OBAMA INCREASES EXECUTIVE ACTION ON LABOR & EMPLOYMENT ISSUES

After years of gridlock, President Obama declared in his State of the Union address that he would move forward on employment issues “with or without Congress.” His first Executive Order tied to this threat increased the minimum wage for workers under new federal contracts from $7.25/hour to $10.10/hour, in part to “help build momentum for a minimum wage hike for all Americans.” This Order applies to new contracts and renewals where contract terms are changed.

Following Obama’s lead, the Milwaukee County Board passed a “living wage” ordinance requiring the County and its contractors to pay workers at least $11.33/hour. The 12-6 Board vote would be sufficient to override an anticipated veto by County Executive Abele. Democrats have also proposed raising Wisconsin’s minimum wage to $10.10/hour. Governor Walker opposes the bill: “I’m focused on helping people get jobs that pay far more than the minimum wage. You don’t get that by forcing businesses to drive out young workers.”

Obama promised that: “Wherever and whenever I can take steps without legislation to expand opportunity for more American families, that’s what I’m going to do.” Many saw this as a signal that the National Labor Relations Board would renew its efforts to advance labor friendly issues to counteract judicial invalidation of the Board’s rules requiring “Employee Rights” posters, and “Quickie Elections,” and judicial reversal of its decision prohibiting arbitration agreements that limit class action claims.

THE “NEW” QUICKIE ELECTION RULE

This was confirmed on February 6th when the NLRB, with a full complement of recently approved members, unveiled a Proposed Rule similar to, but even more far-reaching than the “Quickie Election” Rule invalidated by a federal court last year (because the agency did not have a proper quorum when it was issued). The following provisions of the Rule have been sharply criticized by the business community:

  • Quickie Elections –Union elections could be held as little as 10-15 days after a petition for election is filed with the Board (vrs. 40+ days now), severely limiting employers’ opportunities to educate their workforce on the effects of unionization.
  • Voter Lists – Within 2 days of receiving an election notice, employers must provide the union with contact information for all employees eligible to vote in the election. Failure to comply could result in setting aside an anti-union election result.
  • Voter Eligibility – Hearings would be held within 7 days of receipt of the election notice to address voter eligibility and unit designation issues. Any objections not submitted in writing prior to hearing are waived.
  • Delayed Resolution of Challenges – If challenged voters constitute less than 20 percent of the proposed unit, resolution of the challenge is delayed until after the election. This encourages unions to improperly identify working supervisors as part of the unit to eliminate the Company’s ability to use those supervisors to communicate its message to employees.

THE DOL’S “PERSUADER RULE”

In another attempt by the administration to appease union leaders, the Department of Labor (DOL) announced that it will issue the “Final” version of its “Persuader Rule” in March of 2014. If finalized as proposed, the Rule will greatly expand the circumstances in which information about labor advice received by employers will have to be reported by both the employer and the third parties providing that advice, including the employer’s attorneys and labor consultants.

In 1950s, Congress became concerned about employers’ use of clandestine “middlemen” to spy on pro-union activities, organize “vote no” campaigns, and dissuade workers from exercising their statutory rights. It subsequently enacted the Labor-Management Reporting and Disclosure Act (“LMRDA”) which incorporated reporting requirements designed to provide workers and labor organizations with a tool to identify the sources and potential bias of the information they were receiving.

Section 203(b) of the Act imposes reporting requirements where entities “undertake activities” on behalf of an employer to “directly or indirectly … persuade employees to exercise or not to exercise …. the right to organize and bargain collectively through representatives of their own choosing.” The required (and publicly available) reports must disclose the identity of the party providing the services, the nature of the services, the fees charged for the services, and the nature of any disbursements made by the entity in connection with the services.

However, Section 203(c) of the Act (the “Advice Exception”), clarified that these reporting requirements would not apply to attorneys and labor relations consultants that simply provided advice and guidance to management groups on labor and employment issues. For over 50 years both the DOL and the courts have taken the position that the “Advice Exception” applies if the attorney or consultant “has no direct contact with employees” and limits his/her activity to providing to the employer with advice or materials for use in persuading employees “which the employer has the right to accept or reject.”

DOL’s Proposed Modification to the Advice Exception

The DOL is now proposing a radical narrowing of “Advice Exception.” Specifically, the revised interpretation of the Advice Exception in the Rule proposed by the Department provides:

With respect to persuader agreements or arrangements, “advice” means an oral or written recommendation regarding a decision or a course of conduct. In contrast to advice, “persuader activity” refers to a consultant’s providing material or communications to, or engaging in other actions, conduct, or communications on behalf of an employer that, in whole or in part, have the object directly or indirectly to persuade employees concerning their rights to organize or bargain collectively. Reporting is thus required in any case in which the agreement or arrangement, in whole or in part, calls for the consultant to engage in persuader activities, regardless of whether or not advice is also given.

According the DOL, under this revised interpretation “reportable activities” will include:

  • drafting, revising, or providing materials or communication of any sort, to an employer for presentation, dissemination, or distribution to employees, directly or indirectly;
  • developing or administering employee attitude surveys concerning union awareness, sympathy, or “proneness”;
  • training supervisors or employer representatives to conduct individual or group meetings designed to persuade employees;
  • coordinating or directing the activities of supervisors or employer representatives to engage in the persuasion of employees;
  • establishing or facilitating employee committees;
  • developing employer personnel policies or practices designed to persuade employees;
  • deciding which employees to target for persuader activity or disciplinary action;
  • coordinating the timing and sequencing of persuader tactics and strategies.
  • research or investigation concerning employees or labor organizations;
  • supervisors or employer representatives;
  • employees, employee representatives, or union meetings; and/or
  • surveillance of employees or union representatives (video, audio, Internet, or in person).

Expanded Scope of Reportable Activities

Although the LMRDA has traditionally been limited to union organizing and bargaining matters,  the DOL suggests, without statutory support, that reportable activities should be expanded to include persuasive activities related to any “labor dispute” and any “concerted activities” undertaken by employees. The Act defines “labor dispute” very broadly to include not only issues regarding organizing efforts and collective bargaining, but also “any controversy concerning terms, tenure, or conditions of employment.” Similarly, “concerted activity” under Section 8 of the National Labor Relations Act has been interpreted very broadly.

