penalty instead), and
  • Offered coverage that fails to satisfy the Affordability Safe Harbor the employer has selected to apply to an employee (see our section on Safe Harbors for more information)

The calculation is done on a month-to-month basis, just like the 4980H(a) penalty, and the arithmetic goes like this:

  1. Figure what the penalty would be using the same arithmetic as the 4980H(a) penalty.
  2. Multiply the number of employees whose coverage fails to satisfy the safe harbor chosen for each employee by $3,000, and divide by 12
  3. Whichever is smaller is the monthly penalty under 4980H(b).

*NOTE The $3,000 figure is adjusted for inflation.

 

Here is an example:

Example 6: Ink, Inc.

Ink, Inc.

JanFebMarAprMayJunJulAugSepOctNovDec

Total FTE

57

4849464650474849464649

FTE Offered Coverage

444444444444444444444444
Failed Safe Harbor10000201000

3

Penalty4,500.0000003,333.330250000

750

 

In February, March, April, May, July, September, October, and November, Ink, Inc. offered coverage to at least all but 5 eligible Full-Time employees, and the coverage satisfied the Safe Harbor Ink, Inc. uses to test affordability.

In January and June, Ink, Inc. failed to offer coverage to enough eligible employees, and failed the affordability test for 1 employee.  Ink, Inc. is subject to only the 4980H(a) penalty for January and June (see example 1 in the section on 4980H(a) penalties for the calculations).

In August and December, even though Ink, Inc. offered coverage to enough eligible employees, Ink, Inc. failed to satisfy its affordability safe harbor(s) with respect to some employees in those months.

For August, Ink, Inc. failed its safe harbor for 1 employee, therefore it is subject to the 4980H(b) penalty.  1 (number of employees where the employer fails the safe harbor) X $3,000 (annual penalty amount) / 12 (to prorate for the monthly assessment of the penalty) = $250.00.

For August, the 4980H(a) penalty calculation would have yielded a total monthly penalty of $3,000 (see our section on 4980H(a) penalty calculations).  Since $250 is less than $3,000, the ACA Employer Shared Responsibility Payment for August is $250.00.

For December, Ink, Inc. failed its safe harbor(s) for 3 employees, therefore it is subject to the 4980H(b) penalty.  3 (safe harbor violations) X $3,000 (annual penalty) / 12 (monthly proration) = $750.00.

For December, the 4980H(a) penalty calculation would have yielded a total monthly penalty of $3,166.67.  Since $750 is less than $3,166.67, the ACA Employer Shared Responsibility Payment for December is $750.00.

 

Special Rules for New Full-Time Employees

One last thing to consider, when dealing with New Full-Time Employees, is the three-month allowance the IRS grants to employers.  As we discussed in the section on dealing with New Full-Time Employees, employers must offer coverage effective no later than the beginning of the fourth calendar month of employment.  During that timeframe, even though the employer has a Full-Time Employee who would otherwise be eligible for coverage, the employer owes no penalty.  However, if the employer fails to offer coverage by the deadline, the employer is penalized retroactively to the beginning of the Full-Time employee’s employment.

For more information on how employers must count hours of service, click here.

For more information on how seasonal workers are treated differently from other employees, click here.