Navigating the Affordable Care Act: Avoiding Penalties & Minimizing Costs
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NAVIGATING THE AFFORDABLE CARE ACT: AVOIDING PENALTIES & MINIMIZING COSTS You can listen to today’s webinar using your computer’s speakers or you may dial into the teleconference. If you would like to join the teleconference, please dial 1.650.479.3208 and enter access code: 923 755 470 #. You will be on hold until the seminar begins. #CLOwebinar
Navigating the Affordable Care Act: Avoiding Penalties & Minimizing Costs
Learn how the choices you make could affect your organization. Now that the Affordable Care Act is here to stay, many employers are asking, "What do I have to do to avoid penalties and minimize costs?" Register for this complimentary webinar featuring expert advice from Monique Warren, partner at Jackson Lewis LLP, to learn how you can avoid being blind-sided by unanticipated costs in 2014. Employers that have not already done so must put a strategy in place and develop tools and processes to comply before the 2014 deadline. In this webinar you will learn how the penalties can be triggered in 2014, their potential financial impact, and how alternatives to avoid these penalties may affect your organization. Sponsored by Kronos. You will learn: How the penalties can be triggered in 2014. The potential financial impact of penalties. How alternatives to avoid these penalties may affect your organization. How a workforce management solution can help you cope with ACA compliance.
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1. You can listen to todays webinar using your computers
speakers or you may dial into the teleconference. If you would like
to join the teleconference,please dial 1.650.479.3208 and enter
access code: 923 755 470 #. You will be on hold until the seminar
begins. #CLOwebinar
2. Speaker: Monique Warren Partner Jackson Lewis LLPModerator:
Todd Black Product Marketing Manager Kronos #CLOwebinar
3. Q&A Click on the Q&A icon on your floating toolbar
on the top of your screen. Type in your question in the space at
the bottom. Click on Send. #CLOwebinar
4. Polling Polling question will appear in the Polling panel.
Select your response and click on Submit. #CLOwebinar
5. 1. Will I receive a copy of the slides after the webinar?
YES 2. Will I receive a copy of the webinar recording? YES Please
allow up to 2 business days to receive these materials.
#CLOwebinar
6. Navigating the Affordable Care Act: Avoiding Penalties &
Minimizing CostsMonique Warren Todd BlackPartner, Jackson Lewis LLP
Product Marketing Manager, Kronos Incorporated KRONOS INCORPORATED
March 13, 2013 6
7. KRONOS INCORPORATED March 13, 2013 7
8. Todays Guest SpeakerMonique WarrenPartner,Jackson Lewis
LLPMonique Warren is a Partner in the White Plains, New York office
of JacksonLewis LLP. Ms. Warren is a member of the Employee
Benefits Counselingand Litigation group.Ms. Warren counsels
employers on employee benefits compliance andadministrative
matters, drafts plan documents and employee communicationmaterials,
and represents employers to government agencies and inemployee
benefit litigation. Her expertise includes health and welfare
plansas well as retirement plans. KRONOS INCORPORATED March 13,
2013 8
9. Health Care Reform: Employer Shared Responsibility
PenaltyMonique WarrenPartner, Jackson Lewis LLP KRONOS INCORPORATED
March 13, 2013 9
10. Health Care Reform: Employer Shared Responsibility Penalty
2012 Jackson Lewis LLPThis presentation provides general
information regarding itssubject and explicitly may not be
construed as providing anyindividualized advice concerning
particular circumstances.Persons needing advice concerning
particular circumstances mustconsult counsel concerning those
circumstances.IRS Circular 230 disclosure: Any tax advice contained
in thiscommunication (including any attachments or enclosures) is
not [email protected] or written to be used, and
cannot be used, for thepurpose of (i) avoiding penalties under the
Internal RevenueCode or (ii) promoting, marketing or recommending
to anotherparty any transaction or matter addressed in this
communication.(The foregoing disclaimer has been affixed pursuant
to U.S.Treasury regulations governing tax practitioners.)
