t.haley Posted October 12, 2022 Share Posted October 12, 2022 Looking for guidance on how an employer applies the rate of pay affordability safe harbor to an employee that is paid both a salary (for work performed in one position) and an hourly wage (for work performed in second position). My first thought is to just use the W-2 safe harbor, but the client wants to explore the other possibility. I found language in the final regs allowing the employer to apply different safe harbors to different categories of employees but nothing about applying a safe harbor to an employee with two categories of pay. Any ideas? Link to comment Share on other sites More sharing options...
Brian Gilmore Posted October 12, 2022 Share Posted October 12, 2022 In that unusual situation, I'd only feel comfortable that the employer's offer meets the rate of pay affordability safe harbor if they satisfied it on both the employee's hourly rate and monthly salary. So I'd plug in the employee's hourly rate of pay and monthly salary in the examples below and see if that came out as passing both based on the employee-share of the premium for the lowest-cost plan at the employee-only tier. https://www.newfront.com/blog/how-the-2023-aca-affordability-decrease-to-9.12-affects 2) The Rate of Pay Affordability Safe Harbor Action Item: In most cases, ALEs that do not qualify to use the federal poverty line affordability safe harbor because the lowest possible employee contribution for the major medical plan exceeds $103.28 will want to use the rate of pay affordability safe harbor. The rate of pay affordability safe harbor applies the applicable affordability percentage based on two separate tests—one for hourly full-time employees, and one for salaried full-time employees. Hourly Full-Time Employees Test: 9.12% (2023) of the employee’s hourly rate of pay as of the first day of the coverage period x 130 hours Note: The hourly rate of pay is multiplied by 130 regardless of actual hours of service performed. The IRS uses 130 hours of service in a calendar month as a proxy for the 30 hours of service/week full-time status definition in §4980H. Example: Widget Co. has a calendar plan year, and their lowest-paid full-time hourly employees are paid at a rate of $15/hour in 2023 130 hours of service x $15/hour = $1,950 assumed monthly income Full-time employee monthly contribution rate for lowest-cost, employee-only coverage cannot exceed 9.12% (2023) of $1,950 $1,950 x. 0.0912 = $177.84/month maximum Salaried Full-Time Employees Test: 9.12% (2023) of the employee’s monthly salary as of the first day of the coverage period Note: Special rules apply if the employee’s hourly rate or monthly salary is reduced. Example: Widget Co. has a calendar plan year, and their lowest-paid full-time salaried employees are paid a salary of $36,000 in 2023 $36,000 / 12 = $3,000 monthly salary Full-time employee monthly contribution rate for lowest-cost, employee-only coverage cannot exceed 9.12% (2023) of $3,000 $3,000 x 0.0912 = $273.60/month maximum Action Item: An ALE will meet the rate of pay affordability safe harbor for all full-time employees if the employee-share of the premium for the lowest-cost plan at the employee-only tier does not exceed these monthly maximum thresholds. In the examples above, Widget Co.’s plan would be affordable for all full-time employees (hourly and salaried) if the lowest possible amount that an employee could pay to enroll in the employer’s major medical plan does not exceed $177.84/month. Link to comment Share on other sites More sharing options...
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