The Affordable Care Act (ACA) is a confusing legislative jewel that most accountants, human resource managers, and insurance companies are hard pressed to explain clearly. The following is Restaurant Accounting Services review of the acts’ highlights and RAS’ attempt to help make it understandable.
The ACA applies to “large” businesses. A restaurant is defined as a large business if it has at least 50 Full Time equivalent Employees FTE’s, not counting seasonal workers. Full-time employees are those who work 30 hours – plus part-time employees that are equivalent to a full-time employee figured on a monthly basis. Example: Two (2) employees that average 15 hours per week, equal one (1) full-time employee.
Starting on February 28, 2016 (if filed by mail) or March 31, 2016 (if filed electronically), large employers will have to report health insurance census data to the IRS on Forms 1094 and 1095. These reports will summarize 2015 payroll and health insurance information.
Under the IRS Code, an Applicable Large Employer (ALE) must report information on Form 1095-C that discloses if an employer is subject to assessment of an Employer Shared Responsibility Payment (ESRP). The ESRP penalty is assessed on an ALE that does not offer Minimal Essential Coverage (MEC) OR offers MEC to fewer than 95% of its full time employees AND at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace.
For 2014, Form 1095-C reporting by ALE’s is optional. The first applicable ESRP is for the calendar year 2015. They will be assessed in 2016, after the information reported for calendar year 2015 is received and reviewed by the IRS.
Required information for Form 1095-C is as follows:
- Name, address and EIN of the ALE;
- Telephone number of the contact person for the ALE;
- Monthly report of each full-time employee’s share of the lowest-cost monthly premium for self-only coverage providing minimum value offered to that full-time employee under an eligible employer-sponsored plan;
- Name, address and social security number of each full-time employee during the calendar year and the months, if any, during which the employee was covered under the plan;
- Indication codes reporting the type of coverage offered – or that no coverage was offered – and whether this coverage was offered to the employee, spouse and/or dependent(s).
The health insurance plan that an ALE restaurant offers to its employees also must meet “affordability criteria”. “Affordable” equals health care cost that is 9.5% or less of the employee’s annual household income.
To qualify for safe harbor, the health insurance deduction cannot exceed 9.5% of the EMPLOYEE’S annual income.
A single plan health insurance premium is $420.00 per month
You contribute 50% of a single plan to your staff, and they pay 50% (or $210.00 per month)
$210.00 x 12 months = $2,520 divided by 9.5% = $26,526.
Thus, any employee working 30 hours or more must earn at least $26,526 per year, or your plan is deemed not affordable and subject to ESRP. Or to look at it hourly, $26,526 divided by 1,560 hours (30 hours per week x 52 weeks) equals a full-time rate of pay of not less than $17.00 per hour.
In our example, if the employer has any full time employees making less than $17.00 per hour, then the employer must increase the amount of the employee’s contribution toward health care costs, and reduce the employees share.
Employer Shared Responsibility Payment (ESRP)
1. If you do not offer health insurance
If ALE does not offer health insurance, and at least one of your employees receives a federal tax credit to supplement their health insurance, your penalty is $2,000 per year for each full time equivalent employee over 30 people. If you have 60 people, then 60-30 = 30 x $2,000 = $60,000.
2. If you do offer health insurance
If ALE does offer health insurance, but does NOT meet the affordability test, then the ESRP is the same in 1. OR the number of employees receiving a federal tax credit to supplement their health insurance x $3,000 (whichever is lower).
Restaurant Owners – Please feel free to call or e-mail Bob Kiley with your ACA questions.
(866) 460-6225 www.restaurant-accounting.com