Skip to main content

Understanding the Employer Shared Responsibility Rules

Two women discussing taxes and IRS reporting with paperwork

The Affordable Care Act requires applicable large employers (ALEs) to offer affordable, minimum-value health coverage to their full-time employees or pay a penalty. This provision is also known as the “employer shared responsibility” or “pay or play” mandate. ALEs need to understand how this mandate works to avoid costly penalties and ensure compliance with the ACA.

Determining if an ALE is liable for a pay or play penalty

An ALE is only liable for a pay or play penalty if one or more of its full-time employees receive a subsidy for coverage under an ACA exchange. If the health coverage offered by an ALE meets certain requirements, then it will be considered affordable and compliant with the pay or play rules.

Specifically, under the pay or play rules, an ALE’s health coverage is considered affordable if the employee’s required contribution to the plan does not exceed 9.5% (as adjusted) of the employee’s household income for the taxable year. For plan years beginning in 2023, this affordability percentage decreases to 9.12%.

Calculating and reporting penalties

If an ALE has at least one full-time employee who receives a premium tax credit through an exchange, then it will be subject to certain penalties under the pay or play rules. For example, if an ALE fails to offer minimum essential coverage that is both affordable and provides minimum value, then it will owe a penalty. In addition to owing potential penalties, ALEs must also report information concerning their offers of health coverage to their full-time employees on Form 1094-C/Form 1095-C each year. The failure to file these forms can result in additional Internal Revenue Service penalties.

Because employers may not always know the household income of their employees, the IRS has established three optional safe harbors they can use to confirm if their healthcare benefits can be considered affordable. The Form W-2 safe harbor, rate of pay safe harbor and federal poverty level safe harbor are all tools ALEs may rely on to make sure they comply with the ACA's pay or play rules.

This ACA Compliance Overview outlines these affordable care determinations and how ALEs can use the safe harbors to meet these requirements.

For more information about employee benefits, our services and products, contact HANYS Benefit Services online or call 800.388.1963.

This Compliance Overview is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice. Design ©2020, 2023 Zywave, Inc. All rights reserved.

Popular posts from this blog

Innovative employee retention strategies: 9 fresh ideas

Employee engagement and retention are pivotal in every sector, but they carry even more weight in the not-for-profit space, where resources are often limited. High turnover can be both costly and disruptive, impacting productivity and damaging morale. In an era of workforce evolution, to effectively retain their top talent, organizations must explore innovative employee retention strategies that go beyond conventional methods.  Engaged employees are distinguished by their higher productivity, motivation and loyalty, and they are more likely to stay with a company for the long term. Gallup recently updated its research article, The Benefits of Employee Engagement , finding that "low engagement teams typically endure turnover rates that are 18% to 43% higher than highly engaged teams."  In addition to turnover, disengaged employees negatively impact a company's financial health, with turnover costs averaging six to nine months of the departed employee's salary, accordin
Read more

Employee benefits strategies: 5 budget-friendly ideas

Retirement and employee benefits help create a solid foundation for recruitment and retention. They’re also pivotal in enhancing job satisfaction, boosting productivity, encouraging employee well-being and increasing workplace morale. With the work landscape evolving rapidly, organizations are revisiting their offerings to develop stronger employee benefits strategies.  The first area most small- and mid-size employers investigate is quick, short-term ways to foster company culture. In this blog, we’ll cover budget-friendly ideas to improve your employee benefits initiatives. Think of them as smaller action items that can help you gain a competitive edge. Then, we’ll take a closer look at how customizing your benefits plan can support your new efforts.  1. Promote a healthy work culture  Investing in employee benefit plans is not just about fulfilling a checklist. It's about creating an environment where employees feel supported in both their professional and personal lives. Benefi
Read more

What are Alternative Investments? 4-Part Introduction

The market has seen a lot of uncertainty in recent years. Because of this, many organizations are looking for new ways to diversify their investment portfolios. Our best-kept “not-so-secret” secret: alternative investments. In this blog, we'll explore alternative investments with a focus on how they can potentially shield your portfolios from downside market volatility. In addition, we'll break down its benefits and risks and whether it could be a good fit for you. Part 1: What are alternative investments? Alternative investments may help diversify your investment portfolios through non-traditional investment strategies. Non-traditional investment options have varying liquidity ranges depending on the strategy and fund structure. Alternative investments are sometimes referred to as alternative assets. According to the Harvard Business School , the seven types of alternative investments are: private equity; private debt; hedge funds; real estate; commodities; collectibles; and s
Read more