As if there wasn’t enough to worry about in the Affordable Care Act.
One of the law’s lesser publicized provisions, according to insurance consultant and principal Chris Free of Tacoma-area firm Rapport Benefits Group, could come back to bite large businesses in the backside in a big way.
“In 2015, some of the employer mandates — and therefore, penalties — for buying and not buying health insurance for your employees come into play for the first time,” Free said. “One of those that kicks into effect has to do with tracking the time that your employees work.”
Specifically, said Free, the provision has to do with determining who is a part-time, seasonal or temporary employee. Full-time employees, of course, are required to be provided benefits, so if your business has employees classified as one of the aforementioned statuses, the federal government is requiring you to prove it.
“You would definitely want to class those people appropriately so that you don’t have to buy them health insurance, which is obviously very expensive,” Free said. “What employers are going to have to do is follow a special time tracking process that the federal government has laid out. It’s kind of complicated, and they need to be doing it now, in 2014, so that they can look back on 2014 to determine whether or not employees were or were not part-time as it relates to the beginning of the Jan. 1, 2015 plan year.”
In a nutshell, Free explained, there are two periods in the time-tracking process. There is a measurement period, or “look back” period, and a stability period, or “look forward.”
The measurement period can be anywhere between three and 12 months, decided by the employer (though it can’t be shorter than the length of the measurement period). During this time, the employer would look back on the hours that staffers worked. If an employee works more than an average of 130 hours a month, that employee would be considered full-time in the eyes of the federal government.
During the stability period, then — which, per government regulations, can be between six and 12 months — that employee would have to be given health insurance benefits for the entire period.
And while the lengths of the tracking periods can vary, Free is urging companies to take full advantage of the longest possible timeframe.
“We are encouraging most employers to do the measurement part in 12-month periods,” Free said, “because that allows them to delay benefits for part-time employees for as long as possible. It allows employers to look at their entire annual business cycle. Just as an extreme example, if you are a Christmas ornament manufacturer and you wait until October-November-December to do your time tracking, you may find that all of your employees are doing 60 hours a week. But if you did a 12-month, then, for January-February-March-April and so on, your employees are only working 10-20 hours a week, and they’re definitely part-time. If you only use a measurement period that only encompasses your busiest time of year, then you’re going to have huge numbers.”
The cycles, he added, can be measured retroactively; that is, an employer can look back a few months and count employees’ hours during that past timeframe.
“You could actually wait until December and say, ‘Okay, I’m going to look back 12 months,’” Free said. “But at that point, all the numbers are already recorded. Everything is in stone, so you have no ability to make sure you’re running your business in a way that’s advantageous around this law.
“If you start looking at your time tracking now, you can say something along the lines of, ‘Hey, it looks like Sally has been getting a lot of overtime hours lately. This is pushing her toward the border of full-time definition. We’ve got to cut back on Sally’s hours a little bit. If you get started on that now, you have plenty of time to make those prospective changes. If you wait until December, you wouldn’t have that luxury should you need it.”
And the penalties for noncompliance are steep.
“If you have a part-time employee on Jan. 1 and you have not engaged in this time tracking, you are at risk of penalty if you do not give them health insurance,” Free said. “Without this proof, the federal government would be able to say, ‘These people are full-time. You can’t prove otherwise’ … Even if it turns out that sometimes they work 35 hours a week and sometimes they work three hours a week, you need to be able to show to the federal government that their hours fluctuate and they are, in fact, a part-time employee, and you don’t have to buy health insurance. If you can’t prove it, the government is going to assume that they are, in fact, your employee, and you’ll have to provide benefits.”
The penalty that might be incurred for not providing that health insurance, Free continued, could run from $2,000 to $3,000 per employee per year.
It’s important to note, Free said, that this provision, like the other employer shared responsibility provisions that kick in next year, apply only to “applicable large employers,” or employers with an average of at least 100 full-time equivalent employees on business days during the preceding calendar year. For employers with between 50 to 99 FTE employees, the shared responsibility mandate activates on Jan. 1, 2016.