How Does Health Insurance for Part-Time Employees Work?

Thursday, August 11, 2022 13:03 Posted by Admin

You’ve already identified group health insurance as a good benefit to offer to your employees. With a group insurance policy, your workers don’t have to worry about paying their health premiums or dealing with prohibitive entry criteria. Instead, they’re automatically enrolled into the policy based on their employment. Employees get access to healthcare and benefit from having the insurance issue handled for them so they have less on their minds when working.

At least, that’s the case for your full-time employees.

But what about health insurance for workers in part-time roles? How does that work?

These are common questions because many employers don’t know whether they need to offer part-time health insurance or if insurance for part-time workers is covered in their existing policies.

Here, we dig into the issue of health insurance for part-time workers so you understand how it works and what you can offer. We’ll also look at whether you should build health insurance into the benefits package you offer to part-time employees.

Can Employers Offer Health Insurance for Part-Time Employees?

Let’s get the big question out of the way first.

Yes, employers can offer health insurance for part-time employees. However, eligibility is determined by several federal and state laws. So, perhaps the more important question to ask is “are part-time employees eligible for health insurance?”

To answer that, we need to know what a part-time employee is and the eligibility criteria they must meet.

What Is a Part-Time Employee?

Part-time and full-time employment legally differ solely on hours worked. According to the Bureau of Labor Statistics, a part-time employee is anybody who works between 1 and 34 hours per week. The exact number of hours can vary, which creates complications for health insurance as we’ll see when exploring eligibility criteria.

Beyond the difference in the number of hours worked, there is little to separate full-time and part-time workers. You can have part-time salaried workers just as you have full-time salaried workers. Or, you can choose to pay hourly. It’s up to the employer to determine the difference between part and full-time roles, such as the responsibilities each type of employee takes on and the amount of work they do.

Eligibility Criteria for Health Insurance for Part-Time Employees

The number of hours a part-time employee works is important because it determines whether they’re eligible for your company’s group health insurance. Under the Affordable Care Act, part-time employees are eligible for health insurance if they work at least 30 hours per week, but also at least 130 hours per month. If an employee doesn’t meet this criterion, the employer may have to pay a penalty if they enroll them into a group insurance plan.

The waters are muddied a little further because many states have rules beyond those applied on a federal level via Obamacare. Part-time employees may be eligible for healthcare insurance even if they work fewer hours under state laws. The same applies to other benefits you may offer, such as paid sick leave and short-term disability insurance.

There’s another issue to consider here.

Many providers that offer group health insurance have limits on the number of hours an employee must work before they can participate. It’s fairly common for these plans to only accept employees who work at least 20 hours per week. Even if you want to provide insurance to those who work fewer hours, the plan itself may prevent you from doing so. Speak to your provider to discover if such limitations exist.

Do You Have to Offer Group Health Insurance for Part-Time Workers?

There is no specific law stating that your company has to offer a group health insurance policy to its workers. This applies whether you have full-time, part-time, or a mix of both types of employees. However, the Affordable Care Act (ACA) imposes penalties on larger companies that don’t offer health insurance. While this doesn’t mean you have to offer insurance, it means your company may have to pay fines for the privilege of not offering it.

How does that work?

Under the ACA, any company with at least 50 full-time employees, or enough part-time employees to work the equivalent hours of 50 full-time employees, should offer health insurance. That insurance needs to cover at least 95% of the employees to ensure the company isn’t penalized. Failure to comply with these requirements means you have to pay a hefty annual penalty of $2,750 per employee, not including the first 30 employees in the organization.

You may also be subject to a penalty if the employer-sponsored coverage you offer doesn’t provide minimum value or is unaffordable. A plan is considered unaffordable if an employee has to pay over 9.61% of their annual household income for the policy. It doesn’t meet the minimum value if the policy fails to cover basic healthcare needs. In these cases, a maximum monthly penalty of approximately $343 per employee is applied, though this may be reduced if the penalty is greater than the penalty you’d pay if the employee received no health insurance coverage.

There are two important points to note here.

The first is that the penalties only apply in relation to full-time employees. Second, the penalties usually change each year, meaning you may pay more in 2023 than you would in 2022.

So, companies of a certain size that don’t offer group health insurance pay penalties. Whether they choose to absorb those penalties or not may depend on whether the cost of health insurance exceeds the cost of the penalties.

The Key Rules for Offering Health Insurance for Part-Time Employees

Let’s say you want to offer health insurance for part-time workers. What should you do to ensure you comply with ACA requirements while providing an appropriate benefits package to your part-timers? Following these simple rules helps.

Rule No. 1 – Speak to Your Insurance Carrier

If you already have an insurance provider, ask them if the policy you have allows you to add part-time workers. Some companies allow it while others don’t. And those that do may have criteria based on the number of hours the employee works.

If you’re looking for a health insurance plan, tell your broker about your desire to add part-time workers to it. They’ll limit their search to policies that fall within ACA guidelines and provide information about any barriers that could prevent you from getting a policy.