Of significant additional concern is the fact that once a lawyer or other consultant is labeled a “persuader,” the Proposed Rule requires that he or she must report detailed information about all clients to whom they have furnished any “labor relations advice or services” – not just those clients to whom “persuader advice” was rendered or for whom “persuader activities” were performed. Reports under the DOL’s proposed Persuader Rule require disclosure of:

  1. the identity of all clients for whom “labor relations advice or services” were performed;
  2. the nature of the services performed;
  3. the amount of fees charged for the services; and
  4. the nature and amount of any expenditures made by entity in providing such services.

Non-Compliance can Result in Significant Sanctions

Given the overly broad and vague parameters of the “persuader activities” that may trigger LMRDA reporting requirements under the proposed Rule, it is likely that many employers and their attorneys will unintentionally violate the Act if the proposed Rule is adopted without change. Penalties can include up to a year in jail and up to a $10,000 penalty for failure to file the required forms or for filing them incorrectly.

Compliance Can Result in Ethical Violations

Even if attorneys recognize a potential reporting requirement, they will be faced with an ethical dilemma. The Rules of Professional Conduct dealing with “Confidentiality of Information” state that “lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent…” The range of confidential client information that lawyers are not permitted to disclose includes the identity of the client, the nature of the representation and the amount of legal fees paid by the client to the lawyer. By requiring lawyers to disclose confidential client information to the government regarding the identity of the client, the nature of the representation, and details concerning legal fees, the requirements imposed by the Rule are inconsistent with a lawyer’s ethical duties.

CONCLUSION

Despite strong objections to the proposed “Quickie Election” and “Persuader” Rules, many observers believe that both will be issued in final form without substantial change. Unions want all the help they can get stem the decline in membership, and they don’t feel that their support for President Obama’s presidential campaigns has been adequately reciprocated. Mid-term elections are coming up. Given the tone of President Obama’s State of the Union Address, it is likely that the NLRB and the DOL will advance the Rules discussed above, and that litigation will once again have to be pursued to rein in overly ambitious agency actions.

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STATE BUDGET BILL SUBSTANTIALLY CHANGES WISCONSIN’S UNEMPLOYMENT LAWS

The 2013-2015 biennial budget bill, recently enacted as 2013 Wisconsin Act 20, included many significant changes to Wisconsin’s unemployment insurance (“UI”) law. Although some of these changes took effect immediately after the effective date of the Act 20 (such as increasing work search requirements from 2 to 4 contacts per week) most will first apply to unemployment determinations issued or appealed on or after Jan. 5, 2014.  Several of the changes of most interest to employers are described below.

“Substantial Fault” and “Misconduct” Disqualification Standards

The legislature adopted a “substantial fault” standard which expands the situations in which employees can be disqualified from eligibility for UI benefits. Under the new law (which replaces the little used and cumbersome provisions disqualifying employees from benefits if they are terminated for “excessive tardiness” or “excessive absences”) employees can be disqualified from eligibility if they are terminated for “substantial fault” even if their actions do not rise to the level of “misconduct.” The Act provides:

Substantial fault includes those acts or omissions of an employee over which the employee exercised reasonable control and which violate reasonable requirements of the employee’s employer but does not include any of the following:

1. One or more minor infractions of rules unless an infraction is repeated after the employer warns the employee about the infraction.

2. One or more inadvertent errors made by the employee.

3. Any failure of the employee to perform work because of insufficient skill, ability, or equipment.

The Act also revised the “misconduct” standard for benefit disqualification:

For purposes of this subsection, “misconduct” means one or more actions or conduct evincing such willful or wanton disregard of an employer’s interests as is found in deliberate violations or disregard of standards of behavior which an employer has a right to expect of his or her employees, or in carelessness or negligence of such degree or recurrence as to manifest culpability, wrongful intent, or evil design of equal severity to such disregard, or to show an intentional and substantial disregard of an employer’s interests, or of an employee’s duties and obligations to his or her employer. In addition, “misconduct” includes:

(a)  A violation by an employee of an employer’s reasonable written policy concerning the use of alcohol beverages, or use of a controlled substance or a controlled substance analog, if the employee:

 

1.  Had knowledge of the alcohol beverage or controlled substance policy; and

2.  Admitted to the use of alcohol beverages or a controlled substance or controlled substance analog or refused to take a test or tested positive for the use of alcohol beverages or a controlled substance or controlled substance analog in a test used by the employer in accordance with a testing methodology approved by the department.

(b) Theft of an employer’s property or services with intent to deprive the employer of the property or services permanently, theft of currency of any value, felonious conduct connected with an employee’s employment with his or her employer, or intentional or negligent conduct by an employee that causes substantial damage to his or her employer’s property.

(c) Conviction of an employee of a crime or other offense subject to civil forfeiture, while on or off duty, if the conviction makes it impossible for the employee to perform the duties that the employee performs for his or her employer.

(d) One or more threats or acts of harassment, assault, or other physical violence instigated by an employee at the workplace of his or her employer.

(e) Absenteeism by an employee on more than 2 occasions within the 120-day period before the date of the employee’s termination, unless otherwise specified by his or her employer in an employment manual of which the employee has acknowledged receipt with his or her signature, or excessive tardiness by an employee in violation of a policy of the employer that has been communicated to the employee, if the employee does not provide to his or her employer both notice and one or more valid reasons for the absenteeism or tardiness.

(f) Unless directed by an employee’s employer, falsifying business records of the employer.

(g) Unless directed by the employer, a willful and deliberate violation of a written and uniformly applied standard or regulation of the federal government or a state or tribal government by an employee of an employer that is licensed or certified by a governmental agency, which standard or regulation has been communicated by the employer to the employee and which violation would cause the employer to be sanctioned or to have its license or certification suspended by the agency.

“Voluntary Quit” Exceptions

Generally, an employee is not entitled to receive unemployment benefits if they voluntarily quit their job. A “quit exception” makes individuals eligible for UI even if they voluntarily leave their job. Act 20 reduces the number of “quit exceptions” from eighteen to eight. The exceptions identified below are those that will remain applicable after January 5, 2014:

(am)  The suspension or termination of the claimant’s work was in lieu of a suspension or termination by the employer of another employee’s work.

