By Carrie Cherveny
For all of the ongoing debate by policymakers accompanied by stabs at reshaping it, the Affordable Care Act (ACA) is the law of the land. As one of the industries most affected by the ACA, the hospitality industry continues to struggle to comply with its strictures – and not altogether successfully.
Understanding the most common compliance mistakes is the first step to fixing them, and hopefully avoiding some costly penalties, too. Here is an overview of the top threes and what to do about them.
- Misclassifying Workers
Background: Under the ACA, employees are essentially put into one of two “bucket” classes. Full-time includes those reasonably expected to work 30 hours or more each week. Variable hour employees (which may include seasonal and part-timers) encompass those not expected to work at least 30 hours each week. This generally includes employees whose schedules are so varied that it is difficult to know if at least 30 hours will be worked each week.
The ACA employer mandate is comprised of the “A” penalty and the “B” penalty. The “A” penalty requires employers to offer “minimum essential coverage” (MEC) to at least 95% of the benefits-eligible workforce (and their children). The “B” penalty requires employers to offer “minimum value coverage” that is affordable to all full-time employees and their children. In either case, the employer only needs to offer coverage to avoid a penalty; the employee does not have to enroll. Either penalty can be triggered when an employee enrolls in individual coverage through an ACA exchange/marketplace and receives a subsidy to help pay for it.
The Common Mistake: Hospitality employers frequently classify all non-management and/or non-exempt employees with the exception of managers (or the general manager) as “variable hour.” Therefore, the employee usually must wait the “measurement period” (of six months or one year) during which his/her hours are counted. At the end of this period, if the employee averages 30 hours or more each week (or 130 hours each month) the employer must offer compliant health insurace. The issue arises when an employee who should be classified as full-time is instead classed as variable hour, and therefore must wait to enroll in coverage until completion of the measurement period. During the measurement period, the misclassified otherwise full-time employee should be eligible for benefits but is not able to enroll. Consequently, the employer will likely not satisfy the 95% requirement. Even if it is satisfied, if one of the misclassified employees enrolls in individual coverage through the marketplace and receives a subsidy, the employer may be on the hook for a “B” penalty.
Misclassification considerations:
- Do you have employees that you expect to work at least a regular 30-hour schedule each week?
- Are there employees that are regularly scheduled for the same shifts each week and work most days of the week?
- When you advertise for the position, do you seek individuals who are available to work most days of the week?
- Do you have a regular crew that you count on each week to work the same shifts?
If your answer to any of these is “yes,” you may have employees who are misclassified and may be at risk for a violation of the “A” or “B” penalty.
How is the “A” penalty calculated? If you fail to offer MEC to at least 95% of your workforce and just one employee obtains a health insurance plan from the ACA marketplace and gets a subsidy, then the “A” penalty applies as follows:
Penalty Amount ($208.33 each month in 2019) x the total number of full-time employees less 30
Example: An employer with 100 full-time employees only offers coverage to 90 of them. One of the 10 non-covered employees purchased a health plan from the marketplace and received a subsidy.
208.33 x (100-30) = $14,583 for each month during which the employer failed to offer MEC to 95% of the workforce and an employee received a subsidy.
How is the “B” penalty calculated? Even if you offer MEC to at least 95% of your full-time employees and their dependents, you could still be subject to a penalty if your plan is not affordable or does not provide minimum value. A penalty could also apply due to those full-time employees in the less than 5% who did not receive an offer of coverage, even if the “A” penalty doesn’t apply. In any of those cases, the penalty is $3,750 each year, or $312.50/month (for 2019), but only for each full-time Employee who gets subsidized individual coverage through an ACA marketplace.
- Changing Employee’s Enrollment Status at the Wrong Time
Background: An employee who has averaged as least 30-hours in each week of the measurement period may enroll in the health plan and remain enrolled for the duration of the “stability period.” The stability period is the pre-determined period of time following the measurement period during which an employee’s health insurance overage remains in place regardless of the hours the employee works, so long as he/she pays his/her share of the premium.
The Common Mistake: Hospitality industry employees’ hours and work schedules often vary significantly. Employers may be tempted to add coverage for those who are working excessive hours or remove coverage for those whose hours drop. Under the ACA, if the employer is subject to measurement and stability periods, adding and dropping coverage for variable hour workers may only occur at specific times in the year.
Measurement Periods: During a measurement period an employer should not add or drop an employee’s coverage based on hours worked. The employer will determine the employee’s eligibility for health insurance at the end of the measurement period as eligibility for variable hour employees is based on the average hours worked during the measurement period (unless the employer determines that the employee was misclassified and is in fact full-time – in that case the employer should offer coverage).
Stability Periods: Likewise, during a stability period, an employer should not add or drop coverage based on hours worked. If the employee elects coverage, the employee’s coverage during the stability period is essentially “guaranteed” regardless of hours worked so long as the employee pays his/her share of the premium cost. Adding/dropping coverage at any other time of year (like in the middle of a stability period) may bring the employer’s offer below the required 95% and subject the employer to the “A” penalty. It also could trigger a “B” penalty if the employee obtains subsidized individual coverage from the ACA marketplace.
- Miscoding the 1095-C – Coverage Cancellation for Failure to Pay
Background: Servers and other tipped employees frequently qualify for and enroll in the group health plan. However, they often don’t earn enough in their paycheck to cover their share of the health insurance premium. Employers often find themselves hunting down the premium amounts these workers owe. At some point, the employer may, as a result, decide to cancel the employee’s coverage. The cancellation must be reflected on the employee’s 1095-C Form. Unfortunately, the IRS does not provide a clear way to report this; there is not a corresponding “2” code, which leaves the employer to determine the right codes for the tax form. The problem with this is – one wrong code may open the door to an IRS penalty.
In the absence of guidance, it seems reasonable to use the applicable affordability safe harbor code, if the employer is using the safe harbor. This code indicates to the IRS that the employer’s plan was affordable, but the employee was not enrolled in the coverage.
The ACA rules are filled with nuances and technicalities. These three compliance mistakes just the tip of the iceberg that the hospitality industry must navigate around to avoid the painful penalties for failure.
HUB International is prepared to help you navigate your way around the ACA rules by providing education and insight tailored to the hospitality industry’s unique needs.