Rule No. 2 – Ensure ACA Compliance

We’ve already discussed the ACA’s rules in terms of your company’s obligation to offer health insurance based on its size and the penalties it may face. It’s also important to note that the ACA specifies that anybody who works 30 hours or more per week is considered a full-time employee.

Beyond these rules, the ACA also states that you must offer the same health insurance benefits to all employees working the same hours in the same type of role. That means you can’t choose to offer more benefits to certain employees and fewer benefits to others. The policy has to be equal and fair.

If you choose to offer health insurance for part-time employees, you must draft a written policy stating that fact. The policy should discuss what the healthcare plan entails, who it’s available to, and how many hours an employee needs to work per week to be eligible.

Rule No. 3 – Make the Policy Clear and Available

It’s not enough to draft a written policy. You should also ensure that all employees have access to that policy. The best way to do this is to insert the policy into your employee handbook. These books are handed out to everybody who works for your company, ensuring everybody has a physical copy of the policy.

You may supplement this by making the policy available on a company intranet or via another form of digital storage that all employees can access. The good news here is that you can easily determine what this written policy contains as long as you work within the criteria imposed by the ACA and your insurance carrier.

Rule No. 4 – Meet Minimum Participation Requirements

Assuming your company has over 50 employees, the participation requirements are clear. You have to offer healthcare coverage to at least 95% of your full-time workforce. Part-time employees can be covered by your business health insurance. However, they don’t count toward this eligibility requirement.

Things change if you have fewer than 50 employees. In these cases, you’ll have to meet the minimum participation requirements created by your provider. These vary depending on the carrier, though many ask you to enroll at least 70% of your workforce before providing a group policy. Thankfully, your part-time workers are counted towards this enrollment percentage. These requirements apply regardless of your industry. Whether you’re offering health insurance for healthcare workers, office employees, a construction crew, or anything else, you have to meet the minimum participation requirements.

The Pros and Cons of Providing Health Insurance for Part-Time Employees

Now that you know that you can offer insurance for part-time workers, your next question is likely, should you? Providing health insurance comes at a cost to your business. But there are several advantages to being an employer that offers health insurance.

The Pros

Your Business Attracts More Talent

Offering health insurance as part of your benefits package makes your company far more attractive to potential employees. If an employer doesn’t offer health insurance, employees have to take out personal policies that often cost more and have more stringent application requirements.

Premiums Are Tax Deductible

Any money your company contributes to employee health insurance premiums is tax deductible. While you’ll incur expenses upfront to keep the policy running, most of those expenses can be claimed back at the end of the financial year. As such, having group health insurance can be part of a tax-effective strategy.

The Small Business Healthcare Tax Credit

Companies with 25 or fewer full-time employees may be able to access the Small Business Healthcare Tax Credit (SBHTC). This credit covers up to 50% of your group health insurance premiums for two years. You may be eligible for this tax credit if your full-time employees earn an average of $50,000 per year.

Tax Benefits for Employees

Assuming your part-time employees are willing to do a little paperwork, they can permit you to pay their portion of their premiums from their pre-tax earnings. While this creates an administrative burden on your company, it’s great for employees because this means their health insurance could reduce their total income taxes.

The Cons

Health Insurance Costs Money

There’s no getting away from the fact that paying for or contributing toward health insurance for part-time employees costs your business money. If you choose to ask part-timers to get their health insurance not through work, you could save thousands of dollars per year in premium payments.

The Administrative Work

Your company has to keep track of regulatory issues and changing prices if it offers health insurance to part-timers. Premiums may rise annually and you may have to adapt your policy to ensure it offers appropriate coverage. If you run a smaller business that won’t suffer an ACA penalty for not offering insurance, creating a health insurance policy might sound like a needless headache.

Tax Benefit Complications

Part-time employees who receive health insurance from their workplace may enjoy tax benefits related to that insurance. While this is a good thing in principle, it may prevent the part-timer from accessing other tax benefits or savings they’d be entitled to if they sought individual health insurance in the marketplace.

The Part-Time Insurance Conundrum

While it’s possible to offer health insurance to your part-time employees, you face some interesting questions about whether your business should do it or not. Insurance policies cost money and create administrative work. Plus, there are a lot of regulations you have to stay on top of if you choose to offer health insurance.

Still, offering insurance for part-time workers allows you to attract better talent to your company. Your company can also deduct any money it contributes to health insurance premiums from its business taxes. And never underestimate the positive effect that having health insurance has on employee motivation and morale. Part-time workers who know their healthcare needs are taken care of can focus more intently on their work.

You have a choice to make about whether to offer health insurance for part-time employees.

Trust Taylor Benefits Insurance Agency to help you make that choice. Our brokers and benefit package specialists have over 25 years of experience in helping business owners like you make these difficult decisions. If you’d like to discover what types of healthcare policies are available to your business, call us at 800-903-6066 or contact our team online to receive a free proposal.