The document discusses the Employer Shared Responsibility provision under the Affordable Care Act that requires applicable employers to either offer affordable health insurance to employees or pay a penalty. It applies to employers with 50 or more full-time equivalent employees as of 2016, or 100 or more in 2015. Employers must offer coverage to 70% of employees in 2015 or 95% in 2016. If an employer does not comply and an employee receives a premium tax credit, the employer must pay $2,084-$3,126 per full-time employee beyond the thresholds. The penalties are meant to incentivize employers to provide coverage and lower insurance costs.

1. “Employer Shared Responsibility”
under the Affordable Care Act:
WHAT IT MEANS FOR YOUR
SMALL BUSINESS CLIENTS

2. The U.S. Small Business Administration reports that prior to the Affordable Care Act (the “Act”), small
businesses paid on average 18% more in health insurance premiums than their larger competitors for the
same benefits. In addition, small businesses sometimes faced unpredictable rate increases; higher rates for
certain groups, such as women or aging employees; and waiting periods or denied coverage for individuals
with pre-existing conditions.
The Act has attempted to level the playing field for health insurance by lowering premiums and increasing
access to quality, affordable health insurance for small business employees. Insurance companies are now
restricted from charging higher rates or denying coverage on the basis of gender or pre-existing conditions
(with the exception of tobacco users, to whom insurance companies are permitted to charge higher
premiums). There is also increased transparency with respect to rates: insurance companies must disclose
and justify proposed rate hikes of 10% or more.
Many of the reforms that have taken effect under the Act have decreased or eliminated the obstacles to a
small business’s ability to offer health care coverage to its employees. The benefits of the Act come with
responsibilities for small business owners, including the Employer Shared Responsibility payment. What
follows is a brief overview of the Employer Shared Responsibility payment, intended to help attorneys for small
businesses counsel clients to avoid such liability.
What is Employer Shared Responsibility?
Simply put, Employer Shared Responsibility is a penalty payment required of any small business that (1) meets
the applicable size threshold, (2) fails to comply with the Act, and (3) has at least one full-time employee that
receives a premium tax credit in the health insurance Marketplace (also known as the “Exchange”).
Size Thresholds
Employer Shared Responsibility, which takes full effect in 2016, will apply to any business with 50 or more
“full-time” employees. In this context, a “full-time” employee is one that works 30 or more hours per week on
average. Full-time equivalent (“FTE”) employees are also included in the employee count. For example, 10
employees working 15 hours per week on average are equal to 5 FTE employees.
In 2015, “transitional relief” is available, such that Employer Shared Responsibility only applies to businesses
with 100 or more full-time (or FTE) employees. In other words, for 2015, employers with 50 to 99 full-time (or
FTE) employees are exempt from Employer Shared Responsibility provisions, but must be compliant with the
Act by 2016. In order to take advantage of the size threshold transitional relief for 2015, an employer with
50 to 99 full-time (or FTE) employees must certify that it did not reduce the number of its employees or its
employees’ hours in order to qualify for transitional relief, and that it did not eliminate or materially reduce any
health coverage previously offered to its employees.
“EMPLOYER SHARED RESPONSIBILITY” UNDER THE AFFORDABLE CARE ACT WEALTHCOUNSEL PAPER | 1
“Employer Shared Responsibility” under the Affordable
Care Act: WHAT IT MEANS FOR YOUR SMALL BUSINESS CLIENTS
by Jennifer Villier, J.D.
Business Law Faculty

