06 Feb Pay or Play: Simplified

Pay or Play: The simplified facts you need to know as an employer.

Provisions of the Affordable Care Act (ACA) go into effect in January of 2014. Under this act, there are “pay or play” mandates that large employers need to be aware of in order to avoid paying penalties.

What are the mandates? Basically, large companies are required to offer health coverage to not just their full-time employees, but their dependents, too. If the coverage is not considered minimum or affordable, large employers will be forced to pay a hefty penalty, or a “shared responsibility payment.”

What is minimum coverage? The employee’s cost of coverage cannot exceed more than 9.5% of his household income (including the income of their spouse and dependents). These incomes can be difficult to assess, so for safety purposes, there are three “affordability safe harbors” that companies can rely on to determine minimum value.

• The Form W-2 Safe Harbor is the first “safe harbor” from penalties. This provision says that the employee and their dependents must be offered the minimum essential employer-provided safe coverage. Employers also need to make sure the employee’s contributions do not exceed 9.5% of that employee’s W-2 wages.

• The Rate of Pay Safe Harbor
is especially useful for employers with hourly employees. Employers can take the hourly pay-rate of each employee, multiply by 130 (or monthly salary for salaried employees), and determine affordability based off that rate. The plan would be considered affordable or “safe” if after that rate the employee contributions do not exceed 9.5%.

• The Federal Poverty Line Safe Harbor describes the poverty line for full time employees. If an employee and their dependents are considered under the poverty line or eligible for Medicare, then they are excluded from consideration for employer-provided coverage due to tax-credit considerations.

All of the safe harbors have additional rules and regulations that we would be happy to explain to you. Also, for additional information, legal briefs, and terms made simple, make sure you stay up to date with the rest of our blog.

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