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health-insuranceMany small business owners are not sure whether they should provide health insurance to their employees or not. It is not necessary for small businesses that have a workforce less than 50 full-time or 50-full time equivalent employees to offer health coverage to its employees. As per Affordable Care Act, it’s a mandate for small and mid-sized enterprises with 50 plus full time equivalent employees to offer affordable health coverage or face the heat of tax penalty.

This Act is referred to as the employer mandate, play or pay. As a small business entrepreneur, you should know whether you are defined as a large employer by the Internal Revenue System(IRS). This is important because if you don’t provide the necessary health coverage to your employees your business will be slapped with employer tax penalties by the tax authorities.

How Is An Applicable Large Employer Defined

For many mid-sized business, it’s a simple calculation. While there are many small businesses that employ part-time or seasonal employees. In such cases the calculations will be a bit difficult.

In general, if you had employed an average of 50 or more full-time equivalent (FTE) personnel during the previous calendar year, you will be taken as an applicable large employee for the current financial year.

These are important pointers to keep in mind.

  • Firstly, an enterprise is defined as an applicable large employer on a calendar-year basis. For instance, you could be an applicable large employer in 2016, but not necessarily in 2015.
  • An enterprise does not fall into an applicable large employer if
    • It had employed less than 50 full time staff on average in the previous calendar year.
    • The business employer more than 50 full time staff for less than 120 days during the previous calendar year. Here the employees would be seasonal workforce.

How To Determine Whether Your Business Falls Into Applicable Large Employer Category
To find out whether you need to provide health cover, you need to calculate the number of full time employees plus the full-time equivalent of the part time or seasonal employees.

  • A full time employee is someone who works for at least 30 hours in a week in a given month.
  • Full time equivalent of part time/seasonal employees are calculated by adding the number of hours they have worked in a given month and then dividing the total hours by 120.
  • Total sum of the full time staff and the full time equivalent of part time/seasonal employees is the number used to determine whether your business is an applicable large employer. If the total sum is 50 or over, then you fall into the category of applicable large employer.

This calculation will help you to determine whether you have to offer health insurance to your employees or not. For more information on the same you should regularly update yourself with health care law and business. Remember, clear understanding of Affordable Care Act will save you from paying unnecessary penalty to the Internal Revenue System.

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