The Affordable Care Act's (ACA's) pay-or-play penalties apply only to so-called applicable large employers (ALEs). An ALE is an employer that employs, on average, at least 50 full-time equivalent employees (FTEs) in the prior calendar year. (For 2015 only, certain employers with between 50 and 99 FTEs on average in 2014 are exempt from pay-or-play penalties.)
Employers who are not interested in potentially incurring pay-or-play penalties under ACA but who are looking to expand their workforce beyond 50 FTEs should consider hiring a U.S. military veteran or his or her spouse.
In July, President Obama signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (Transportation Act) which included an amendment to Internal Revenue Code (Code) Section 4980H, which sets forth the requirements of the ACA's pay-or-play penalties and, importantly, establishes rules for counting employees to determinate ACA status. The Transportation Act amended the Code by adding Section 4980H(c)(2)(F), which excludes those covered by Tricare and Veterans Administration insurance from the FTE headcount for purposes of determining ALE status.
In other words, an employer that has been maintaining its workforce at just below 50 FTEs may now expand its workforce by hiring a veteran or his or her spouse covered by Tricare or VA insurance and still not be considered an ALE for the ACA's pay or play requirements.
The legislation was passed into law at the end of July and most of D.C. takes a vacation for August, so the hope is that sometime soon the Internal Revenue Service will release guidance confirming for employers that they agree that the plain language of the amendment would exclude any spouse or dependent covered by Tricare or VA insurance, as well as the veteran him- or herself.
The new law is effective as of January 1, 2014, so employers who just went over 50 FTEs in 2014 should attempt to identify those current employees who might qualify for the exception, and should incorporate an identification process into their onboarding processes. The federal regulators may also provide guidance on how employers might go about asking current or prospective employees whether they fall into this exception. Clearly, there is nothing wrong with asking an individual if he or she is a veteran (and giving thanks for his/her service). Care should be taken, however, in asking about Tricare or VA coverage. Without proper guidance, employers will want to avoid appearing to suggest or recommend that a current or prospective employee opt into VA or Tricare coverage instead of the employer's insurance.
This new exclusion may provide a significant incentive to hire veterans and their families while providing relief to many small and mid-sized employers who have been "making do" with their current workforce size to avoid being subject to pay-or-play. A rare occasion in which our representatives in Congress fashioned a true win-win.
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