The 2010 Patient Protection and Affordable Care Act (ACA) significantly impacts national healthcare reform. The major effect for school bus contractors is the requirement to offer health insurance to their full-time employees (FTE) and dependents in 2014, and the financial consequences of failing to comply. The critical issue is determining what an FTE is.
Recently, the Internal Revenue Service (IRS) and the departments of Labor and Health and Human Services issued separate guidance to employers showing when part-time or seasonal employees (e.g., bus drivers and monitors) must be treated as full time.
If a “large employer” does not offer affordable minimum healthcare insurance on Jan. 1, 2014, to its FTEs, significant non-deductible tax penalties will be imposed. A large employer is defined as employing 50 full-time workers (defined as working an average of at least 30 hours per week) or full-time equivalents (part-time employees are converted into FTE by dividing the total monthly hours worked by 120) during the year. The rules cover “related businesses,” meaning that if an owner controls several entities, they are combined for purposes of determining the large employer classification. As an example, a common owner of a bus contracting company and a related leasing business are combined for the purposes of defining a large employer.
Even if you offer health insurance, penalties could arise if the coverage is considered unaffordable or doesn’t meet minimum value or coverage and, as a consequence of such flaws, your FTEs are approved to receive a subsidy via the state exchange. Coverage is considered unaffordable if the amount paid by an employee exceeds 9.5% of his or her annual household income (IRS guidelines allow employees’ W-2 as an acceptable substitute for household income). Bus drivers have relatively low earnings, thus the 9.5% rule could trigger penalties considering the high cost of health insurance. Guidance on minimum value plans is pending. The good news is that having fewer than 50 FTEs results in no penalties, nor having to provide health coverage.