11. Market Reforms and Mandates Insurance Exchanges Shared
MedicaidResponsibility Expansion
12. US Supreme Court upheld constitutionality in2012Individual
must have minimum essential coverage(employer-sponsored, Medicare,
Medicaid,exchange, etc.) or pay tax penalty for periodswithout
coverage thats greater of o 1% AGI or $95 for 2014o 2% AGI or $325
for 2015o 2.5% AGI or $695 for 2016
13. Internal Revenue Code 4980H Employer Shared
Responsibilityaka Pay or Play penaltyNondeductible penalty applies
to employers with50 or more fulltime employeesAssessable penalty -
generally are assessedand collected in the same manner as
taxesGuidance so far: Notice 2011-36, Notice 2012-58, Proposed
Regulations
14. Applicable Large EmployerLarge means the employer had an
average of 50 or morefulltime employees on business days in prior
calendar yearEmployer status is determined on controlled group
basis(aggregation, like for retirement plan); different EIN
differentemployerSpecial rules for predecessor employers and new
employersCommon-law employment principles apply when
determiningemployment relationshipAnti-abuse rules
15. Parent-subsidiary group an entity has an 80% or more
controllinginterest in another entityBrother-sister group same 5 or
fewer people (or trusts/estates)together own at least 80% of each
entity and, taking into account theownership interest of each owner
only to the extent identical withrespect to each entity, the owners
hold more than 50% of each entityAffiliated service group service
organizations (e.g., medical practice,architectural firm) where one
performs services for the other ormanagement function
groupAttribution rules apply, too 15
16. P owns 100 percent of S-1 and S-2For all of 2013, P has 10
fulltime employees, S-1 has 40fulltime employees and S-2 has 60
fulltime employeesP, S-1, and S-2, collectively, are an applicable
large employerand each one is an applicable large employer member
for2014
18. NewCo is incorporated on January 1, 2015 and on that
dayNewCo has just three employees. However, prior toincorporation,
NewCos owners bought a factory theyintended to open within two
months of incorporation andthey intended to employ 100 employees.
By March 15,2015, NewCo has over 75 fulltime employeesBecause NewCo
can reasonably be expected to employ onaverage at least 50 fulltime
employees on business daysduring 2015, and actually does, NewCo is
an applicablelarge employer
19. Employee/Employer relationship determined based on common
lawprinciples o Subject to the companys will and control not only
as to what but also how o Facts and circumstances, not necessarily
contract language o Revenue Ruling 1970-630Independent contractors
are not employees (but be certain theyreindependent
contractors!)Non-employee directors, sole proprietors, partners,
2-percent or moreshareholders in an S corporations and leased
employees (if theyre notyour common law employees) are not treated
as employees.
20. Fulltime = employed on average for 30 hours of service per
week (130hours per month) o Hourly count actual hours o Non-hourly
count actual hours or use equivalency rules (8hrs=1day,
40hrs=1week) Okay to use different methods for different groups Use
reasonable method for commission-onlyService includes hours paid
for performance of duties, vacation, sick,jury duty, layoff,
military service, holiday, incapacity (e.g., disability)Service
does not include work performed outside the USFor 2014, may use any
6-month period in 2013 (instead of all of 2013)to determine
average
21. 1) Count your fulltime employees (including seasonal) for
each month in 20132) Count your fulltime equivalents (including
seasonal) for each month in 2013 a) Add total hrs for non-fulltime
employees but count no more than 120/mo for any one non-fulltime
employee b) Divide # obtained in substep a) by 120; the result is
the number of fulltime-equivalents for that month3) Add the two #s
obtained in steps 1) and 2) above for each month4) Add the twelve
sums obtained in step 3) and divide the total by 12; the result is
the average number of fulltime employees/equivalents5) If the # in
step 4) is at least 50, determine whether seasonal employee
exception applies
22. Seasonal employee exceptionAfter determining that your
company had at least 50 fulltimeemployees/equivalents on average
for 2013, determine whether o the number exceeded 50 for only 120
days/4 months (or fewer) and o the number in excess of 50 were
seasonal employeesSeasonal = seasonal retail, agricultural and
others included undergood faith reasonable interpretationIf the
number of fulltime employees exceeded 50 for no more than120 days/4
months and the excess employees were seasonal, yourcompany is not a
large employer for 2014
23. Elves Inc has 40 fulltime non-seasonal employees for the
