The Employer Shared Responsibility (ESR) Provision, or the mandate that employers need to cover their employees with health insurance, becomes effective in tax year 2015. Here is an overview of the various company sizes that are subject to the penalty provision and when the mandate applies. The number of employees is determined by considering the average of full-time employees, including full-time equivalents, on business days during the preceding calendar year.
- Employers with fewer than 50 workers are exempt and not subject to the employer shared responsibility rules.
- Employers with between 50 and 99 full-time employees are liable for the ESR beginning in tax year 2016.
- Employers with at least 100 full-time employees are liable for the ESR beginning in tax year 2015.
An employer with at least 100 full-time employees is liable for the ESR if one of the following conditions exists (after 2015, the 70 percent figure jumps up to 95 percent):
- The employer does not offer health coverage, or offers coverage to fewer than 70% of its full-time employees and dependents and at least one of the full-time employees receives a premium tax credit, OR
- The employer offers health coverage to at least 70 percent of its full-time employees and dependents, but at least one full-time employee receives a premium tax credit. This may occur because the employer did not offer coverage to that employee, or because the coverage the employer offered to that employee was either unaffordable or did not provide minimum value.
Calculating the Penalty
If the employer does not offer coverage to at least 70 percent of its full-time employees (and their dependents), the Employer Shared Responsibility payment equals the number of full-time employees (minus 80) multiplied by 1/12th of $2,000 (provided that at least one full-time employee receives a premium tax credit for that month).
If the employer offers coverage to at least 70 percent of its full-time employees (but has one or more full-time employees who receive a premium tax credit), the amount of the payment for the month equals the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12th of $3,000.
The amount of the payment for any calendar month is capped at the number of the employer’s full-time employees for the month (minus up to 80) multiplied by 1/12th of $2,000.
Companies that employed on average at least 50, but fewer than 100, full-time employees on business days during 2014 won’t be liable for the ESR penalty for any calendar month during 2015. So, for companies with between 50-99 employees, the mandate is deferred until 2016, provided that the employer didn’t reduce the size of its workforce or the overall hours of service of its employees in order to qualify for the transition relief (unless for bona fide business reasons).
For employers with non-calendar-year health plans, relief applies to any calendar month during the 2015 plan year, including months during the 2015 plan year that fall in 2016.