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Are You Going to Play or Pay?

The Affordable Care Act (“ACA”) includes an “Employer Mandate” that every employer should understand. Although the mandate will not take effect until January 2014, now is the time to learn about it.  The mandate requires “large employers” to offer health coverage for “full-time employees” (and their dependents) or pay a penalty tax. The system has become known as “play or pay.” While the requirement may appear quite simple, do not be fooled. It requires a complicated analysis and employers will likely need professional advice to decide whether or not they are going to play or pay in the coming year.

To begin understanding the mandate, you must first know the dividing line between big and small. “Small employers”—those with fewer than 50 “full-time employees”—are not required to provide coverage to any employees and risk no penalties if they choose not to do so.

So, what’s a “full-time employee” for mandate purposes? Full-time employees are those who regularly provide at least 30 hours of service a week, on average. You do not have to provide coverage for employees who are part-time, but the number of hours worked by part-time employees factors into the equation for determining the total number of employees. To determine the total number of “employees” under the act, the total number of house worked by part-time employees in a month must be added together and then divided by 120. This number is added to the number of regular full-time employees for each month. That figure is then divided by 12. So, for example, 40 full-time employees employed 30 or more hours per week plus 20 part-time employees employed 15 hours per week are equivalent to 50 full-time employees. Take a look at the math:

15 part-time hours per week x 4 weeks in a month = 60 hours

60 hours x 20 part-time employees = 1200 hours

1200 hours divided by 120 = 10

40 full-time employees + 10 = 50 “full-time” employees

As you can see, it is possible to have less than 50 full-time employees, but still be subject to the mandate. There are more in-depth regulations for those who are considered joint employers or those who may hire seasonal workers.

The hours used for monthly totals include all hours for which employees are entitled to compensation. Paid sick days, vacation days and maternity leave all must be used. You must look at the twelve months of the preceding calendar year to determine these numbers, but for 2014 employers may choose to use any consecutive 6 month period in 2013.

Now that you know how to determine if the mandate is applicable to you as an employer, check back with us on Wednesday for a continued discussion about the pros and cons of playing or paying.

Ben Riddle

Benjamin L. Riddle  is an associate in the Louisville, Kentucky office. Mr. Riddle is a member of the firm’s Litigation team, where he focuses his practice on employment law, commercial disputes and personal injury matters. Mr. Riddle can be reached at (502) 327-5400, ext. 2305 or briddle@mmlk.com

This article is intended as a summary of newly enacted federal law and does not constitute legal advice.

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