On January 1, 2015, the Employer Shared Responsibility provision went into effect. As of 2017, the provision — and possible penalty for non-compliance — applies to “large” small businesses in California. In this post, we’ll discuss who falls under the shared responsibility provision (SRP) and how the penalty is calculated.
Who Is Subject To The Shared Responsibility Provision?
The Affordable Care Act’s employer SRP only applies to firms with 50 or more full-time equivalent (FTE) employees during the previous calendar year. (Want to calculate the number of FTE employees in your firm? Click here.)
If your business has 49 or fewer FTE employees, you don’t have to offer health insurance to your employees, and you won’t be subject to a penalty. If your firm has 50 or more FTE employees, you must provide sufficient, ACA-compliant coverage to at least 95% of your FTE employees and their dependents.
What’s Considered Compliant Coverage?
Under the shared responsibility provision, ACA-compliant coverage is defined by the following parameters:
- “Minimum value” — The group plan must cover at least 60% of the total cost of medical services for the group.
- “Affordability” — The employee’s share of the premium cannot cost 9.5% or more of an employee’s annual household income. (This percentage cap is for the cost of the individual employee’s coverage, not for the cost of adding family members.)
- “Minimum essential coverage” — The group plan must include the 10 essential health benefits that are standard to any ACA plan.
If your business doesn’t offer coverage that meets the above requirements, your employees can enroll in an individual plan offered on their state or federal exchange. If any of those employees receive a federal subsidy through the exchange, you’ll pay a penalty.
How To Calculate The Shared Responsibility Payment
The shared responsibility payment is calculated in one of three ways.
1. For the employer that does not offer coverage
If…
You have 50 or more FTE employees, and at least one employee receives a government subsidy through an individual plan on their state or federal exchange
Then…
Your firm pays $2,000 for each FTE employee after the first 30 employees.
Say you have 53 employees. If you don’t offer health insurance and one or more of your FTE employees receives a government subsidy on the exchange, you’ll pay $46,000 total — $2,000 for 23 employees.
2. For the employer that does offer coverage
If…
You have 50 or more FTE employees, and at least one FTE employee receives a government subsidy
Then…
Your firm pays $3,000 for each FTE employee who receives a subsidy OR (as with above) $2,000 for each FTE employee after the first 30 employees. The lesser total will be the final penalty assessment.
Say you have 53 employees, and you decide to offer health insurance. If two of your FTE employees receive a government subsidy, you’ll be fined $6,000 total ($3,000 for 2 employees).
3. For the employer that offers partial coverage
If…
You offer health insurance for some months out of the calendar year, and at least one FTE employee receives a government subsidy
Then…
The penalty is calculated for each month that you didn’t offer coverage.
So, that $2,000 penalty would be divided by 12 and multiplied by however many months your employee qualified to receive a subsidy.
Will My Business Pay A Penalty?
Before the IRS can hold you liable for a shared responsibility payment, your employees must file their individual tax returns for the year. These tax returns will show any claimed tax credits. Employers must also file information returns that identify their FTE employees and the coverage (if any) that was offered to employees.
Running a business is expensive enough without any added fines. Get in touch with a licensed health insurance agent at Regency West Insurance. We’ll help you decide if the SRP applies to your firm. Then we’ll find a compliant group plan that excludes you from a potentially costly penalty. Just visit RegencyWestInsurance.com or call (858) 699-0286. A friendly, licensed agent is ready to help you!