One of the aspects of the Patient Protection and Affordable Care Act that is set to go into effect in 2014 is the additional penalty tax on businesses who do not offer affordable health insurance and have 50 or more full-time employees. As a result of this pending implementation, many larger businesses are working now to find ways of reducing full-time staff to avoid the penalty. Some are also realizing that included in Obamacare is a new definition of full-time.
The penalty for not offering affordable health insurance is $2,000 per employee. This amount increases to $3,000 for employees who receive tax credits to purchase health insurance from state healthcare exchanges. However, this tax is reserved for companies with 50 or more full-time or full-time equivalent employees. That means the difference between having 50 employees or 49 could be as much as $150,000 in taxes.
In order to prevent employers from simply shaving an hour off of everyone’s work schedule, ACA has introduced two new definitions of “full-time”:
For the purposes of this tax, full-time means anyone who works an average of 30 or more hours a week. Whereas in the past someone could work 39 hours and still be considered part-time, ACA changes this rule when determining who is a large employer.
Full-time equivalent, or FTE employees represent a composite of multiple part time employees whose hours add up to more than 30. In other words, if you have 50 people all working 40 hours and you replace one of those workers with two people working 19 hours each, the result you still have 50 full-time or full-time equivalent employees. The two part-timers have total average hours in excess of 30, making them effectively one full-time equivalent employee.
$150,000 is a hefty bill to pay for missing these two new definitions of “full-time”. $2,000-$3,000 per employee is a significant chunk out of any medium sized business’s budget. However, service-heavy small businesses with a lot of turnover must also be aware of these changes. Contact us with any questions regarding this tax or other aspects of the Patient Protection and Affordable Care Act.