I employ 30 people at my restaurant but I’m part of a larger company that owns multiple restaurants. How are we affected by the Affordable Care Act?
If your business is part of what’s called a “control group,” you may be covered by the ACA’s employer mandate even though you may employ fewer than 50 FTE employees.
A control group is two or more businesses with the same Federal Employer Identification Number (FEIN, also known as a corporate tax i.d.) A control group is at least 80-percent owned by the same parent corporation or by a group of five or fewer individuals, estates and/or trusts. And, if the group of five or fewer individuals is related, additional IRS rules apply.
Under the ACA, a control group is treated as one company – and if the company has more than 50 FTE employees, all businesses in the control group must offer “minimum essential coverage” health insurance or potentially face an employer mandate penalty.
For example, if you run six separate restaurant concepts each employing fewer than 50 FTE employees, but you are the 80-percent (minimum) owner of them all, the businesses constitute a control group comprised of the total number of employees. In situations that need to identify whether an operation represents a control group or not, the IRS will apply its longstanding common control group standard, which can be found at Internal Revenue Code § 414(b), (c), (m) and (o). Your tax attorney can help you navigate the code and assess if this standard applies to your situation.
Which of my employees should be offered health insurance?
If you qualify as a large employer under the Affordable Care Act and wish to avoid the employer mandate penalties, you need to offer health insurance to salaried employees and any employee who works more than 130 hours in a calendar month. For hourly employees who work variable schedules (some months more, and some months less than 130 hours), there are multiple calculation methods under the ACA to determine if they are eligible.
If you are not considered a large employer under the ACA and choose to offer employer health insurance, then you need to offer coverage to anyone on salary and those working more than the minimum hours required by your state. State requirements typically range from 30 to 40 hours per week.
Are there rules about when I can implement a health insurance plan?
An operating business can offer a health insurance program to its employees at any time during the year. There is no legally mandated period when an employer health insurance program can begin.
If you are opening a new restaurant, the insurance usually becomes effective 30 days after the business opens, but it depends on the requirements of the insurance company. The typical 30-day period is to ensure the restaurant is not a “shell” company.
Do I have to get a minimum number of my employees to sign up for coverage?
Insurers will require that a certain percentage of your eligible employees participate in the health insurance plan you offer. The minimum participation rate can vary from 50 percent to 75 percent of eligible employees, meaning half to three quarters of employees who are offered the benefit need to sign up for it.
If employees have a valid waiver, however, they are not counted in the pool of eligible employees. Valid waivers include being covered under a spouse’s plan, under a parents’ plan for those under the age of 26, and through Medicare, to name a few.
Unfortunately, restaurants often have a hard time meeting an insurance company’s minimum participation requirement. Hourly employees, especially those who are working the minimum number of hours to be eligible, often decline to participate.
What is a carve-out? Should I consider it?
When restaurateurs face challenges getting enough employees to participate in their health insurance benefit (enough to meet the minimum participation rate set by the insurance company), they often use a so-called “carve-out” to offer the benefit to a smaller subgroup of employees. For example, if an employer offers health insurance to salaried employees, rather than salaried and hourly, they are more likely to be able to meet the participation-rate requirements. Carve-outs also work when an employer wants to offer different insurance benefits to different grades of employees. Common examples of carve-outs are “management only,” “salary only,” and “union only.”
The insurance company has the right to decide whether it allows carve-outs and it may also put limitations on which kinds of carve-outs it accepts.
Restaurants considering a carve-out should work closely with an insurance broker to ensure they’re following all the employment laws associated with a valid carve-out.
I’m considered a large employer under the ACA. Do I have to offer my seasonal employees health insurance? Which employees are considered seasonal?
The ACA offers some flexibility, to ensure large employers won’t face penalties if they fail to offer health benefits to full-time seasonal employees. A seasonal employee, according to the IRS, is a person hired into a position for which (1) customary annual employment is six months or less and (2) the period of employment begins each calendar year in about the same part of the year, such as summer or winter.
How is a “deductible” different than an “out-of-pocket maximum”?
A deductible is the amount an individual or family must pay before the insurance company begins to pay any coinsurance. For example, in a plan with a $3,000 individual deductible and 80/20 coinsurance, the individual pays the first $3,000 in claims, after which the insurance company starts paying 80 percent of any future claims made in that year. The out-of-pocket maximum is the maximum amount the individual must pay for all health costs combined in that year, including the deductible, copays, the remaining 20 percent of the coinsurance, and similar charges.