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Small Business: Complying with ACA in a time of mass furloughs

Jennifer Sherven, partner, Kaufman Dolowich & Voluck LLP,

Jennifer Sherven, partner, Kaufman Dolowich & Voluck LLP, in Woodbury Credit: Rob Gulotta

As employers have dealt with the pandemic, they’ve had to make hard decisions, including placing employees on furlough or drastically cutting back hours.

While that addresses immediate needs, it could have implications on satisfying their employer obligations tied to the Affordable Care Act, which mandates that certain-sized employers provide health insurance to eligible full-time workers.

In particular, if not handled carefully, it could result in 2020 penalties being levied by the Internal Revenue Service.

“I don’t think when they created the ACA rules they would think there was a pandemic,” says Joanna Kim-Brunetti, vice president of regulatory affairs at Los Angeles-based Trusaic, a software and services company that offers ACA compliance services.

With that said, as “employers are forced to slash hours and furlough employees that’s creating a lot of tracking headaches” for HR, she says.

Under the ACA mandate, employers with 50 or more full-time employees (including full-time equivalents) must provide minimal essential coverage to at least 95% of their full-time workforce and their dependents and provide coverage that’s “affordable” and provides “minimal value” to employees or face penalties, says Kim-Brunetti. For detailed explainer see tinyurl.com/r2te3w3.

Fines are possible 

Noncompliance penalties can range from $2,570 to $3,860 per employee, and it’s unclear yet whether the IRS will offer any reprieve on 2020 penalties, she says.

For employers, the difficulty comes with still ensuring eligible furloughed employees are provided with coverage that meets ACA requirements. The task is complicated by the need to properly track hours in this time of flux in order to make sure employers accurately identify those employees that need to be offered coverage in 2020, she says.

Employee hours need to be measured each year in order to determine offerings of coverage for the following year.

Keep in mind even part-timers hours count toward calculating accurate ACA full-time equivalents (see tinyurl.com/yypdhjxq).

And consider that just because an employee is furloughed doesn’t mean they don’t need to be provided health care coverage under ACA. 

With that said, don’t assume that furloughed employees are still covered under your plan, says Jennifer Sherven, a partner at Kaufman Dolowich & Voluck, LLP in Woodbury. 

Employers really need to check with their insurance carriers, she says, adding, “It may depend on their health plan if the employee is still covered,” she says. 

Many insurance policies require employees to be actively at work and working a certain number of hours in order to retain eligibility for benefits under the group policy, says Sherven. So it’s important to carefully review plan documents to determine carrier requirements for eligibility, she says.

Tracking hours

Another consideration is properly tracking employee hours to determine full-time eligibility status for health coverage for 2020, says Christina Zaberto, human resources manager with Associated HCM in Plainview, which provides payroll and human capital management services.

There are different ways to measure and track employee hours under ACA, including the look-back measurement period, she says.  The period can span from three to 12 months, with 12 months being most commonly used. 

This involves applying a measurement period to determine the  status of the employee as full-time  and a stability period (the timeframe they must be offered coverage), she says. 

If an employee is put on leave and the leave is paid, then the employee’s hours should still be counted as hours of service for purposes of determining if they are full-time and eligible for coverage in 2020, she says.  

Unpaid non-protected leave will not be counted as hours of service in a measurement period, says Zaberto.

Rule of parity

There’s also a “rule of parity” that comes into play when an employee is terminated, laid off or goes on an extended unpaid, non-protected leave and then is brought back, she says.

This would in essence categorize the returning employee as having been terminated and rehired and give the employer a possible out from having to provide them coverage, says Kim-Brunetti. For more on parity rule see: tinyurl.com/skdjrjx.

That’s why tracking hours as well as employee status and offerings of coverage is critical to avoid penalties when employers report such information to the IRS next year, says Susan Accardo, a partner at Accu Data Workforce Solutions in Hicksville, a payroll outsourcing and human capital management solutions provider.

To help with compliance and tracking, she suggests setting up a separate employee status category or categories specific to COVID-19 and indicating whether you continue to offer health insurance to the employee as they are furloughed.

Her firm has reached out to clients to see if they need assistance.

“It doesn’t seem to be on their radar yet,” says Accardo.

Fast Fact

Health insurance costs continue to rise. The average annual premiums for employer-sponsored health insurance in 2019 were $7,188 for single coverage and $20,576 for family coverage, according to the Kaiser Family Foundation. The average single premium increased 4% and the average family premium increased 5% over the past year.

Source: kff.org/report-section/ehbs-2019-summary-of-findings

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