Now is the time for your ASO to begin planning for implementation of the Affordable Care Act (ACA). Beginning in 2014, many employers will be required to offer health insurance to employees considered “full-time” or face financial penalties. Understanding the law’s potential impact on your ASO and determining the extent to which future costs can be passed along to your customers are key issues for consideration. For staffing firms, a “look back” rule recently approved by the Obama administration may substantially reduce the penalties for those that do not offer health insurance coverage.
Below are some initial basic questions your ASO needs to answer:
1. Does your alternative staffing organization meet the minimum size threshold to be subject to the law?
The Affordable Care Act applies to “large” employers that employ an average of at least 50 full-time or full-time equivalent employees. An employer’s status as a large employer is made annually based on its size in the preceding calendar year.
Full-time employee means an employee working an average of 30 hours or more per week, at least 130 hours in a calendar month.
“Full-time equivalent” employees are treated as full time employees in determining your ASO’s size. In other words, hours worked by part-time and temporary employees must be included in determining whether your ASO has 50 or more employees.
In the following example, a median-sized ASO has 66.7 full-time equivalent employees and thus qualifies as a “large” employer:
3 full-time administrative staff
2 half-time administrative staff @ 2,000 total hours per year
97,340 total annual staffing service hours billed
Add annual part-time and staffing service hours: 2,000 + 97,340 = 99,340 hours
Divide total hours into annual minimum of 1,560 hours (30 hours * 52 weeks):
99,340 hours / 1,560 hours = 63.7 Full-time equivalent employees
Add full-time admin and FTE staff: 3 + 63.7 = 66.7 total FTE employees
- Calculate your ASO’s full-time and full-time equivalent employees for the last three calendar years. Comparing multiple years of data will highlight trends in your ASO’s staffing service patterns.
2. What is the nature of your ASO’s relationship with a parent or sponsor organization?
The 50-employee test will be based on the IRS tax code’s “common control” rules. Under these rules, all firms under common ownership or control are treated as one firm [IRC Sections 414 (b), (c), (m), (o)]. Thus, if your ASO operates as a program or subsidiary of a parent organization, your full-time equivalent employees will likely count toward determining your parent organization’s size and vice versa.
- If applicable, consult with management of your parent/sponsor organization and its tax advisor to determine if your ASO is considered a separate entity or will be consolidated with your parent for Affordable Care Act purposes.
3. Who is a “full-time employee” for the purpose of offering health insurance coverage or paying penalties?
The definition of “full-time” for health insurance coverage and penalty purposes is different from the “50 employee” test. Once you determine that your ASO has 50 or more full-time employees and is subject to the law, you then apply a “look-back” rule to determine who is full-time for the purpose of offering health insurance or paying penalties.
For a calendar year, you can elect to look back anywhere from three to 12 months to determine if an employee worked full-time (average 130 hours per month) during that period. Employees determined to be full-time during the look-back period must be treated as full-time during a subsequent stability period during which you must offer health insurance coverage or pay a penalty regardless of the hours worked as long as the individual remains employed.
For example, assuming a 12-month look back period, on January 1, 2014 you would look back at January through December of 2013 to identify employees who worked full-time (at least 1,560 hours) during that period. If they are still employed on January 1, 2014, they would have to be enrolled in a plan within 90 days. If you do not offer a plan, you would pay penalties beginning January 1.
According to our Annual Performance Survey, the median length of employment for non-administrative ASO employees is approximately 48 days, or about 360 hours, well below the 1,560-hour minimum for one year. However, this estimate is an average based on total hours billed and total number of W-2s. What matters to your ASO is the number of individuals on your payroll who worked over 1,560 hours, assuming a 12-month look-back period.
- Review your payroll records for the last three calendar years to see how many of your temporary workers worked at least 1,560 hours per year. Add this number to your total full-time equivalent administrative staff to estimate the size of your ASO’s full-time workforce that is eligible for health insurance coverage.
- If possible, determine how many of your temporary workers who historically worked at least 1,560 hours per year were enrolled in Medicaid, as these workers are not subject to the penalty assessment.
Once you have made the basic calculations described above, modeling your ASO’s costs of insurance and/or penalties becomes more complicated. Our next installment will delve into those details. In the meantime, we welcome your questions in this forum to ensure we address your needs.