(b)        The employee terminated his or her work with good cause attributable to the employing unit. In this paragraph, “good cause” includes, but is not limited to, a request, suggestion or directive by the employing unit that the employee violate federal or Wisconsin law, or sexual harassment, as defined in s. 111.32(13), by an employing unit or employing unit’s agent or a co-worker, of which the employer knew or should have known but failed to take timely and appropriate corrective action.

(c)        The employee terminated his or her work but had no reasonable alternative because the employee was unable to do his or her work, or that the employee terminated his or her work because of the verified illness or disability of a member of his or her immediate family and the verified illness or disability reasonably necessitates the care of the family member for a period of time that is longer than the employer is willing to grant leave; but if the department determines that the employee is unable to work or unavailable for work, the employee is ineligible to receive benefits while such inability or unavailability continues.

(cm)     The employee is hired to work a particular shift and the department determines that the employee terminated his or her work as the result of a requirement by his or her employing unit to transfer his or her working hours to a shift occurring at a time that would result in a lack of child care for his or her minor children, provided that the employee is able to work and available for full-time work during the same shift that the employee worked in the employee’s most recent work with that employing unit.

(e)        An employee that accepts work which the employee could have failed to accept with “good cause” under Wis. Stat. §108.04(7)(b) and terminated such work with the same good cause may only terminate such work within 30 days after starting the work in order to be entitled to UI benefits (instead of the 10 week period formerly provided for in this section);

(L)       An employee who quits work to accept certain types of employment or other work covered by UI laws of any state or the federal government will no longer be required to have earned wages in the subsequent work, repealing the former 4-week earning requirement;

(q)        The employee, while serving as a member of the U.S. armed forces, was engaged concurrently in other work and terminated that work as a result of the employee’s honorable discharge or discharge under honorable conditions from active duty as a member of the U.S. armed forces for a reason that would qualify the employee to receive unemployment compensation under 5 USC 8521.

(t)         The employee quits work because his or her spouse changes their place of employment such that a commute is impractical and the employee quit to follow the spouse will be permitted to collect UI benefits where the employee’s spouse is a member of the U.S. armed forces on active duty, the employee’s spouse was required by the U.S. armed forces to relocate making it is impractical for the employee to commute, and the employee terminated his or her work to accompany the spouse to the new work station.

Unemployment Handbook

Act 20 also requires that the department create and periodically update a handbook for the purpose of providing employers with:

1. Information about the function and purpose of unemployment insurance under this chapter.

2. A description of the rights and responsibilities of employers under this chapter, including the rights and responsibilities associated with hearings to determine whether claimants are eligible for benefits under this chapter.

3. A description of the circumstances under which workers are generally eligible and ineligible for benefits under this chapter.

4. Disclaimers explaining that the contents of the handbook may not be relied upon as legally enforceable and that adherence to  the content does not guarantee a particular result for a decision under this chapter.

5. A line to allow an individual employed by an employer to sign to acknowledge that the individual is aware of the contents of the handbook.

Affidavits Admissible as Evidence at Hearing

Act 20 further requires that the department develop and make available to employers and claimants a “standard affidavit form” that may be used by parties as admissible evidence in a hearing under this chapter “if the authentication is sufficient and the information set forth by the affiant is admissible.” However a party’s use of such an affidavit will not “eliminate the right of an opposing party to cross examine the affiant concerning the facts asserted in the affidavit.

Act 20 makes a number of other important changes, including changes to the contribution rates and default provisions in the UI statute. If you need additional information regarding the details of the UI changes, feel free to contact Dave McClurg at (414) 223-6956.

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The Affordable Care Act – The Act’s Effect on Small Business (Part 7 of 8), by Barbara Halpin

This week I’m going to discuss some of the effects of the Affordable Care Act on small businesses.  It’s obviously still uncertain what the full ramifications will be.

 The Act exempts small businesses (fewer than 50 full-time employees) from the Employer Responsibility Provision of the Act (i.e. The Act does not require small businesses with fewer than 50 full-time employees to provide health insurance for their employees).  As a result of this exemption, it’s estimated that 96% of businesses in the U.S. will be exempt.

The Act also implements the new Small Business Health Care Tax Credit for employers with less than 25 employees.  This tax credit offers up to 35% to offset the cost of insurance for the years 2010-2013 for small business employers and 25% for small tax-exempt employers.  To receive the tax credit, a qualified employer must have fewer than 25 full-time employees or a combination of full-time and part-time (two half-time employees equal one employee for purposes of the credit).  The average annual wages of employees must be less than $50,000 AND the employer must pay at least 50% of the insurance premiums for workers.  In 2014, the small business tax credit increases to 50% and 35% for charities.

Insurers may not cancel your small employer plan because someone in the group becomes ill.  The credit is phased out as the number of full-time equivalents increases from 10 to 25 and the average employee compensation increases from $25,000 to $50,000.

For example, say there’s an auto repair shop that has 10 employees with an average of $25,000 in wages per worker and the total employee health care costs are $70,000.  In 2010, if the shop qualifies for the maximum, the tax credit would be $24,500 (35%) and in 2014, the tax credit will be $35,000 (or 50%).

Next week, in the final entry of the series, I will discuss the Insurance Exchanges set to open on October 1, 2013.  Stay tuned!

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Invalidation of President Obama’s Recess Appointments Undermines NLRB Actions, by David A. McClurg

The efforts of President Obama’s appointees on the National Labor Relations Board (“NLRB”) to push a decidedly pro-employee agenda have run up some significant judicial barriers. On January 25, 2013, the D.C. Circuit Court of Appeals ruled, in Noel Canning v. NLRB, that the three “recess” appointments President Obama made to the National Labor Relations Board on January 4, 2012 were invalid, and that the Board, thus being without a quorum, lacked the authority to conclude that Noel Canning had committed an “unfair labor practice” by refusing to execute an agreement with the union representing its workers. The court held that a president can make such recess appointments only during “intersession” recesses that occur between the extended sessions of Congress, and not, as President Obama attempted with the three NLRB appointees, during temporary recesses in the middle of a session of the Senate.