full 2015calendar year, Elves also has 80 seasonal fulltime workers
who packand ship toys from September through December. Elves has no
part-time employeesBefore applying the exception, Elves Inc has 40
fulltime employees for8 months of 2015 and 120 fulltime employees
for 4 months of 2015,resulting in an average of 66 employees for
the yearBut, since Elves workforce equaled or exceeded 50
fulltimeemployees for no more than 4 months and the number of
fulltimeemployees would be less than 50 in those months if seasonal
elveswere disregarded, its not an applicable large employer for
2016
24. o Play or Pay (4980H(a)): If minimum essential coverage is
not offered to all fulltime employees and dependents and one or
more fulltimer obtains subsidized Exchange coverage, employer must
pay (annualized) penalty of $2,000 x (#fulltimers - 30)o Play and
Pay (4980H(b)): If minimum essential coverage is offered but one or
more fulltimer obtains subsidized Exchange coverage, employer must
pay (annualized) penalty equal to lesser of $3,000 x #fulltimers
who decline employer coverage and receive subsidized Exchange
coverage or $2,000 x (#fulltimers - 30)
25. Control group and common law employer concepts applyWorks
at least 30 hours per week with respect to a given
month(non-fulltime employees do not trigger penalty)Since monthly
determination is administratively burdensome,IRS offers safe harbor
measurement/stability methodo Count hours during a look-back
measurement period of 3-12 months to determine
fulltime/non-fulltime status;o Treat as fulltime/non-fulltime for
stability period, depending on status determined under measurement
period
26. For ongoing employees (i.e., employed for at least as long
as themeasurement period you use) count actual hours for a
look-back measurement periodo If employee averages 30 hrs/wk in
measurement period, treat as fulltime for a stability period of at
least 6 months and no shorter than measurement period, regardless
of actual hours worked during that stability periodo If the
employee average less than 30 hrs/wk in measurement period, he or
she is treated as non-fulltime for a stability period no longer
than the measurement period
27. safe harbor ongoing employeeso 3-12month measurement
periodo Different measurement and stability periods may be used for
categories of employees: union/nonunion, different bargaining
agreements, salaried/hourly, different stateso May change length of
periods each year but not with respect to an employee whos
measurement period has begun **o May use administrative period of
up to 90 days between measurement and stability periods but it
cannot reduce or lengthen the measurement or stability periodo For
2014 only can use 6-mo look-back with 12-mo stability
28. Your company is an applicable large employer that
offerscoverage only to fulltime employees and chooses to use:o a
12-month stability period that begins January 1o a 12-month
standard measurement period that begins October 15; ando an
administrative period between the end of the standard measurement
period (October 14) and the beginning of the stability period
(January 1) to determine which employees were employed on average
30 hours per week during the measurement period
29. Al was employed on average 30 hours per week during the
standardmeasurement period 10/15/2015 10/14/2016 and for the
priormeasurement period o Because Al was employed for the entire
standard measurement period, Al is an ongoing employee with respect
to the stability period 1/1/2017 12/31/2017 o Because Al was
employed on average 30 hours per week during that standard
measurement period, Al is offered coverage for the entire 2017
stability period (including the administrative period 10/15/2017
12/31/2017) o Because Al was employed on average 30 hours per week
during the prior standard measurement period, hes offered coverage
for the entire 2016 stability period and, if enrolled, coverage
would continue during the administrative period 10/15/2016
12/31/2016
30. Bob also was employed on average 30 hours per week for all
prior standardmeasurement periods, but is not a fulltime employee
during the standardmeasurement period 10/15/2015 - 10/14/2016 o
Because Bob was employed for the entire standard measurement period
10/15/2015 10/14/2016, Bob is an ongoing employee with respect to
the stability period in 2017 o Because Bob did not work full-time
during this standard measurement period, you dont offer Bob
coverage for the stability period in 2017 (including the
administrative period from 10/15/2017 12/31/2017) o However,
because Bob was employed on average 30 hours per week during the
prior standard measurement period, Bob was offered coverage through
the end of the 2016 stability period and, if enrolled, would
continue such coverage during the administrative period from
10/15/2016 through 12/31/2016
