As a firm who works closely with small business owners, The Payroll Department hears that although many small business cannot afford to provide health insurance benefits to employees, many do want to help. For those owners who want to provide a benefit without it being health insurance coverage, legislation is coming that you need to know about.
New legislation called the 21st Century Cures Act has passed the House early in December, 2016. It is expected that the President will sign the bill into law before the end of the year and it go into effect beginning January 1, 2017. Inside the bill is a provision called the Small Business Healthcare Relief Act, which impacts the ability of small businesses to provide financial assistance to employees for paying health expenses.
Small businesses affected are those that do not employ at least 50 full-time equivalent employees on average in the former calendar year (or those not defined as applicable large employers (ALEs)). Eligible small business employers are those who do not offer a group health plan to any employees.
Those small business employers will be able to establish health reimbursement agreements (HRA) through which they will reimburse qualified employees (and their family members) for medical expenses. The employer has to offer a qualified HRA, which is one that is entirely funded by employer contributions and is available to all eligible employees. The annual contribution must be the same for each employee enrolled in the plan.
HRA funds can be used by the employee for medical expenses, including the payment of individual health insurance premiums.
There is a limit to the annual reimbursement of up to $4,950 for an individual and up to $10,000 for those plans that include family members. Limits are indexed and can increase on an annual basis and can be prorated for employees who join the plan mid-year. Employers can set reimbursement limits based on dollar amounts or on a percentage of expenses. For instance, the employer can say that $2,500 will be contributed for each employee or 70% of the cost of a covered expense (such as a service or health insurance premium).
As with most labor legislation, the employer is responsible for notifying employees:
- Of the amount of benefit available to them under the HRA.
- Of their responsibility to notify the federal or state health insurance exchange of the amount of HRA funds being provided through their employer.
- That they could be subject to penalty if they are not covered by the minimum essential coverage for any month of the tax year under the provisions of the ACA.
Employers are required to make these notifications no later than 90 days prior to the start of the plan year and those who do not will be subject to a penalty of $50 per employee, up to a maximum of $2,500 per year. There is an extension period for 2017 until April 1, 2017.
As with most other benefits, the HRA benefits can be facilitated through payroll. Of course, it is important to keep accurate and up-to-date records, which is where The Payroll Department can help. We are experienced in keeping close watch on individual records and making payments for small business taxes through our payroll service. The payroll process is more than just writing a check for wages earned, it is an on-going record of the arrangement between the employee and the employer.
Contact Teresa Ray at The Payroll Department to help you with this new legislation and your payroll. It’s too important to you, your business, and your employees to leave it to chance. We make it easy to manage your payroll.
-Elaine of The Payroll Department Blog Team