ESRP Penalty: What Are Employer Responsibilities

At Taylor Benefits Insurance, we aim to provide employers with clear and comprehensive information about the Employer Shared Responsibility Provisions (ESRP) under the Affordable Care Act (ACA). These provisions are designed to ensure that applicable large employers (ALEs) meet their health coverage obligations. Below, we break down the ESRP requirements, penalties, and calculations to help employers navigate compliance effectively.

What Is the ESRP?

The Employer Shared Responsibility Provisions, often referred to as the “pay or play” mandate, apply to employers classified as Applicable Large Employers (ALEs). Under this mandate, ALEs must either:

1. Offer minimum essential coverage (MEC) that is affordable and provides minimum value to their full-time employees and dependents.
2. Potentially owe an employer shared responsibility payment to the IRS.

Employers falling below the ALE threshold are not subject to these provisions.

Key ESRP Definitions

• Applicable Large Employer (ALE): An employer with an average of at least 50 full-time employees (including full-time equivalents) during the preceding calendar year.
• Minimum Essential Coverage (MEC): Health insurance coverage that meets specific ACA standards.
• Minimum Value: A plan that covers at least 60% of the total allowed cost of benefits.
• Affordable Coverage: A plan is considered affordable if an employee’s share of the premium for the lowest-cost, self-only coverage does not exceed a set percentage of their household income.

Determining ALE Status

ALE status is determined based on workforce size during the preceding calendar year. For example, to determine ALE status for 2024, an employer reviews their workforce size in 2023. Tax-exempt organizations, government entities, and businesses with aggregated group structures (multiple ALE members) may also qualify as ALEs.

Reporting Obligations for ALEs

ALEs must fulfill specific reporting responsibilities, including:

• Submitting reports to employees and the IRS regarding health coverage.
• Providing information about minimum essential coverage, even if the employer is self-insured.

When Do ESRP Penalties Apply?

An ALE may incur penalties under the following circumstances:

First Type of Penalty: Failure to Offer MEC to 95% of Full-Time Employees

If an ALE does not offer MEC to at least 95% of its full-time employees (and their dependents), and at least one full-time employee receives a premium tax credit through the Health Insurance Marketplace, the ALE may owe a penalty. The annual penalty is calculated as follows:

• $2,000 (adjusted for inflation) per full-time employee minus the first 30 full-time employees.

Second Type of Penalty: Offering Non-Affordable or Insufficient Coverage

Even if MEC is offered to 95% of full-time employees, an ALE may face penalties if:

1. The coverage is not affordable.
2. The coverage does not meet the minimum value.
3. At least one full-time employee qualifies for a premium tax credit.

The annual penalty for this scenario is:

• $3,000 (adjusted for inflation) per affected employee who receives a premium tax credit.

How Are ESRP Penalties Calculated?

Penalties are calculated monthly and are subject to inflation adjustments. For instance:

• 2015: $2,080 (first penalty), $3,120 (second penalty)
• 2016: $2,160 (first penalty), $3,240 (second penalty)
• 2017: $2,260 (first penalty), $3,390 (second penalty)
• 2018: $2,320 (first penalty), $3,480 (second penalty)

The penalties vary based on workforce size and the number of employees receiving premium tax credits.

Identifying Full-Time Employees

Determining which employees qualify as full-time is essential for ESRP compliance. A full-time employee is defined as one working an average of at least 30 hours per week or 130 hours per month.

Methods for Determining Full-Time Status

Employers can use:

1. Monthly Measurement Method: Evaluating each employee’s hours monthly.
2. Look-Back Measurement Method: Averaging hours over a longer period.

Accurately identifying full-time employees helps determine ALE status, coverage obligations, and potential penalties.

Transition Relief

Transition relief was available in 2015 and 2016 for employers with non-calendar-year plans or those meeting specific criteria. Although these provisions are no longer in effect, understanding past relief can help address compliance issues.

Final Word

At Taylor Benefits Insurance, we understand the complexities of the ESRP and its impact on employer operations. Our goal is to provide employers with the information needed to comply with ACA requirements while minimizing potential penalties. By staying informed about your ALE status, coverage obligations, and reporting requirements, you can ensure compliance and focus on supporting your workforce effectively.

For more details or assistance with your ESRP compliance, please contact us at Taylor Benefits Insurance. We’re here to help navigate the challenges of employee benefits and health insurance regulations.