31. For new employees (i.e., employed for less than one
measurement period),determine if o Fulltime: reasonably expected to
be employed on average at least 30 hours per week, non-seasonal; or
o Variable-hour/Seasonal: unable to determine at start date whether
he or she will be fulltime For 2014 only, employer may take into
account an anticipated termination date (after 2014, employers must
assume that an employee will be employed for the entire measurement
period) Apply look-back measurement/stability safe harbor method
and theres no penalty with respect to a new employee during
measurement o If status changes during measurement period
(reasonably expected to be fulltime), treat as fulltime starting on
first day of 4th month after status change or, if earlier, first
day of month after measurement period
32. Safe Harbor General RulesRehired employees (and employees
returning from unpaid leave) aretreated as new hires if the period
of no service was at least 26consecutive weeks o As alternative can
use parity rule for shorter periods of pre-break employment o If
treated as new, restart measurement period o If not treated as new,
the rehired/resuming employee is treated as continuing for purposes
of measurement/stability periodIf using safe harbor, careful
recordkeeping is essential (not just hours measurement/stability
periods, start dates, termination dates, leavedates, job category,
coverage eligibility, coverage offers, enrollments,etc.)
33. An employees child under age 26o Child for federal tax
purposes ( 152(f)(1)) son, daughter, stepchild, adopted child,
child placed for adoption, foster childo May rely on employees
representationAn employees spouse is not a dependentFor 2014 only,
an employer not currently offeringdependent coverage will not be
liable for a penalty solelyfor failure to offer dependent coverage
as long as it takessteps in 2014 to begin offering dependent
coverage
34. Remember, a fulltime employee must obtain
subsidizedExchange coverage ( 36B) to trigger a penaltyNo subsidy
unless o Household income between 100% and 400% federal poverty
line (currently, $11,170 for a single person)o Not offered minimum
essential coverageo Buys Exchange coverage
35. Employee must have effective opportunity to accept coverage
atleast once per yearIf coverage is not affordable or does not meet
minimum value,employee must also have had effective opportunity to
declinecoverage (i.e., mandatory or automatic coverage thats
notaffordable or of minimum value will not prevent employee
fromobtaining subsidized Exchange coverage and triggering
penalty)Offer is effective for a given month only if coverage is
effectivefor full month if employee accepts offerOffer not negated
by employer dropping employees coveragefor nonpayment of
premium
36. Coverage under a grandfathered plan, an eligible
employersponsored plan, an individual plan, Medicare, Medicaid,
CHIP,TRICARE etc.Special rule: for employer-sponsored coverage to
be minimumessential coverage, it must meet o Affordability test:
self-only coverage costs no more than 9.5% of income (income safe
harbors: W-2 wages, rate of pay, federal poverty level for single
person) o Minimum value test: plans share of total allowed cost of
benefits must be at least 60% of covered costs (HHS-IRS calculator,
other safe harbors?)
37. Multiemployer plans Through 2014, an employer that makes
contributions to a multiemployer plan will be treated as having
satisfied 4980H if (i) it contributes to the plan pursuant to a
collective bargaining agreement, (ii) the coverage is offered to
fulltime employees and dependents, and (iii) the coverage is
affordable and provides minimum valueNon-calendar year plans
Delayed effective date first day of 2014 plan year if non-calendar
year plan was in effect as of 12/27/2012 and offers affordable
minimum value coverage no later than first day of 2014 plan
year
38. Shrink/Dont grow your business and remain below
largeemployer threshold really?!Dont let employees whore ineligible
for health coverage workmore than 30 hours per week?Provide health
coverage (with at least 60% value) for allemployees working at
least 30 hours per week and theirchildren under age 26 and dont
make any of those employeespay more than 9.5% of compensation for
single coverage?o Dont have to subsidize dependent coverageo Can
use alternate safe harbor to meet affordability test
39. How important is health coverage to recruitment and
retentionof employees?o Whats common in industry/geographic area?o
What does your company currently offer?How important is health
coverage to other businessconsiderations (e.g., union avoidance,
public relations)?If unionized, what does the collective bargaining
agreementsay?If status quo, how much would it cost to avoid
estimatedpenalties compared with the cost of paying
estimatedpenalties?
