Employers with more than 50 FTE (full time equivalent) employees are required to furnish health insurance starting Jan 1, 2015.
The term “FTE” has been misinterpreted in the media, so let’s start there. If you have a business with 120 half-time employees, you might just assume that you don’t have to furnish insurance. That’s because no one is full time. And that is true, but there is one more part to this. From the half-time employees, you actually have 60 FTE (full time equivalent). That means you are required to furnish insurance for any full time employees, even though you may have just a few full time employees. But, as long as everyone is part-time, you don’t have to cover anyone.
If, after making this calculation with your CPA, you determine you have to cover your full time employees, 2015 is the year it happens or you face a penalty. The penalty is up to $3,000 per employee if you fail to cover them.
Without a doubt, the new insurance is often much more costly than previous plans. And for some employees, they can go to the health care federal or state exchanges and pay a whole lot less. Some employers who don’t want to or can’t afford to pay for health insurance for their employees have come up with a plan to give their employees money to pay for their own health insurance. The employers still plan to pay the $3K or so fine per employee not covered, but that plus the money they give their employees is still cheaper than the insuranc.e
The IRS has issued a statement, by way of a FAQ at http://www.irs.gov/uac/Newsroom/Employer-Health-Care-Arrangements that states that this will create an additional penalty. And this one is a whopper!
The additional penalty is an excise tax of $100 per day per employee. That means if the employer fails to provide the insurance, they get a $3K per employee penalty. If they leave it at that, that’s the only penalty. But if they try to give the employee some money so they can go buy the cheaper insurance on the exchange, the employer will get the $36,500 per employee penalty.
The final result means that either the employer furnishes insurance or pays a penalty that costs less than the insurance. They can’t also give money to the employee to buy insurance. If they do, the penalty goes up tenfold.
I’m left shaking my head at this announcement. The IRS appears to have drawn a line in the sand and made the employers either provide Obamacare-compliant insurance at generally a much higher cost or provide nothing at all. In the end, I believe that most employers will work to reduce the number of full-time employees by cutting hours and/or hiring independent contractors or simply moving the whole operation offshore.
Remember, if you are an employer, or an employee, in a business with less than 50 FTE, this does not apply to you.