Employers have no way to know an employee’s personal financial situation outside of work. So employers will not be able to determine what is “affordable” to the employee themselves. Given this fact, the IRS has established three safe harbors which compare the employee’s work related compensation to a safe harbor percentage. For 2016, the number is 9.66%. What does this number mean? To safely avoid penalties associated with Minimum Value coverage, health plans must be offered to individual employees at a cost less than 9.66% of one of these three safe harbors. As with anything involving the Affordable Care Act, it’s well-worth double-checking and making sure they are safe harbored. An assessable payment will never be a welcome surprise.
⦁ W2 Wages Safe Harbor
⦁ Employers can use the Box 1 of an employee’s current year W2 form, if the employee’s health premium is not more than 9.66% of Box 1, the coverage is affordable under this safe harbor
⦁ This safe harbor might be implemented by an employer with full-time employees who normally work 40 hours per week and have stable pay
⦁ Rate of Pay Safe Harbor
⦁ Simply multiply an employee’s lowest pay rate during the calendar month by 130 hours, if the employee’s health coverage cost is not more than 9.66% of the result, the coverage is affordable under this safe harbor
⦁ This safe harbor might be implemented by an employer with hourly employees, where if they can run the number crunch on the lowest paid hourly employee and they’re coverage is affordable, this safe harbor will work for all employees
⦁ Individual Federal Poverty Line (IFPL)
⦁ The FPL for a household of one for 2016 is $11,880, divide this by 12 months. If premiums are lower than 9.66% of this number, the coverage is affordable under this safe harbor
⦁ This safe harbor might be implemented by an employer who use the look-back measurement period to determine if variable hour or seasonal employees have full-time status. This safe harbor, by far, results in the lowest extreme of affordable premiums and is not widely used