40. Jackson Lewis Health Care Reform Resource Center
http://www.jacksonlewis.com/healthcare/index.php Jackson Lewis
Benefits Law Advisor Blog http://www.benefitslawadvisor.com/
Jackson Lewis e-mail updates
http://jlmarketing.jacksonlewis.com/reaction/RSGenPage.asp?RSID=
k5_c7IHYHsVmAKIhyttfRpWKlZt0NCGFtjTqbXpTSKkIRS website:
http://www.irs.gov/uac/Affordable-Care-Act-Tax-Provisions
41. The Reliable Data You Need to Make the Right Decisions
KRONOS INCORPORATED March 13, 2013 41
42. Savvy Organizations Are Using WorkforceManagement to
Minimize Drive FosterControl Labor Improve Compliance Operational
Continuous Cost Productivity Risk Excellence ImprovementSave
payroll expense Reduce overtimeEliminate administrative waste
Improve serviceAvoid lawsuits, penalties and settlements
Consolidate acquisitionsReduce absenteeism Standardize and control
expansionImprove sales Find growth using Big DataStreamline hiring
and reduce turnover Allocate labor costs to grants & programs
KRONOS INCORPORATED March 13, 2013 42
43. Benefits of Automated and IntegratedWorkforce Management
Processes Minimize Control Improve Compliance Costs Productivity
Risk Eliminate redundant Establish single Gain control of data
entry source for all employee Lower total cost of employee
processes and ownership information performance Gain better
visibility Monitor and Empower to information for enforce employees
and better decision compliance managers with making automation
KRONOS INCORPORATED March 13, 2013 43
44. A workforce management solution canhelp you cope with ACA
compliance by Providing accurate information about average hours
worked by full-time and part-time employees to comply Delivering
timely analysis of employee benefit eligibility, thus improving
compliance and reducing financial penalties Monitoring your
workforce by analyzing schedules, time records, and benefits
enrollment in real time Notifying the appropriate agencies of ACA
compliance through auditing and reports built into our solution
KRONOS INCORPORATED March 13, 2013 44
45. Automated Workforce Management Helps youto Cope with the
Affordable Care Act Ability Change Enroll Work Monitor Status &
Electronically Through Report to to do Workforce Provide with Self
Stability IRSLook-Back On-Going Benefits Service Period KRONOS
INCORPORATED March 13, 2013 45
46. Summary Control labor costs Manage part-time hours Prevent
overtime Optimize scheduling and staffing Ensure employee
satisfaction Provide stable schedules Deliver timely benefits
eligibility information Support ACA compliance Monitor time worked
Monitor benefits enrollment Provide necessary audits and reports
KRONOS INCORPORATED March 13, 2013 46
47. Thank you for joining us! QA & Q&A KRONOS
INCORPORATED March 13, 2013 47
48. About Kronos Kronos is the global leader in delivering
workforce managementsolutions in the cloud. Tens of thousands of
organizations in more than100 countries including more than half of
the Fortune 1000 use Kronos to control labor costs, minimize
compliance risk, and improveworkforce productivity. Learn more
about Kronos industry-specific time and attendance, scheduling,
absence management, HR and payroll, hiring, and labor analytics
applications at www.kronos.com. Kronos: Workforce Innovation That
Works. For more information contact your Kronos representative,
call (800) 225-1561 or visit www.kronos.com. KRONOS INCORPORATED
March 13, 2013 48
49. Monique WarrenPartnerJackson Lewis LLP #CLOwebinar
50. Join Our Next Workforce Webinar The Innovative Workforce
Wednesday, March 27, 2013Workforce Webinars start at 2 p.m. Eastern
/ 11 a.m. Pacific Register for upcoming Workforce Webinars at
www.workforce.com #CLOwebinar