Since the U.S. Supreme Court ruling upholding the Patient Protection and Affordable Care Act (“PPACA”), health care reform questions have been raised by many of my employer clients. It is important for small businesses to know if and how the PPACA will affect them.
The PPACA “mandate”, requiring employers to provide health insurance to employees or face a penalty, does not apply to employers with less than 50 full-time employees or the equivalent of 50 full-time employees. This is the small business exemption to the mandate.
To apply this small business exemption, employees are counted each month. “Full-time employees” include any employee who works at least 30 hours per week or 120 per month. Part time workers should be counted on a pro rata basis over 120 hours per month. Seasonal workers are not counted unless they work 120 days during the tax year.
I have often cautioned my small employers from going over 49 names on the payroll in order to avoid liability under the Family and Medical Leave Act. Now the PPACA provides an even stronger reason to stay at 49 employees or less. If your business is growing rapidly and you can’t avoid hiring new people, then just go into that hiring process knowing the laws you will now be required to follow.
If you are a small employer and already do provide health insurance or decide to continue in the future and have less than 25 employees (full-time equivalents), you may be eligible for a tax credit. To qualify, you must contribute at least 50 percent of the premium cost. The amount of the credit varies depending on the size of your workforce and the average annual wage they are earning.
For the tax credits, full-time equivalents (FTEs) are determined by dividing the total number of hours of service by all employees during the taxable year by 2080 hours (52 weeks times 40 hours per week) and then rounding down to a whole number. For example if your employees worked a total of 31200 hours this year, you would have 15 FTEs for tax credit purposes, regardless of whether your payroll showed 18 names or 22 names.