When it comes to the new burdens imposed by the Patient Protection and Affordable Care Act (ACA), employer size makes a huge difference: only large employers (see definition below) are subject to the employer mandate to offer adequate and affordable health coverage to full-time employees or face significant penalties. In addition, only large employers face extensive new information reporting requirements (Form 1095-C).
ACA size is based on the average number of full-time (FT) and full-time equivalent (FTE) employees during the prior calendar year. Under a special rule for 2015 only a mid-size category was created to offer an additional year delay in imposition of large employer penalties.
For calendar 2015, all employers will fall into one of the following size categories based on the 2014 average FT and FTE number:
Small – fewer than 50, exempt from the employer mandate, penalties and reporting
Mid-size – 50-99, exempt from penalties but not reporting
Large – 100 or more, subject to employer mandate, penalties and reporting
What records or documentation should an employer create to prove its size for 2015?
1. Employers who issue 49 or fewer 2014 W-2s should simply retain copies of the W-2s and W-3 to substantiate their small status for 2015 since there is no possibility they could have averaged more than 49 FT and FTE employees in 2014.
2. Employers who issue 150 or more 2014 W-2s are almost certainly large for 2015 unless they have very high turnover or can qualify as small under the seasonal business exception.
3. Employers who issue between 50 and 150 2014 W-2s should go through the size calculations to document their exact size for 2015 as follows:
a.Create a spreadsheet with columns for each calendar month of 2014;
b.Enter the number of hours of each employee who worked at all during the month;
c.Sort the hours from most to least and draw a line at 130 hours.
Count the number of employees with 130 or more hours (actual full-time employees).
d.For employees between 121 and 129 hours, substitute 120 hours for the actual number.
e.Add all the hours for all employees below 130 hours, divide the total by 120 and carry the result to two decimal places (FTE employees).
f.Add the number of actual full-time employees (step d.) and the number of full-time equivalent employees (step f.) to determine your ACA size number for that month.
g.Add the 12 monthly numbers, divide by 12 and round down to the next whole integer. If the average is 49 or less, you’re a small employer for 2015. If it’s 50-99, you’re a mid-size employer for 2015 (with conditions).
Special rule: in calculating your average number for 2014, you’re not required to average all 12 calendar months, but can use any six or more consecutive month period (28 possible combinations), so keep trying until you find a number that you like.
John M. Peterson is Of Counsel and a member of the Healthcare, Employee Benefits, Business Taxation, and Labor & Employment practice groups at Kaufman & Canoles. John has over 41 years of experience as both a practicing attorney and CPA in the areas of retirement plans, employee benefits and most recently the Affordable Care Act. He can be reached at (757) 624.3003 or jmpeterson@kaufcan.com.
