Beginning January 1, 2015, Employers with 50 or more full-time employees (or equivalent full- and part-time workers) generally will be required to offer 95% of their full-time employees and their dependents minimum essential coverage or pay a penalty if any full-time employee receives a premium tax credit or cost sharing subsidy in an exchange. The penalty varies depending on if the employer offers coverage or does not offer coverage.
For employers with 50 or more full-time equivalents (FTE) that DO OFFER coverage to at least 95% of its full-time employees and their dependents, the coverage would have to pass a two-part test for the employer to avoid penalties.
1) Must meet minimum value requirements (the plan's share of cost of benefits provided must be at least 60%).
2) Must be "affordable". Meaning that the employee contribution for employee only coverage cannot be more than 9.5% of the employee's household income. Since household income is generally unknown to an employer there are three safe harbor tests for an employer to determine if the health plans they offer are affordable. These safe harbors are explained in the affordability section of this calculator. See the Understand Affordability information below to learn more about affordability.
If the coverage offered fails to meet the requirements and any full-time employee receives a premium tax credit or cost sharing subsidy in an exchange the employer will pay a penalty. The penalty in this situation is the lesser of:
1) $3,000 for each employee receiving a premium tax credit or cost sharing subsidy or
2) $2,000 for each full-time employee minus 30.
Employers with 50 or more FTEs that DO NOT OFFER coverage to at least 95% of its full-time employees and their dependents will pay $2,000 for each employee (over the first 30) if at least one of their employees receive a premium tax credit or cost-sharing subsidy in an exchange.
For employer sponsored insurance to be considered "affordable" the employee contribution for employee only coverage for the leanest plan that meets minimum value cannot exceed 9.5% of the employee's household income. Since household income is generally unknown to the employer there are three safe harbor tests for an employer to determine if the plan is affordable. These safe harbors are optional. An employer may choose to use one or more of these safe harbors for all its employees or for any reasonable category of employees, provided it does so on a uniform and consistent basis for all employees in a category.
Form W-2 safe harbor
Wages for this purpose are the amount required to be reported in Box 1 of Form W-2, Wage and Tax Statement. Application of this safe harbor is determined after the end of the calendar year on an employee by employee basis.
Rate of pay safe harbor
Under this safe harbor the employer would (1) take the hourly rate of pay for each hourly employee who is eligible to participate in the health plan as of the beginning of the plan year , (2) multiply that rate by 130 hours per month (the benchmark for full-time status for a month under section 4908H), and (3) determine affordability on the resulting monthly wage amount. An employer may use this safe harbor only if the employer did not reduce the wages of employees during the year.
Federal poverty line safe harbor
Under FPL safe harbor, employer-provided coverage offered to an employee is affordable if the employee's cost for self-only coverage under the plan does not exceed 9.5% of the FPL for a single individual based on the most recently published poverty guidelines as of the first day of the plan year. Based on 2013 POVERTY GUIDELINES FOR THE 48 CONTIGUOUS STATES AND THE DISTRICT OF COLUMBIA this safe harbor indicates that if the employee contribution is less than $1,091.55 annually (2013 FPL of $11,490 x .095 = 1,091.55) the coverage under the plan is treated as affordable. This is equivalent to an employee contribution of $20.99 weekly, $41.98 bi-weekly, $45.48 twice a month or $90.96 monthly.