On May 16, 2013, the Third Circuit Court of Appeals joined the D.C. Circuit in concluding that recess appointments can only be made during “intersession” recesses. In that case, the Court held that the Appointment of Board member Craig Becker on March 27, 2010 was an invalid “intra-session” appointment. The decisions in these two cases have led to demands from a variety of congressional leaders and business groups for the resignation of those members still serving on the NLRB that the Courts have found to be invalidly appointed. The affected members have refused, and the Board has indicated that it considers the recent decisions to have applicability only to the specific cases under consideration by the courts. The Board has continued to hear cases, and it decisions continue to be followed by the NLRB’s regional offices when they are deciding on the issuance of charges and Complaints against employers.

The Noel Canning case has been appealed to the Supreme Court, and it is likely that the recent decision by Third Circuit Court of Appeals will also be appealed. However, it will likely take over a year for the Supreme Court to hear these cases and issue a ruling. In light of the strength of these two decisions it is possible that business groups upset with the Board’s recent actions will ask the courts to issue an order restraining the invalidly appointed Board members from participating in any further decisions or actions of the Board.

Because the U.S. Supreme Court ruled just two years ago that the five-member NLRB cannot act on issues absent a quorum of at least three Board members, (and the participation of illegally appointed members does not provide a quorum) these Appellate Court rulings, if upheld, could invalidate decisions in over 4-500 cases heard by, and several administrative rules promulgated by the NLRB since 2010 that adversely affected employers, including:

a)   The NLRB’s “quickie election” proposal that would shorten the timeframe for union elections and limit challenges to bargaining unit composition;

b)   The proposal to force employers to bargain with “micro-units” that represent narrow groups of workers within a company (even in a single job title);

c)   The ruling restricting workers’ right to resist funding union political activities;

d)   The rulings forcing employers’ to continue providing annual wage increases and deducting union dues after a collective bargaining agreement expires;

e)   The ruling restricting employers’ ability to limit off-duty access to a workplace – thus expanding access for union organizers;

f)   The ruling narrowing the definition of supervisors to expand the number of employees unions can organize;

g)   The ruling limiting employers’ ability to insist on confidentiality relating to internal investigations;

h)   The ruling requiring employers to give unions copies of sworn witness statements in investigations into workplace misconduct, chilling the ability of employees to speak freely without fear of repercussions.

i)    Multiple rulings expanding the definition of “concerted activity” to include public complaints about an employer in social media, and to preclude rules requiring that employees refrain from discussing investigations;

j)    Rulings challenging the legality of “At-Will” employment acknowledgements

k)   The ruling invalidating limitations on group or class actions in arbitration agreements; and

l)    The ruling imposing obligation on employers to “gross-up” lump back pay awards to include amounts for any increased taxes the employee may be required to pay as a result of receipt of the lump sum in a tax year after the amounts should have been paid.

In another major defeat for President Obama’s appointees to the NLRB, the DC Circuit Court recently held that the Board lacked the authority to issue a 2011 rule which would have required all employers covered by the National Labor Relations Act, including non-union employers, to post a workplace notice informing employees of their rights to join and be represented by unions and to engage in other activity protected by the Act. The rule would have made it an unfair labor practice for an employer to fail to post the required notice and such failure could also be used to prove the employer’s anti-union animus in other Board proceedings.

Although scheduled to become effective on April 30, 2012, the US District Court for the District of Columbia held that this rule exceeded the Board’s authority, and the DC Court of Appeals issued an emergency injunction barring implementation of the rule pending its full consideration of the case.

Perhaps most noteworthy about the Court of Appeal’s recent opinion was the Court’s reliance on the National Labor Relations Act’s protection of employers’ free speech rights, including employers’ rights  to communicate their views concerning unions to their employees. The Court stated that while the Act “precludes the Board from finding non coercive employer speech to be an unfair labor practice, or evidence of an unfair labor practice, the Board’s rule does both” because an employer’s failure to post the required notice would constitute an “unfair labor practice and evidence of anti-union animus in cases in which unlawful motive [is] an element of an unfair labor practice.”

 

 

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The Affordable Care Act – Miscellaneous Provisions Applicable to Large Employers under the Act (Part 6 of 8), by Barbara Halpin

Welcome to part 6 of the Affordable Care Act Series!  Today I’ll be discussing several of the additional provisions that applicable large employers should be aware of.  They’re in no particular order.

1. Offer of Coverage

If an applicable large employer fails to offer coverage to a full-time employee for any day of a calendar month during which the employee was employed by the employer, the employee is treated as not being offered coverage during that entire month.  The regulations do not provide guidance to employers for demonstrating that an offer of coverage was made to an employee so recordkeeping should be up to date.

If an employee has not been offered an effective opportunity to accept coverage, the employee will not be treated as having been offered coverage.  In addition, the employee must have an effective opportunity to decline an offer of coverage that is not minimum value coverage or that is not affordable – an employer cannot make an employee ineligible for a premium tax credit by providing the employee with mandatory coverage (coverage which the employee has not had an opportunity to decline) that does not meet minimum value.

2. Offer of Coverage in the Case of Nonpayment or Late Payment Premiums

If an employee’s insurance payment is billed, rather than withheld (which may occur in the case of tipped employees) and the payment is late or not made, the employer is not required to provide coverage for the period for which the premium is not timely made.  The employer is treated as having offered that employee coverage for the remainder of the coverage period (typically the remainder of the plan year).

3. Failure to Offer Coverage to a Limited Number of Full-Time Employees Due to Error – What Happens?

A penalty will not be applied to an employer that intends to offer coverage to all of its full-time employees, but fails to offer coverage to a few full-time employees as long as the employer’s offer reaches at least 95% of employees being covered.  An “applicable large employer” will be treated as offering coverage to its full-time employees and their (non-spousal) dependents for a calendar month if, for that month, it offers coverage to all but the greater of 5% or 5 of its full-time employees.  The alternative margin of 5 full-time employees, and their dependents, (if greater than 5% of full-time employees) is designed to accommodate smaller covered employers that may not offer coverage to a few full-time employees.

4. Turn Full-Time Positions into Part-Time Positions?  Potential ERISA Penalties/Liability for Interference with Plan Benefits

Some employers may be tempted to avoid coverage under the ACA by eliminating full-time positions and transferring the duties of those positions to newly created part-time positions offered to the prior full-time employees. It should be noted, however, that Section 510 of ERISA, 29 U.S.C. § 1140, makes it unlawful for any person to “interfere with the  attainment of any right to which such participant may become entitled under the plan,” or to “discriminate against a plan participant or beneficiary, for exercising rights provided by an employee benefit plan.”

