When the Affordable Care Act (ACA) goes into effect in 2014, many employers and independent contractors will need to take action. Under the new plan, employers must offer a sponsored health plan to 95% or more of full-time employees, and individuals who are not considered employees — like independent contractors — are required to acquire basic health coverage for themselves.
Non-compliant employers and individuals must either prove that they are exempt from the new ACA laws, or pay a fine. This blog post aims to explain the new rules for employers and independent contractors under the ACA.
Independent Contractors: Your New Healthcare Responsibilities
Independent contractors (ICs) usually do not receive health benefits from the company that provides their paycheck. This won’t change under the ACA —instead, ICs must purchase basic health insurance coverage for each month.
If an IC chooses not to get health insurance, they can make an “individual shared responsibility payment” on their 2015 tax return. This fine will be an annual penalty of $95, or up to 1% of their income over the filing minimum, whichever amount is greater.
Some ICs are exempt from paying the fine. For example, if an individual can prove that coverage is unaffordable — or if they are without health insurance for less than three straight months — then they do not have to make a shared responsibility payment. Additionally, those who are opposed to healthcare for religious reasons are exempt from the ACA. And depending on income, some self-employed individuals may also qualify for premium tax credits and cost-sharing reductions.
Where can ICs purchase insurance? Health Insurance Marketplaces will become available on October 1st, 2013. Individuals will be able to choose from a core package of “essential health benefits” and choose the plan to suit their preferences.
Employers: Will You Pay or Play?
Beginning in 2014, employers must offer a sponsored health plan — but only if they maintain 50 or more full-time employees. Businesses can exclude up to 5% of full-time employees from these health benefits without paying a fine. This is called the “Pay or Play Mandate.”
The Pay or Play Mandate means that employers can pay a penalty tax instead of providing a sponsored health plan. An employer must “pay” if they 1) fail to offer all full-time employees and dependents the option to enroll in “minimum essential coverage,” or 2) have one or more full-time employees enrolled in a qualified health plan that has an allowed or paid tax credit or cost-sharing reduction. The penalty is $2,000 times all full-time workers per year.
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Some companies are considering using more contingent workers or hiring more part-time workers to avoid healthcare costs. This method is difficult to carry out correctly: employers who misclassify employees as independent contractors may be subject to an additional penalty regime. And, if they decide to employ more part-time workers to avoid paying health costs, they must be very careful to keep track of worker hours. Under the new laws, a full-time employee works 30 or more hours a week for an employer.
For more information about the Affordable Care Act, including information on health insurance marketplaces, healthcare basics, and the full law verbiage, see the Healthcare.gov website.
For a confidential assessment of how ACA may affect you as an E&P Operator, Independent or VC backed start-up utilizing contract staffing and/or Independent Contractors, please contact Chris at firstname.lastname@example.org