Posted by: Scott G. Sipple, CPA | February 10, 2014

Is Your Nonprofit Subject to the Employer Shared Responsibility Provisions of the New Health Care Act?

Posted by Scott G. Sipple, CPA

Employer Shared Responsbility When last we saw the Winter Olympics take place in Vancouver, Canada, Congress was putting the finishing touches on the 2,049 pages of legislation known as the Patient Protection and Affordable Care Act (PPACA) which President Barack Obama signed into law on March 23, 2010. Nearly 4 years later and 5,962 air miles away, Sochi, Russia is hosting the XXII Winter Olympic Games while the United States of America begins to enforce the provisions of PPACA on its constituents.

Even though the U.S. Supreme Court rendered a final decision to uphold the PPACA on June 28, 2012, plans were set in motion to change existing federal laws to comply with every intricate detail. Under PPACA, all nonprofit organizations (NPOs) are considered employers; to date, there are no exceptions. NPOs must evaluate whether they employ more than 50 full-time equivalent (FTE) employees; if so, they are subject to the Employer Shared Responsibility provisions and are required to offer health care coverage to full-time employees (and their eligible dependents).

Individuals with no previous health insurance coverage are mandated to enroll in the public or private exchanges by March 31, 2014. Those individuals are looking for guidance from their NPO employers as to whether health insurance coverage will be provided to the employees before going to the designated marketplaces.

Internal Revenue Bulletin 2012-41 provides guidance for employers to calculate the number of FTEs for its tax year. The basic criteria are as follows:

  • An employee who works more than 30 hours per week meets the statutory definition of full-time employee (at least 1,560 hours per year). Each full-time employee is recorded at 1.00 FTE.
  • An employee who works less than 30 hours per week is classified as either:
    • A variable hour employee (VHE): The NPO cannot determine that the employee is reasonably expected to work on average at least 30 hours per week. To determine the FTE fraction, per current guidance, take the total number of hours worked by the VHE for each month and divide by 120 separately; then, take the sum of the fractions and divide by the total months worked in the tax year (up to 12) to produce a weighted average for each VHE; finally, total all of the weighted averages for each VHE to produce total FTEs and add to the full-time employee FTEs (rounded down to nearest whole number).
    • A seasonal employee: A worker performs labor or services on a seasonal basis, as defined by the Secretary of Labor, including (but not limited to) workers covered by 29 CFR 500.20(s)(1)  and retail workers employed exclusively during holiday seasons. Normally, seasonal employees are omitted from the calculation; however, by statute, seasonal employees are not permitted to work more than 4 calendar months in a tax year; otherwise they would be considered VHEs and are subject to the calculation.

Unlike for-profit businesses, NPOs have the ability to solicit and utilize volunteers to carry out their missions. If NPOs, other than public agencies, provide benefits to their volunteers, such as stipends, pensions, housing or other tangible services, those volunteers will be deemed employees and will have to be evaluated for inclusion in the FTE calculation.

Even though the reporting provisions in PPACA for employers (Sections 6055 and 6056) take effect on January 1, 2015, and the first reports are due to the Internal Revenue Service in early 2016, NPOs should react to the changing environment by updating its internal control structure and documenting its position to mitigate the risk of noncompliance.

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For additional information, BLS dedicates an entire section of its website, ACA Resource Center, for guidance regarding the PPACA. BLS also established an internal committee to interpret and discuss PPACA issues internally and externally. As always, please direct all questions and comments to your practitioner for clarification as it relates to your specific situation.

Photo by Walt Jabsco (License)

Responses

This is a very informational post. Dealing with this stuff for NPO’s can be pretty complicated, but this post helps to simplify the information for them.

Thank you for your kind words Phil. ~Scott Sipple, CPA

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