3. “EMPLOYER SHARED RESPONSIBILITY” UNDER THE AFFORDABLE CARE ACT WEALTHCOUNSEL PAPER | 2
According to the U.S. Treasury Department, 96% of firms in the U.S. fall below the 50 or more full-time (or
FTE) employee threshold. Therefore, only 4% of employers nationwide are subject to the Employer Shared
Responsibility provisions of the Act. In determining whether a small business meets the size threshold, it is
important to note that IRS control group rules apply. If companies have a common owner or are otherwise
related, they will be combined for purposes of the Employer Shared Responsibility size threshold. If a company
individually (or related companies collectively) meets the size threshold, then each is individually potentially subject
to Employer Shared Responsibility, depending on whether the company (a) failed to comply with the Act, and (b)
had at least one full-time employee that received the premium tax credit in the health insurance Marketplace.
Failure to Comply with the Act
Once it has been determined that a company meets the applicable size threshold, there are two ways in which the
company could fail to comply with the Act:
(1) The company does not offer health insurance coverage to at least 70% (in 2015) or 95% (in 2016) of its full-
time (or FTE) employees and their dependent children; or
(2) The coverage the company offers does not provide a “minimum value” or is not affordable.
For purposes of the first part of this test, dependent children are those under the age of 26. Employers are not
required to offer coverage to employees’ spouses. For purposes of the second part of this test, coverage provides
“minimum value” if the insurance pays for at least 60% of the employee’s covered health care expenses. The
plan’s affordability is based on an employee’s household income. Coverage is considered to be unaffordable if an
employee’s share of the cost is more than 9.5% of the employee’s household income. Since employers often do
not know their employees’ household incomes, affordability can also assessed by applying certain safe harbors. If
the employee’s cost of the plan is no more than 9.5% of (a) the employee’s wages, (b) the employee’s rate of pay at
the start of the coverage period, or (c) the federal poverty level for a single individual, then the plan is considered
to be affordable.
Employee Receives Premium Tax Credit
Any company that meets the size threshold and fails to comply with the Act is potentially subject to Employer
Shared Responsibility liability. For these companies, the penalty payment is triggered if at least one full-time (or
FTE) employee (1) obtains coverage in the Marketplace, and (2) receives the premium tax credit. The premium tax
credit is a refundable tax credit, available upfront (when the health insurance premium is due) that is designed to
help eligible individuals and families with low or moderate income afford health insurance purchased through the
health insurance Marketplace.
Amount of Employer Shared Responsibility Payment
Once an employee receives the premium tax credit, triggering the Employer Shared Responsibility payment, the
amount of the payment depends on which of two reasons the employer failed to comply with the Act.
(1) If the employer did not offer health insurance coverage to at least 70% (in 2015) or 95% (in 2016) of its full-
time (or FTE) employees and their dependent children, then the annual payment is equal to $2,084 multiplied
by the number of full-time (or FTE) employees in excess of 80 (in 2015) or 30 (in 2016). The annual payment is
divided into monthly payments for each month the employer fails to offer coverage.

4. (2) If the employer offered coverage but the coverage did not provide a “minimum value” or was not affordable,
then the annual payment is equal to $3,126 multiplied by the number of full-time (or FTE) employees that
received a premium tax credit. The annual payment is divided into 12 monthly payments, and it cannot exceed
the monthly payment amount determined under (1) above.
For example, assume an employer with 100 full-time (or FTE) employees failed to comply with the Act as
described in (1) above. This employer’s 2015 annual payment will be equal to $2,084 multiplied by 20, or
$41,680. On a monthly basis, this employer would pay $3,473 for each month that it failed to offer coverage.
If this employer instead failed to comply with the Act as described in (2) above, and had 15 full-time (or FTE)
employees receive the premium tax credit, then the employer’s annual payment would be equal to $3,126
multiplied by 15, or $46,890. On a monthly basis, this amounts to $3,908. Since $3,908 exceeds the $3,473/
month payment calculated under scenario (1), the employer’s payment is limited to the lower amount calculated
under scenario (1). The Employer Shared Responsibility payment is not tax deductible.
Counseling Small Business Clients
Attorneys for small businesses should be certain that clients are aware of the potential for Employer Shared
Responsibility payments, as well as new IRS reporting requirements for any business subject to Employer
Shared Responsibility. The fees employers could face for failing to comply with the Act are potentially significant.
Specifically, attorneys are advised to: (1) help clients ascertain whether they meet the applicable size threshold,
and (2) ensure that clients meeting the size threshold understand the two-prong test for compliance with the
Act. A FTE employee calculator can be found at https://www.healthcare.gov/shop-calculators-fte/ and additional
information on this topic can be found at http://www.SBA.gov/healthcare and http://www.irs.gov/Affordable-Care-
Act.
For more information: information@wealthcounsel.com or call us: (888) 659-4069 #819
“EMPLOYER SHARED RESPONSIBILITY” UNDER THE AFFORDABLE CARE ACT WEALTHCOUNSEL PAPER | 3