In construction contracts, liquidated damages are contractually designated penalties for not performing as set forth in a contract. As an example, there may be a $100 penalty per day for late completion. As a party to such a contract, there is a choice to accept or reject such terms.

How would companies like to be subject to such penalties without having agreed to them?

Under provisions of the Affordable Care Act (ACA), businesses may already be subject to the following penalties:
  • $2,000 per employee for not offering any health insurance coverage; and
  • $3,000 per employee for not offering affordable health insurance coverage and receiving a federal subsidy.
Employers with 50 to 99 employees that currently do not offer medical coverage are not required to do so until Jan. 1, 2016. However, employers with 100 or more employees were required to offer benefits Jan. 1, 2015, if they had not done so previously (or had a non-compliant management-only coverage).

Companies should assess their risks related to the ACA using a “play or pay” strategy regarding the possible penalties.
  • Determine large employer status (effective Jan. 1, 2015).
  • Evaluate the workforce to determine who is a full-time employee subject to coverage requirements.
  • Determine if the employer has a health plan that offers minimum essential coverage to at least 95 percent of all full-time employees (and their dependents).
  • Determine if the employer’s health plan provides minimum value.
  • Determine if the employer’s health plan is affordable.
  • Estimate potential penalties.
  • Weigh options and prepare for consequences of Section 4980H play or pay rules.
Determining how these penalties may apply to a company depends on whether it is considered a large employer. Simple, right? Not necessarily.

There are many misconceptions regarding ACA, and the easiest way to identify them is to segment them by employer size: 50 to 99 employees and more than 100 employees. The following examples outline the complexity of the ACA’s various provisions and the difficulty construction companies are encountering in applying these provisions.

Small Group vs. ALE
The calculation for an applicable large employer (ALE) is as follows: The number of full-time employees (anyone working 30 hours or more per week) plus the total number of hours part-time employees are working (29 or fewer hours each week) divided by 120.

Prior to the ACA, if a company had 40 full-time employees and 20 part-time employees, it would have been considered a “small group.” However, under the ACA, part-time employees must compute their hours on a monthly basis. If the 20 part-time employees worked an average of 60 hours each month in 2015 (13.85 hours per week), it would equal a total of 1,200 hours per month divided by 120 to determine the full-time equivalent (FTE), which is 10. The company then adds 10 FTEs to its 40 full time employees for a total of 50. As such, the company is considered an ALE and will be required to offer benefits by Jan. 1, 2016.

Tracking Employees
If an employer has 50 or more employees in 2015, it does not have to offer benefits, but it does have to report its full-time employees (currently employed and terminated) on Forms 1094 and 1095-C (just as employers with more than 100 employees are required to do). Similar to W-2 requirements, 1095-C forms are due Jan. 31, 2016. The penalty for not completing and filing on time is $100 per form not timely filed both to the individual employee and the IRS. Penalties can be imposed up to $1.5 million.

ALEs With Variable Hour Employees
For a construction company with 30 full-time employees in the office and 50 to 75 field employees working 20 to 60 hours per week, it can be complicated to determine if it’s an ALE in 2015. In this case, the employer will be considered to have more than 50 FTEs—and hopefully not exceed 100, where benefits would have been required to be offered in 2015. The employer mandate would then apply, and the employer would be penalized $2,000 per full-time employee minus the first 30.

For the 30 specific full-time employees (staff members working a minimum of 30 hours per week with a set schedule and are usually salaried (although hourly employees can qualify as well), the employer will begin offering coverage Jan. 1, 2016, and any future specific full-time employees will be enrolled no longer than 90 days from their date of hire.

This employer also has “variable hour” employees whose hours should be tracked on a monthly basis. This employer must determine a “standard measurement period” for ongoing employees and an “initial measurement period” for newly hired employees. A “stability” period of no less than six months or a maximum of 12 months is required for a variable hour employee who was determined full time and then moves to part time. The information collected will be documented on form 1095-C if the employee is determined to be a full-time employee once his or her initial measurement period is completed.

For an employer that will begin offering coverage Jan. 1, 2016, the standard measurement period should have begun Dec. 1, 2014, through Nov. 30, 2015. The month of December 2015 will be the open enrollment period for a Jan. 1, 2016, effective date. Twelve months plus a one-month administrative period is the maximum amount of time employers can use to determine full-time eligibility.

A 12-month measurement period can work well for construction companies due to their high turnover rate. 

Employers with more than 100 employees and variable hour employees should have been tracking their employees’ hours since December 2013 if they have never offered medical coverage and were required to do so Jan. 1, 2015, for the purpose of determining eligibility. For those that have offered coverage, they should have begun tracking their employees no later than Jan. 1, 2015, in order to complete the 1095-C forms.

Medical Contributions
Even if employees’ medical contributions do not exceed 9.56 percent of a company’s annual income, its contribution may not necessarily be compliant. The fine print regarding the “minimum affordability” clause relates to Box 1 on an employee’s W-2 (adjusted gross income). This means that any Section 125 (pre-tax cafeteria plan) contributions—including the employees’ medical, dental, vision, 401(k), adoption and dependent care services, and group term life insurance policies—will reduce the annual income.

Because of this significant change in affordability, many employers have considered doing away with Section 125 plans, as health insurance rates increase if the cost differential between the gross and adjusted gross income is significant.  

It is worth noting that employers with 50-99 employees that have offered coverage previously will be able to receive Transitional Relief (2015 Section 4980H) for the contribution requirement, but they must be compliant upon their medical renewal in 2016.

Robin Word is a construction CPA with Averett Warmus Durkee, Orlando, Fla., and co-chairs the firm’s construction and real estate niche. For more information, email Bryn Scarborough is vice president of Renaissance ACA Captive Solutions. For more information, email