It is possible that employees who lose coverage based on job restructuring designed to affect coverage under the ACA could assert claims under ERISA Sec 510.

 5. Assessment and Payment of Liability

Although there isn’t much guidance yet on how the assessments will be billed, they will be payable upon notice and demand.  Regulations will be forthcoming to explain how employers will receive notice that one or more employees received a premium tax credit or cost-sharing reduction and are provided with the opportunity to respond before notice and demand for payment.  According to the current information from the IRS, employers will not be required to make the employer shared responsibility payment on their tax return.

6. Transition Rules – Relief from Penalty for Employers with Fiscal Year Plan Years

If an applicable large employer maintained a fiscal year plan as of December 27, 2012, relief applies with respect to employees of the employer who would be eligible for coverage as of the first day of the first fiscal year of that plan that begins in 2014.  If the employee is offered affordable, minimum value coverage no later than the first day of the 2014 plan year, no penalty will be due for that employee for the period prior to the first day of the 2014 plan year.

7. Coverage for Dependents

Health care plans now require “dependent” coverage however, spouses are excluded from the definition of “dependents.”  Any employer that takes steps during the plan years that begin in 2014 toward satisfying this provision relating to offering of coverage to full-time employees’ dependents will not be liable for any penalties solely on account of a failure to offer coverage to the dependents for that plan year.

 8. Automatic Enrollment for Larger Employers

Section 18A of the FLSA (added by section 1511 of the Act) requires employers that have more than 200 full-time employees and to which the FLSA applies to automatically enroll new full-time employees in one of the employer’s health benefit plans (subject to any waiting period authorized by law) and continue to enroll current employees in a health benefits plan offered through the employer.  18A also requires adequate notice and the opportunity for an employee to opt out of any coverage in which the employee was automatically enrolled.

These are simply some of the additional provisions of which employers should be aware.  The next blog entry will discuss the Act’s effect on small business.

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The Affordable Care Act – Potential Employer Penalties (Part 5 of 8)

Beginning in 2014, an applicable large employer can be assessed a penalty if at least one of its full-time employees is certified to receive an “applicable premium tax credit” or “cost-sharing reduction” and the applicable large employer failed to offer its full-time employees and their (non-spousal) dependents the opportunity to enroll in affordable minimum essential coverage.

Large businesses may be assessed penalties in any month that:

1.         The employer does not offer its full-time employees (and their non-spousal dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan; OR

2.         The employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan but he plan is either (a) unaffordable relative to an employee’s income or    (b) does not provide minimum value.

Beginning on January 1, 2014, the “Play or Pay” provisions become applicable and an employer may be accessed penalties for noncompliance. An applicable large employer not offering minimum essential coverage (the non-coverage penalty) is subject to a penalty in any month that any of its full-time employees received a premium tax credit.  The monthly penalty assessed will be equal to the number of full-time employees, minus 30, multiplied by 1/12 of $2,000 for each applicable month.  The first 30 full-time workers are excluded from the calculation.

There is also a penalty for applicable large employers offering coverage that is non-compliant with the Act.  Employers offering health coverage will be subject to a penalty if at least one full-time employee obtains a premium tax credit in an exchange plan because (1) the employee’s required contribution for self-only coverage exceeds 9.5% of the employee’s W-2 income (not affordable) OR (2) if the plan offered pays less than 60% of covered expenses (doesn’t meet minimum value requirements). The monthly penalty assessed to the employer for each full-time employee who receives a premium tax credit is 1/12 of $3,000 for each applicable month, but total amount of this “Non-Compliant Coverage” penalty is “capped” or limited to the total number of the firm’s full-time employees, minus 30, multiplied by 1/12 of $2,000 for any applicable month.  Employers with more than 200 full-time employees that offer coverage must automatically enroll new full-time employees in a plan.

The following examples demonstrate how a penalty may be accessed.

Example 1- An applicable large employer does not offer coverage, but no full-time employees receive premium tax credits for exchange coverage.   No penalty.

Example 2 – An employer has 55 employees.  The employer does not offer coverage and an employee receives a premium tax credit.  Penalty?  Yes, the annual penalty is the number of full-time employees minus 30, times $2,000.  In this example the penalty wouldn’t vary if only one employee or all 55 employees received the credit; the employer’s annual penalty in 2014 would be (55-30) times $2,000 or $50,000.

Example 3 – An applicable large employer offers coverage and no full-time employees receive credits for exchange coverage. Penalty?   No, there’s no credit to off-set.

Example 4 – An applicable large employer with 55 employees offers non-compliant coverage, and one or more full-time employees receive credits for exchange coverage.  The number of full-time employees who receive the credit is used to calculate the penalty, which will be the lesser of:

1. The number of full-time employees minus 30, multiplied by $2,000 – or $50,000 for the employer with 55 full-time employees (55 minus 30, multiplied by $2,000). OR

2. The number of full-time employees who receive credits for exchange coverage, multiplied by $3,000.

Employers must remember that, unlike employer contributions to health insurance premiums, these penalties are not tax deductible. Further, if an employer decides to stop offering insurance, the amounts that had previously been deducted from wages for the employees’ portion of the premiums will now become subject to employer FICA contributions.

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The Affordable Care Act – Penalties? No! The IRS Safe Harbor for Applicable Large Employers (Part 4 of 8), by Barbara Halpin

I’m not going to lie.  The IRS safe harbor for employers to use to help prevent penalties for noncompliance is somewhat convoluted.  I’ve tried to make this as readable as possible.

So let’s jump right in.  The IRS has offered a safe harbor for applicable large employers to use to ensure that the right employees (full-time) are receiving coverage.  It’s important to note that all employees considered full-time under the Act must be offered coverage if the employer is an applicable large employer.  So an employer might only have ten employees who are actually full-time (30 hours per week) but have an additional 40+ “full-time equivalent” employees based upon the number of hours all of the part-time employees are working therefore making the employer an “applicable large employer” and subject to the Act.  All of these part-time hours, divided by 120, equals the number of full-time equivalent employees that an employer has (see my previous post here).

