Perhaps the biggest change to ACA in 2016 is the accepted definition of “small employer.” Previously, a “small employer” was defined as a business with between one and 50 full-time equivalent (FTE) employees. However, for plans starting in 2016, the definition has expanded to include businesses with 100 employees. Employers with 51 to 100 employers will now have to comply with ACA requirements, including plans that cover essential health benefits and meet ratings requirements.
A small employer employs less than 100 full-time employee equivalents. Full-time employee equivalents are measured by adding the number of full-time employees into a formula with the hours worked by part-time employees and seasonal employees. Independent contractors and leased employees do not contribute to full-time equivalency.
Small employers are not subject to the employer mandates. Thus, small employers are not subject to excise tax penalties for choosing not to offer healthcare coverage to full-time employees. Note, however, that if small employers do choose to offer healthcare coverage, the plan would be subject to PPACA and all its related provisions.
Small employers who approach a full-time equivalency of 100 should be cautious in expanding employment due to the implications of becoming an applicable large employer. Planning is encouraged for this transition, and alternative hiring methods such as leased employees or independent contractors may be useful either during the transition or on a more permanent basis.
LBMC can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure.