ObamaCare Employer Mandate
The Employer Mandate / Employer Penalty Delayed until 2015
The ObamaCare employer mandate / employer penalty, originally set to begin in 2014, will be delayed until 2015 / 2016. The ObamaCare "employer mandate" is a requirement that all businesses with over 50 full-time equivalent (FTE) employees provide health insurance for their full-time employees, or pay a per month "Employer Shared Responsibility Payment" on their federal tax return.
Employer mandate update: Small businesses with 50-99 full-time equivalent employees (FTE) will need to start insuring workers by 2016. Those with a 100 or more will need to start providing health benefits to at least 70% of thier FTE by 2015 and 95% by 2016. Health care tax credits have been retroactively available to small businesses with 25 or less full-time equivalent employees since 2010.
The employer mandate is officially part of the Employer Shared Responsibility provision. Under the Affordable Care Act, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States.
ObamaCare Employer Mandate image from Robert Wood Johnson Foundation
The Employer Mandate Fee / Employer Shared Responsibility Payment
The annual employer mandate fee (officially called an Employer Shared Responsibility Payment) is a per employee fee for employers with over 50 full-time equivalent employees who don't offer health coverage to full-time employees.
• The employer mandate is based on full-time equivalent employees, not just full-time employees.
• The fee is based on whether or not you offer affordable health insurance to your employees that provides minimum value (explained below).
• In 2015 employers with more than 100 FTEs will need to cover 70% of their full-time employees. By 2016 employers with more than 50 FTEs will need to provide coverage to "substantially all" (95%) their full-time employees.
• The annual fee is $2,000 per employee if insurance isn't offered (the first 30 full-time employees are exempt).
• If at least one full-time employee receives a premium tax credit because coverage is either unaffordable or does not cover 60 percent of total costs, the employer must pay the lesser of $3,000 for each of those employees receiving a credit or $750 for each of their full-time employees total.
• The fee is a per month fee due annually on employer federal tax returns starting in 2015 for small businesses with 100 or more full-time equivalent employees(2016 for those with 50-99). So the per month fee is 1/12 of the $2,000 or $3,000 per employee.
• Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax deductible.
• Transition relief is available to small businesses and large businesses transitioning into compliance with the new mandate. Please see the official IRS rules regarding transition relief here.
• The Internal Revenue Service has more information about the Employer Shared Responsibility Payment.
The employer mandate fee is officially referred to as a "shared responsibility payment", as the fee will help to go to help fund marketplace subsidies and fund other aspects of the Affordable Care Act.
Understanding Full-time Equivalent Employees
In simple terms FTE or "full-time equivalent" equals (the total number of full-time employees) plus (the combined number of Part-time employee hours divided by 30). NOTE: seasonal employees, contractors, and business owners don't count toward the total. Part-time employee hours can be averaged from anywhere between a 3 and 12 months span to determine FTE.
How to Know if Your Coverage is Affordable
If an employee's share of the premium costs for employee-only coverage (not the entire family) is more than 9.5% of their yearly household income, the coverage is not considered affordable.
Since you typically won't know your employee's household income, you can generally avoid a Shared Responsibility Payment for an employee if the employee's share of the premium for employee-only coverage doesn't exceed 9.5% of their wages for that year as reported on the employee’s W-2 form.
For additional information about this and other safe harbors see IRS.gov/aca.
How to Know if your Coverage Provides Minimum Value
A health plan meets minimum value if the plan's share of the total costs of covered services is at least 60%. In other words it must meet the basic requirements of a plan sold on the health insurance marketplace. If you purchase a group plan using the SHOP (Small Businesses Health Options Marketplace) should qualify. Please note: firms with over 100 full-time employees (50 in some States) can't use the marketplace. Even if your firm can't use the marketplace you can use https://www.wahealthplanfinder.org to get an idea of what benefits and actuarial value bronze plans (the lowest tier plan that meets minium value) cover.
To determine whether other coverage meets minimum value, you can use the minimum value calculator provided by the U.S. Department of Health and Human Services. When you input certain information about the plan into the calculator, like deductibles and copayments, it will help you determine if the plan covers at least 60% of the total allowed costs of benefits provided under the plan.
How Do Employers Purchase Group Health Plans?
Employers with under 100 full-time workers, 50 in some States, will be able to use a SHOP exchange to compare and purchase group plans for their employees. Exchanges (marketplaces) create large pools of buyers which offer the buying power that only large firms have had in the past. In theory the increased buying power leads to better quality, more affordable plans. Smaller firms will see even greater affordability due to subsidies which are offered through the marketplace to employers with less than 25 full-time equivalent employees.
The marketplace help to level the playing field for businesses that may have gotten over charged in the past. Employers of all sizes can still shop outside the marketplace, provided the plan they choose provides minimum coverage offered on the marketplace (roughly a 60% actuarial value and complies with the ACA).
See ObamaCare Small Business for more information small business rules and taxes. See Our SHOP Exchange Guide to learn more about purchasing health insurance for your employees.
The Truth About Who The Employer Mandate Affects
96% of all firms in the United States - or 5.8 million out of 6 million total firms - have under 50 employees and Will not Be Penalized for choosing not to provide health coverage to their employees. 96% of those firms already cover full time workers. That means less than .2% of small businesses (10,000 out of 6 million) will actually have to provide insurance to full-time employees or pay the shared responsibility fee due to ObamaCare. The caveat of course is that some of those companies are some Americas largest employers and thus we are talking millions of folks getting covered through the mandate.
More than half of all Americans have health coverage through an employer, including nearly two-thirds of the adult workers who are too young to qualify for Medicare.
ObamaCare Mandate Rules: What about Businesses With Under 50 full-time Equivalent Employees?
One thing that seems to get ignored when discussing the employer mandate is the fact that employers with under 50 full-time equivalent employees almost universally benefit from ObamaCare. If a small business has 25 or less full-time employees they can apply for tax breaks of up to 50% (35% for non-profits) of their contribution of their employees premiums starting in 2014. To qualify businesses must pay for at least 50 percent of their employees premiums and their workers average annual wages can't be more than $50,000. By 2014 the tax credit amount is increased to 50% (35% for non-profit).
• To qualify for tax credits insurance must be purchased on the Affordable Insurance Exchange for at least two years. Credits can be claimed on your income tax return with an attached Form 8941 showing calculations for the credit.
• Businesses with 10 or fewer full-time employees and average annual wages of $20,000 or less are eligible for the full 35% credit between 2010 and 2013 and then a 50% tax credit beginning in 2014.
• Small business employers with over 25 full-time equivalent employees will not have access to the same tax breaks as those small businesses with under 25 employees. Tax credits are available for small businesses on a sliding scale depending on the number of employees and average annual wages.
• Employer-based plans that provide health insurance to retirees ages 55-64 can get financial help via the Early Retiree Reinsurance Program. A program designed to lower the cost of premiums for all employees and reduce employer health costs.
Understanding How the Mandate Affects Your Business and Employer Mandate Loopholes
ObamaCare helps small businesses via the SHOP marketplace and tax credits, costs large firms a little more due to the employer mandate, and leaves a few mid-size firms stuck in the middle. Let's take a look at how ObamaCare's mandate affects a business with just over 50 full-time equivalent employees.
Consider a firm with the equivalent of 60 full-time employees, to comply with the employer mandate they could either cut back worker hours by over 10 full-time equivalent workers, choose not to insure their full-time workers and pay a fee, or cut back full-time workers to part-time and insure less employees.
If the firm kept only 30 workers at full-time, and didn't offer any employees health insurance, they would avoid the fee completely since their first 30 workers are exempt yet their total number of full-time equivalent employee hours wouldn't have changed. Unfortunately it is loophole's like this which has caused some businesses to cut back employee hours down to a safe 27 hour part-time status. While this is cost affective for the firm, it's not great for employees who will see a lower income and be left without employer based health coverage.
The point of the law isn't for small businesses to find loopholes, the point is to hold larger firms accountable for employee healthcare. To a company like Walmart getting a break on their first 30 employees is next to meaningless but to a firm that employees 40 full-time workers it is a pretty fair way to ask them to help ensure all Americans have access to affordable health care.
ObamaCare means that small employers with less than 50 full-time equivalent employees won't pay a fine for not providing health insurance and those with less than 25 full-time equivalent employees can get tax breaks of up to 50% of their employees premium costs via their State's Health Insurance Marketplace.
ObamaCare Employer Mandate and Job Loss
Some companies cut back hours to avoid the mandate, but companies like Walmart have decided it was better to embrace the law instead of fight it and are now moving 35,000 workers from part-time to full-time status and giving them and their domestic partners health benefits.
How the ObamaCare Employer Mandate Will Affect You
If you work for a company that doesn't currently provide health insurance to their full-time workers and you work over 28 hours a week you are at the highest risk of having a negative impact from the provision. Although the "mandate" is meant to help provide this demographic insurance it has backfired with some of America's largest employers and ironically many government institutions. While only a small portion of the companies affected have responded by cutting hours, the American's affected is staggeringly high. If you have been affected by the ObamaCare "employer mandate" please write us using the contact button on the left side bar and tell us your story so we can share it.
ObamaCare Employer Mandate Penalty Facts
ObamaCare's "employer mandate" is officially a "shared responsibility fee" and like the "individual mandate" is a tax penalty to ensure that companies who choose not to provide health care for their workers are still paying into the healthcare system (as the law assumes that the employee will purchase insurance elsewhere).
Many news outlets report the "employer mandate" as a $3000 fee. This isn't true, the penalty for small businesses not covering their workers is $2000 per employee and $3000 only if they purchase health insurance through the exchange with premium tax credits. This penalty is only applicable if the employee is not offered quality, affordable insurance. Employees who have access to quality, affordable insurance must obtain insurance through their employer, although their spouse and dependents can still obtain coverage through the marketplace (although they won't be able to use cost-assistance)
• In total 6 million people are estimated to gain insurance through employer based health insurance due to the mandate.
• The average employer contributed $4,508 towards single coverage in 2011, an amount that is projected to rise up to $5,100 by 2014. Although the rise is significant, the cost of health care has been rising regardless of ObamaCare. This number factors in larger businesses. Smaller businesses will be able to obtain premium tax credits through the SHOP exchange saving up to half of this cost, especially considering the average factors in high-end insurance plans.
ObamaCare Individual Mandate
See our ObamaCare tax penalty page more information on the ObamaCare individual mandate.
What is the Impact of the ObamaCare Employer Mandate
The ObamaCare employer mandate has already caused many companies to cut back the hours off full time workers to ensure that they are part-time status. Although only less than a fraction of a percent of firms in the US have over 50 full time employees, yet don't provide health insurance, many Americans are finding their hours cut. One of the reasons for this is that some of Americas biggest employers, McDonalds for example, don't provide full-timers with insurance. This also points to why the mandate is such a hot button issue, simply put, companies like Walmart and Taco Bell have a lot of money to throw around considering the amount of profit at stake.