Safe Harbor for Ongoing Employees

The safe harbor to be applied for ongoing employees is called the “look-back method.”  Even though the final regulations have not been published yet, the IRS has stated that employers can rely on the safe harbor through 2014.  An employer determines each ongoing employee’s full-time status by “looking back” at a “standard measurement period” which is a defined period of time of not less than three months but not more than twelve consecutive months.  An ongoing employee is defined as an employee who has been employed by an applicable large employer for at least one complete standard measurement period.  The time period is chosen by the employer and may or may not be the calendar year.

If the employer determines that an employee averaged at least 30 hours per week during the standard measurement period, then the employer treats the employee as full-time during the subsequent “stability period,” regardless of the employee’s number of hours during the stability period (as long as the person remained an employee).  For employees whom the employer determine are full-time during the standard measurement period, the stability period is a period of at least six consecutive months that is no shorter in duration than the standard measurement period and that begins after the standard measurement period.

If the employee is determined not to have worked full-time during the standard measurement period, the employer may treat the employee as a non-full-time employee during the subsequent stability period.  This stability period cannot be longer than the standard measurement period.

The “standard measurement period” must be made on a consistent basis for all employees in that same category.  Categories include (1) each group of collectively bargained employees covered by a separate collective bargaining agreement; (2) collectively bargained employees and non-collectively bargained employees; (3) salaried employees and hourly employees and (4) employees whose primary places of employment are in different states.

Employers may also use a period of time called the “administrative period” between the standard measurement period and the stability period.  This is a period of time (up to 90 days) for employers to determine which ongoing employees are eligible for coverage. It cannot lengthen the time of the measurement period or the stability period.

If an ongoing employee’s position of employment or other employment status changes before the end of a stability period, the change will not affect the application of the classification of the employee as a full-time employee (or not a full-time employee) for the remaining portion of the stability period.  So if an ongoing employee is not treated as a full-time employee during a stability period because the hours during the prior measurement period were insufficient for full-time-employee treatment, and the employee changes his or her position of employment that increases the hours of service, the employee remains treated as a non-full-time employee and does not need to be offered coverage.

Here is a simple example of employer use of a measurement/stability period:                                          

            Employer M, an applicable large employer, did not hire any new employees in calendar year 2014.  Employer M elects to use a 6-month measurement period and a 6-month stability period for purposes of determining its full-time employees. The first measurement period runs from January 1, 2014 through June 30, 2014 and the associated stability period runs from July 1, 2014 through December 31, 2014.

Employer M determines each employee’s full-time status by looking back to determine whether the employee averaged at least 30 hours of service per week from January 1, 2014 through June 30, 2014 by totaling each employee’s hours of service during that measurement period and dividing that total by the number of weeks in that measurement period.

The employees determined to be full-time based on their hours of service during the first measurement period are considered to be full-time for each month in the stability period from July 1, 2014 through December 31, 2014 and must be offered coverage.                

There are many more examples in the IRS temporary regulations but for purposes of this blog, I’m trying not to go into too much detail.   It’s also important to understand that in using the measurement/stability period process, once a measurement period occurs and a stability period begins, the first stability period and the second measurement period are necessarily occurring at the same time in order for there to be continual coverage.  There can’t be a measurement period, then a stability period and then a second measurement period during which no coverage is offered to full-time employees (during the second measurement period) – measurement periods and stability periods overlap.

Safe Harbor for New Employees

The following rule for new employees may be modified in the final regulations, but can be relied on by employers through 2014 even if the final regulations modify the rule. A “new employee” defined as an employee who has been employed by an applicable large employer for less than one complete standard measurement period.

The basic rule is that an employee that is reasonably expected to work full-time (average 30 hours of service per week and who is not a seasonal employee) must be offered coverage within 3 months of starting.  If an employer offers coverage to the employee at or before the conclusion of the initial three months of employment the employer will not be subject to the employer responsibility payment (penalty).

The first standard measurement period is called the “initial measurement period”.  It’s a time period selected by an applicable large employer of at least 3 consecutive calendar months but not more than 12 consecutive calendar months used by the applicable large employer as part of the process of determining whether certain new employees are full-time employees under the look-back measurement method.

Safe Harbor for Variable Hour and Seasonal Employees

The following rule for variable hour and seasonal employees may also be modified in the final regulations, but can be relied on by employers through 2014 even if modified.  A new employee is a “variable hour” employee if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to work, on average, at least 30 hours per week.

A new employee who is expected to work initially at least 30 hours per week may be a variable hour employee if, based on the circumstances at the start date, the period of employment at more than 30 hours per week is expected to be of limited duration and it cannot be determined that the employee is to work an average of 30 hours per week over the initial measurement period.   (Example – a retail worker during the holidays may work over 30 hours per week but this won’t continue during the initial measurement period past the holidays).

If a large employer uses the Look-back Measurement method for its ongoing employees, it may use it for new variable hour and for seasonal employees.  During the initial measurement period of between three and twelve months, the employer measures the hours of service for the new variable or seasonal employee and determines whether the person is employed an average of 30 hours per week or more.  The stability period length used must be the same used for ongoing employees.

If the employee is determined to be full-time during the initial measurement period, the stability period must be a period of least six consecutive calendar months that is no shorter in duration than the initial measurement period and must begin immediately after the initial measurement period.  That employee must be covered during the stability period if it was found, during the initial measurement period, that the employee is a full-time employee.

If a new variable hour or seasonal employee is determined not to be full-time during the initial measurement period, the employee may be treated as a non-full-time during the following stability period.  The stability period for variable hour and seasonal employees determined not to be full-time must not be more than one month longer than the initial measurement period.

Next week I will write a post on the potential penalties employers face, a much more straight-forward topic.

 

 

 

 

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The Affordable Care Act – Who is an Applicable Large Employer? Determining the Number of Full-Time Employees (Part 3 of 8), by Barbara Halpin

Believe it or not, it’ll be fairly complicated for some employers to determine if they’re an “applicable large employer” under the Act and will therefore face penalties if they don’t  provide minimum essential coverage or do provide minimum essential coverage but that coverage is either unaffordable or doesn’t provide minimum value.

