How the ACA and FLSA Will Impact Your Company
For everyone who works in human resources, 2016 has been another year of change, thanks to increased requirements under the Affordable Care Act (ACA) and new rules under the Fair Labor Standards Act. At a recent PSA Partnership Seminar, held at PSA headquarters in Hunt Valley, Maryland, two experts shared their insights to help HR professionals review these changes and navigate their continued impact.
Tina Bull, VP of Compliance Services at PSA, kicked off the event with a detailed presentation on ACA updates. Laura Rubenstein, Chair of the Labor and Employment Practice Group at Offit Kurman Attorneys at Law, followed with a discussion about new overtime rules under the FLSA.
ACA: Requirements to Increase
Higher Standards for the Employer Mandate and End of ACA Transition Relief
This mandate now applies to employers who had 50 or more full-time equivalent employees in the prior calendar year. The employer must offer minimum essential coverage to at least 95 percent of full-time employees or pay a penalty. If they do not, and if even one full-time employee obtains a premium tax credit for Marketplace coverage, the employer will face a penalty of $2,160 per year multiplied by the number of full-time employees. Employers sacked with this penalty will be allowed to subtract 30 from the total number of full-time employees before tallying the fine.
In 2016, if the minimum essential coverage offered by the employer does not provide minimum value or is not affordable based on ACA standards, the penalty will equate to $3,240 per year for each full-time employee who obtains a premium tax credit. This also applies if any full-time employee who is not offered coverage obtains a premium tax credit.
Starting on the first day of the health care plan year — whenever that falls within the 2016 calendar year — several facets of transition relief go away. That means mid-sized companies (50-99 full time employees) must satisfy the mandate; plan offerings must meet the 95 percent requirement (as opposed to the prior and more lenient 70 percent); and penalty calculations can shave off just 30 employees rather than 80.
Affordability Safe Harbors
“Affordability,” summarized nicely in the bottom half of this infographic from the Kaiser Family Foundation, continues to be a key calculation for employers in 2016 and 2017. Employers looking to make certain they satisfy the affordability requirement (and in lieu of reliable information about each employee’s household income) may deploy a number of “safe harbors,” which include W-2, rate of pay, and federal poverty line. For more detail on these, and for tips for how to get ready for ACA reporting this year, please download our full ACA Roundup presentation.
The Health Care Marketplaces are now sending official notices to employers when an employee has been determined eligible for a premium tax credit. Employers have 90 days to appeal the determination. If the appeal is successful, the Marketplace will ask the employee to update their application to indicate that they were offered affordable minimum value coverage. It’s important to note that the appeal and its outcome will not determine if the employer is subject to an employer mandate penalty. While the Marketplace determines an individual’s initial eligibility for a premium tax credit, only the IRS can assess the penalty.
Drafts of 2016 Form 1095-C and Form 1094-C, as well as instructions for both, have been released, with no major changes over last year’s form. So far, it does not look like reporting deadlines will be extended wholesale, though you can still follow the process to request extensions. Deadlines are as follows:
- Provide Form 1095-C to individuals by January 31, 2017.
- File Form 1094-C and Forms 1095-C with IRS by February 28, 2017 (on paper) or March 31, 2017 (electronically).
It is important to remember that reporting is required even if an employer subject to mandate does not offer minimum essential coverage, and Form 1095-C must be provided to any employee who met the ACA definition of full-time for any month of the calendar year.
Cadillac Tax Delayed
No one on either side of the aisle in Washington, D.C., likes this provision of the ACA, which implements a 40 percent tax on high-cost employer-sponsored health plans. Its enactment has now been delayed until at least 2020.
FLSA: White Collar Overtime Changes
Enacted in 1938 — and, at that time, setting the federal minimum wage at 25 cents an hour — the Fair Labor Standards Act governs minimum wage, overtime pay, recordkeeping, and youth employment standards. Under the FLSA, nonexempt (hourly) employees must be paid time and a half for any hours worked over 40 in a given workweek. (Employers that attempt to calculate overtime pay based on a two-week pay period, rather than based on each individual week, run afoul of the law.)
Exempt (salaried) employees are not required to be paid overtime under FLSA. Exempt classifications include administrative, executive, professional, computer professional, outside sales, and highly compensated employees.
The “White Collar” Change
The current minimum salary for an exempt employee, set in 2004, is $23,660. Under the change that was scheduled to go into effect Dec. 1, 2016, that number would have increased to $47,476.
However, unexpectedly, a little more than a week before the law would have gone into effect, a Texas federal judge blocked the rule by issuing a nationwide injunction. While the Labor Department can appeal the decision, the future of the rule depends on the incoming administration. The new administration may remove the hold and allow the legislation to move forward as written, adjust the rule, or block it altogether.
While the future of the legislation may be uncertain for now, if the law does go into effect, it promises to have wide-reaching effects on organizations across the country.
If no amendments are added to the rule, employees making less than $47,476 would either be bumped to the new salary or paid overtime for time worked over 40 hours per week.
A few other points to consider:
- The new minimum salary for highly compensated employees would increase to $134,004.
- Up to 10 percent of the new salary level can come from nondiscretionary bonuses and commissions.
- There would be automatic updates to salary and compensation levels every three years.
Plan Ahead Now
In response to the new rules, many employers will seek to reclassify employees from exempt to nonexempt (i.e., salaried to hourly). If your organization is headed in this direction, be sure to communicate clearly with employees about what they can expect in the transition. To start:
- Identify salaried employees making less than the new threshold.
- Audit job descriptions and hours worked; consider tracking everyone’s working hours.
- Audit the financial impact of alternate pay methods (i.e., paying overtime vs. increasing salaries).
- Prepare a communication plan to address possible impact on employee morale.
It’s important to note that the FLSA is enforced two ways: through Department of Labor audits and investigations, which can be followed by federal lawsuits; and through private actions by individuals, an area of litigation that has been growing in recent years. To learn more about FLSA compliance, download our full FLSA Roundup.