Health Insurance Rule Will Go by Size of 2013 Staff

Small-business owners have been bracing for 2014, when a health-care law provision is scheduled to kick in, potentially subjecting them to penalties if they don't offer health insurance. Many are planning to keep the number of "full-time-equivalent" employees under 50 to avoid being subject to the provisions of the law.

But one critical detail that many business owners might not know is that the government will rely on data about the composition of their companies' workforces this year in order to determine whether a firm will be liable under that provision. That means employers need to adjust or manage the makeup of their staffs now-not in one year's time, as many of them had likely planned.

"Business owners who don't prepare will find themselves paying potentially significant penalties for 2014," says Monique Warren, partner at workplace law firm Jackson Lewis LLP in White Plains, N.Y.

"I don't think there is a high level of awareness" of the law's provisions, says Penny C. Wofford, employment law attorney at Ogletree, Deakins, Nash, Smoak & Stewart, P.C. in Greenville, S.C. "It's such a complex law and most employers don't fully understand it. But they have to get a handle on it this quarter so they have the option to make adjustments."

Under the law, only the smallest businesses will be exempt from penalties if they don't offer health insurance in 2014. This provision is commonly called the "employer mandate."

To determine the size of their firm, and whether it would be subject to the employer mandate, business owners have the choice to calculate their head counts by averaging the full 12 months of 2013 or a consecutive six-month period during the year.

If a firm falls under the employer mandate and doesn't offer health coverage to their employees or their children up to age 26, and if at least one employee receives federal insurance subsidies, the penalty is $2,000 per year for each full-time employee in excess of 30 full-time employees. There are no penalties if part-time employees aren't offered coverage.

There are other penalties if coverage is considered "unaffordable" or doesn't provide "minimum value," according to guidelines written in the law.

The basics that companies need to know:

-Employers who averaged 50 or more full-time employees or 50 or more full-time-equivalent employees during 2013 will be subject to the employer mandate.

-A full-time employee is one who is employed (work and paid leave and vacation) an average of at least 30 hours a week, or 130 hours in a month. Seasonal employees may be counted as full-time.

-A full-time equivalent refers to a combination of employees, each of whom individually is not a full-time employee. Part-time or part-time seasonal workers can be lumped together to count as full-time equivalent.

-To calculate the number of full-time equivalents in a given month, add all the hours worked, but not more than 120 hours of service for any employee, and divide the total by 120.