How a PEO Calculates Your Shared Responsibility Requirements Under the Affordable Care Act

A Professional Employer Organization's process of counting employees under ACA As a PEO, we thought we could help clear up some confusion about the regulation of the Affordable Care Act and where you fall and what is required of you.

Here’s your question:

How do you count employees for purposes of determining your company’s place in the Affordable Care Act? Do you need to offer coverage to eligible employees?

Here’s the answer from our PEO employees:

To understand what you need to do, you first need to determine if you employ more than 50 full-time equivalent employees during a calendar year.  “Equivalent full-time employees” is the operative word here.  It includes all employees who worked 130 hours or more during a pre-determined period of time (usually the preceding calendar year).

A PEO’s Process of Counting Employees for the Affordable Care Act

Before we get started, here are two additional notes our PEO employees have found about how to count employees:

  • The Treasury Department recommends using the preceding calendar year as your “pre-determined period of time” to determine if employers meet the threshold of 50 full time employees for the following year.
  • Organizations related in a parent-subsidiary relationship are to be treated as a single employer when counting employees.

See also: How much do you know about ACA? Take the Quiz!

Here’s the step-by-step process Employer’s Resource recommends for discovering if you fall above or below the 50 employee mark used with the Affordable Care Act:

 Step 1: Determine Your Full-Time Employee Count

For each month, separately, determine how many employees worked 130 hours or more.

This is your number of full time employees you had during each month.

Step 2: Full-Time Equivalent Employee Count (i.e. Part-Time Employee Count)

  1. For each month, separately, add the hours of all other (in other words, part-time) employees together, but do not count more than 120 hours for any one employee
  2. Divide that number by 120.

You now have the number of full-time equivalent employees for each month.

 Step 3: Combine Full-Time Employee Count and Equivalent Employee Count

  1. For each month, separately, add the number of full time employees (found in Step 1) to the number of full-time equivalent employees (found in Step 2).

This is your total employee count for each month.

Step 4: Finding Your Average Full-Time Employee Count

If you are using the preceding calendar year to count your employees, you should now have 12 sums—your total employee count for each month.

  1. Add these 12 totals together to give you your total employee count for the year.
  2. Divide this by 12.

This is your average full-time employee count.

See also: ACA 101 Calculate Your Full-Time Equivalent (FTE) Count

How a PEO Interprets Results with the Affordable Care Act

If you are 49 or under in your average full-time employee count (the result of Step 4), you will not have to pay a penalty if you do not offer coverage or if your coverage does not meet minimum essential coverage requirements.  You are safe.

If there is a possibility that you have 50 or more full-time employees, then you may risk exposure under Employer Shared Responsibility.

Which Employees Require Benefits under Employer Shared Responsibility

It is important that you maintain a full-time employee count as well as a part-time employee count during the year.  Why?  Because you—or your PEO—will use this information to look for triggers where an employee as a part-time employee may suddenly become eligible for benefits as a full-time employee.

If an employee averages 30 hours per week during the “standard measurement period” (the look back period), then the employer must treat the employee as a full-time employee during the subsequent “stability” period that follows.

Let’s just say that you used 2013 as your “measurement period” and 2014 as your “stability period.”  If at any time during 2013 you had an employee determined to be full-time during the 2013 “Measurement Period,” you must offer coverage to the employee during the 2014 stability period or risk paying a penalty.

How to Treat Employees under Employer Shared Responsibility

Here’s how to treat new full-time employees, new variable hour employees or seasonal employees:

New Employees

If a new hire is reasonably expected to work full time (30 hours a week or more) then you must offer that employee coverage and benefits.

New Variable Hour

If it cannot be pre-determined that an employee is reasonably going to work 30 hours per week then you do not  have to offer coverage to an employee until they complete the measurement period.

 Seasonal Employees

The full time/variable hour rules apply above.

Looking for more information on how to find your way around the Affordable Care Act and Employer Shared Responsibility? As a PEO, Employer’s Resource can guide you through the process. We look forward to hearing from you!

 

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