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Pay or Play Mandate and Penalties

Under the Affordable Care Act, large employers that do not offer their full-time employees (and dependents) health coverage that is affordable and provides minimum value may be subject to penalties. This is also referred to as “employer shared responsibility” or “pay or play” rules.

An employer qualifies as a large employer if it employed on average at least 50 full-time employees, including full-time equivalents, on business days during the preceding calendar year.

This mandate went into effect January 1, 2015 for employers with 100 or more employees and penalties for employers with 50-99 employees began effective January 1, 2016.

Companies can be penalized $2,160 (adjusted from $2,080 in 2015) per employee per year for not offering coverage, or $3,240 (adjusted from $3,120 in 2015) per employee per year if they don’t offer “minimal and affordable” coverage.

“Pay or play” also requires employers to comply with specific information reporting.

 

Determining FTEs

To calculate potential liability for a penalty, large employers must determine who is eligible for health insurance based on the number of hours worked the previous year. An employee is considered full-time for a month if he or she averages at least 30 hours of service per week (or 130 hours per month).

As an alternative to a month-by-month calculation, employers may use the safe harbor look-back method for determining in advance if an employee is to be treated as full-time, based on the employee’s hours of service during a previous period. Employers subject to “pay or play” in 2016 and using the look-back method should have started their measurement periods in 2015 to have corresponding stability periods for 2016.