An applicable large employer is “an employer that employed an average of at least 50 full-time employees (taking into account full-time equivalents) on business days during the preceding calendar year.” In determining how many full-time employees an employer has, part-time employees’ hours are considered in the calculation. Part-time employees’ hours are computed on a monthly basis, by taking the total number of part-time monthly hours worked divided by 120 (which would be the equivalent of one full-time employee, or 30 hours per week).  A “full-time employee” is someone who works 30 or more hours per week and the number of full-time employees excludes the full-time seasonal employees who work for less than 120 days during the year.

For an employee to even be considered in the calculation of employees, an employment relationship must exist.  An employment relationship exists between an employer and an individual “when the person for whom the services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the detail and means by which that result is accomplished.”

If an employment relationship exists, the employer must calculate that individual’s hours into the calculation of the number of employees.  In order to determine how many full-time employees an employer has, the employer must take into account the hours of service for all employees in the prior year, both full-time and part-time.

The key issue in determining how many employees an employer has is to determine what type of employee each employee is (believe it or not, the IRS needed 18 pages to define the term “full-time employee” under the Act in IRS Notice 2012-58.)   First, how many full-time employees does an employer have?  A full-time employee is an employee that works, on average, 30 or more hours per week OR an employer may choose to treat 130 hours of service in a month as the equivalent of 30 hours of service per week in the month.

Second, how many “full-time equivalent” (FTE) employees does an employer have?  This is a combination of employees, each of whom individually is not treated as a full-time employee because he or she is not employed on average at least 30 hours of service per week.  These employees, in combination, are counted as the equivalent of full-time employees solely for purposes of determining whether the employee is an applicable large employer.  The employer must calculate the number of FTEs it employed during the           preceding calendar year and each FTE is considered one full-time employee  

The number of FTEs for each calendar month in the preceding calendar year would be determined using the following steps:

(1) Calculate the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not full-time employees for that month (employed at least 30 hours).

(2) Divide the total hours of service in step (1) by 120. This is the number of FTEs for the calendar month.

Therefore, to determine the number of full-time employees an employer has and if it might be accessed as penalty as an “applicable large employer” under the Act, the employer must count the number of full-time employees and FTEs.  For example, say a Company has 35 full-time employees (they each work 30+ hours per week).  In addition, the company has 20 part-time employees who all work 24 hours per week for a total of 96 hours each.  These part-time employees’ hours would be treated as the equivalent of 16 full-time employees for that month, based on the following calculation: 20 employees x 96 hours / 120 = 16 full-time equivalents.

All employees (including seasonal) who were not full-time employees for any month in the preceding calendar year are including in calculating the employer’s FTEs for that month.  Note that if an employer has over 50 full-time employees for 120 days or fewer during a calendar year, AND the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal employees, the employer would not be an applicable large employer (the “seasonal employee exception”).

How an employer calculates an employee’s hours worked is also relevant because not all employees are hourly workers.  For employees working on an hourly basis the employer is required to calculate actual hours of service for records of hours worked and hours for which payment is due (this includes hours for which an employee is entitled to be paid such as holidays, vacation and illness).

There are three methods for calculating the hours for non-hourly employees and employers need not choose the same method for every employee.

First the employer can count the actual hours of service from records of hours worked and hours for which payment is made or due for vacation, holiday, illness, etc.

Second, the employer can use a days-worked equivalency method whereby the employee is credited with eight hours of service for each         day for which the employee would be required to be credited with at least one hour of service.

Third, the employer can use a weeks-worked equivalency of 40 hours of service per week for each week for which the employee would be required to be credited with at least one hour of service.

Note that an employer may not use a method that would understate the hours worked.  For example, an employer isn’t permitted to use the days-worked equivalency method for an employee who works three ten hour days per week because this method would understate the employee’s hours of service as being 24 hours of service per week, which would result in the employee being treated as not a full-time employee.

 

Putting it all together

In order to determine the number of full-time employees in the preceding calendar year (and therefore whether an employer is a large employer under the Act for the current calendar year), following the following steps:

STEP 1 – Calculate the number of full-time employees you have (including seasonal employees) for each calendar month in the preceding calendar year.

STEP 2 – Calculate the number of FTEs (including seasonal employees) for each calendar month in the preceding calendar year.

STEP 3 – Add the number of full- time employees and FTEs calculated in steps (1) and (2) for each of the 12 months in the preceding calendar year.

STEP 4 – Add up the 12 monthly numbers in step (3) and divide the sum by 12.  This is the average number of employer’s full-time employees for the preceding calendar year (remember to round down fractions).

STEP 5 – If the number of full-time employees in step (4) is less than 50, the employer is not an applicable large employer for the calendar year.

STEP 6 – If the number of full time employees in step (4) is 50 or more, determine whether the seasonal employee exception applies (as described above).  If the seasonal exception applies, the employer is not an applicable large employer for the current calendar year.  If the seasonal exception does not apply, the employer is an applicable large employer for the current calendar year.

More on this voluminous piece of legislation next week!

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The Affordable Care Act: The Affordability Safe-Harbors (Part 2 of 8)

Last week I wrote a blog entry on the basics of the Affordable Care Act and some definitions that individuals should be familiar with when reading about the Act.  Remember that effective on January 1, 2014, the Act states than an “applicable large employer” is liable for an assessment payment if any of its full-time employees (averaging 30 or more hours per week) is certified to receive an applicable premium tax credit or cost-sharing reduction and either:

(1) the employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan; OR

(2) the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that, with respect to a full-time employee who has been certified to receive a tax credit or cost-sharing reduction, is either (i) unaffordable or (ii) does not provide minimum value.

As a reminder, “Minimum essential coverage” is coverage under a government-sponsored program; coverage under an employer-sponsored plan; plans in the individual market or other plans under § 5000A(f) of the Act.  “Minimum value” states that a health plan must pay at least 60% of the covered health expenses for an individual.

A plan must also be “affordable” (an employee’s share of the health plan premium for “employee only” coverage does not exceed 9.5% of the employee’s gross income for the taxable year) so the IRS has created three safe harbors for an employer to use to determine what’s considered “affordable”.

