The “pay-or-play” mandate is a key element of the Patient Protection and Affordable Care Act, often called “Obamacare”. It is a new law aimed at expanding health care coverage by requiring certain employers to make a choice: pay or play.
The mandate applies to “large employers” only, meaning farms, ranches, vineyards and the like who employed an average of 50 or more full-time employees – or full-time equivalent employees – per month in the calendar year prior, or for new employers who intend to employ that many in the current calendar year. The choice these large employers must make is simple: offer minimum essential coverage to all full-time employees, or pay an excise tax.
Below is some useful information for farmers and ranchers concerning the “pay-or-play” mandate and the health insurance requirements going into effect on January 1, 2014.
The Difference Between Full-Time Employees and Full-Time Equivalent Employees
- The “full-time equivalent,” or FTE, concept is intended to dissuade employers from replacing full-time employees with additional part-time employees in an effort to side step the “pay-or-play” mandate.
- A full-time employee is anyone who works at least 30 hours per week, or 130 hours per month. So, the FTE is calculated by adding together all of the hours worked by part-time employees in one month and then dividing that number by 120. This means an employer who has 12 part-time employees working a total of 1,200 hours per month between them (100 hours per month per employee) is considered to have 10 full-time employees, and thus is using 20 percent of the 50 full-time employee total.
The Rules Regarding Seasonal Employees
- Seasonal employees do not count toward the 50 full-time employee total.
- Seasonal employees are employees who worked 120 days or fewer in one year.
Time Constraints and Requirements
- Hiring and firing decisions made in 2013 by applicable large employers may affect the necessary coverage required on January 1, 2014.
- The IRS allows large employers to use a measurement period of 3 to 12 months of employment history to determine whether or not a certain employee is full-time.
- Any new employees are subject to an administrative period. This allows applicable large employers up to 90 days to determine whether or not the new employee is eligible for coverage.
- After January 1, 2014, all eligible employees must be provided coverage.
If a large employer chooses not to provide health insurance coverage to any or all of their full-time employees, fines could total $2,000 or $3,000 for each full-time employee. However, there are many factors and situational differences that can affect a large employer’s decision to “pay” or to “play”. For example, the first 30 employees are excluded from the total when penalties are calculated, so it may be economically beneficial for a large employer to choose to “pay”. This is because sometimes the health insurance coverage for the year totals more than the fine itself.
If you fall into the large employer category, seek the advice of a tax professional or insurance broker for specific details on your unique situation.