The first affordability safe harbor is the W-2 Safe Harbor.  For this option, affordability is determined by reference to an employee’s wages from the employer.  Employers can use what is reported in Box 1 of Form W-2.  To use this safe harbor the employer needs to meet the following requirements: (1) the employer must offer its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan and (2) that the employee portion of the self-only premium for the employer’s lowest cost coverage that provides minimum value (the employee contribution) must not exceed 9.5% of the employee’s W-2 wages.

If the W-2 safe harbor is followed, no assessment payment will be due with respect to that employee even if that employee received a premium tax credit or cost sharing reduction.   Application of this safe harbor will be determined after the end of the calendar year and on an employee-by-employee basis taking into account W-2 wages and the employee’s contribution.

For example, the employer would determine whether it met the affordability safe harbor for 2014 for an employee by looking at that employee’s W-2 wages for 2014 and comparing 9.5% of that amount to the employee’s 2014 employee contribution.  The safe harbor would apply only for purposes of determining whether an employer’s coverage satisfies the 9.5% affordability test for purposes of the assessment payment (penalty); the safe harbor does not affect an employee’s eligibility for a premium tax credit.

For an employee who was not a full-time employee for the entire calendar year, the Form W-2 safe harbor is applied by adjusting the employee’s Form W-2 wages to reflect the period when the employee was offered coverage and then comparing those adjusted wages to the employee share of the premium during the period.

The second option is the “rate of pay” safe harbor.  The employer may (1) take the hourly rate of pay for each hourly employee who is eligible to participate in the health plan as of the beginning of the plan year; (2) multiply that rate by 130 hours per month (full-time status under § 4980H) and (3) determine affordability based on the resulting monthly wage amount.  The employee’s monthly contribution amount (for the self-only premium of the employer’s lowest cost coverage that provides minimum value) is affordable if it is equal to or lower than 9.5 percent of the computed monthly wages (the employee’s applicable hourly rate of pay x 130 hours).  For salaried employees, monthly salary would be used instead of hourly salary multiplied by 130.

An employer can use the rate of pay safe harbor if, with respect to the employees for whom it uses the safe harbor, the employer did not reduce the hourly wages of hourly employees or the monthly wages of salaried employees during the year.

The third and final sale harbor is the “poverty line safe harbor.” Employer-provided coverage offered to an employee is affordable if the employee’s cost for self-only coverage under the plan does not exceed 9.5% of the Federal Poverty Level for a single individual.  Employers must use the most recently published poverty guidelines as of the first day of the plan year of the applicable large employer member’s health plan.  This option was created in response to comments that determination of affordability should disregard employees whose income would qualify the employee for coverage under Medicaid.

The W-2 safe harbor is probably the easiest to follow.  Employers have the employee’s W-2 information and can easily determine whether or not its coverage is deemed “affordable” under the Act.

 

 

 

 

 

 

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The Affordable Care Act: The Basics (Part 1 of 8), by Barbara Halpin

No matter your feelings on the Affordable Care Act, it’s coming whether you’re ready or not so I’ve decided to write a series on blog entries on the Act.  Compliance will be a work-in-progress as businesses determine how to best implement strategies to ensure that penalties aren’t assessed.

The IRS, the Department of Labor and other agencies have published guidance on how the Act will be implemented, from the penalties accessed to the insurance exchanges slated to open on October 1, 2013.  I’ve read a lot of these (I think I’m one of the few who enjoys reading tax regulations) and hope to peak your interest on a timely topic affecting employers.  This post will offer some basic background information.

The Affordable Care Act (or officially, the Patient Protection and Affordable Care Act) was enacted on March 23, 2010 and is over 900(!) pages long.  Effective on January 1, 2014, the Act requires than an “applicable large employer” is liable for an assessment payment if any of its full-time employees (averaging 30 or more hours per week) is certified to receive an applicable premium tax credit or cost-sharing reduction and either:

(1)       the employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan;

(2)        the employer offers its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage under an eligible employer-sponsored plan that, with respect to a full-time employee who has been certified to receive a tax credit or cost-sharing reduction, is either (i) unaffordable or (ii) does not provide minimum value.

Understanding the key terms used in the Act is obviously important.  While the terms may be described in more detail in the Act, at a basic level, the key terms can be defined as the following:

1.         Affordable – An employee’s share of the health plan premium for “employee only” coverage does not exceed 9.5% of the employee’s W-2 income for the taxable year

2.         Minimum essential coverage – Under § 5000A(f) of the Act, it can mean coverage under a government-sponsored program; coverage under an employer-sponsored plan; plans in the individual market; grandfathered plans and others

3.         Minimum value – the health plan must pay at least 60% of the covered health expenses for an individual

4.         Premium tax credit – A subsidy for people with income up to 400% of the federal poverty level to enroll in insurance through an Affordable Insurance Exchange.

To qualify for a premium tax credit you cannot be eligible for coverage through a government-sponsored program like Medicaid and you cannot be eligible for coverage offered by an employer (or are eligible only for employer coverage that is unaffordable or that does not provide minimum value.)

5.         Cost-Sharing – Defined as any contribution consumers make towards the cost of their healthcare as defined in their health insurance policy.  (An insurer can reduce the cost-sharing (under certain plans defined in § 1402 of the Act) of an eligible insured enrolled in a qualified health plan.)  An “eligible insured” is an individual who enrolls in a qualified health plan in the silver level of coverage (I’ll explain in a future blog entry) in the individual market offered through an Exchange AND whose household income exceeds 100 percent but does not exceed 400 percent of the poverty line for a family of the size involved.

6.         Assessment payment – “shared responsibility payment” or penalty

7.         Insurance exchange – An online marketplace where insurers offer individuals and small businesses health care plans with varying coverage.

8.         Qualified health plan – A health plan certified to be offered through an Exchange.

If a business, by 2014, does not provide full-time employees with affordable, minimum essential health coverage and at least one employee receives a premium tax credit for a federal or state insurance exchange, the employer may be liable for a penalty.

In future posts I will explain the affordability safe-harbors that employers may use to determine if the coverage is “affordable” under the Act; how to determine if you’re an “applicable large employer” and the safe harbor that businesses can apply; the potential penalties under the Act; other provisions applicable to large employers under the Act; the Act and its effect on small businesses; the excise tax on “Cadillac plans” and the insurance exchanges set to open in October.

 

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