Calculating the labor equation

News
Aug 16, 2013
by DTN

Fine print matters. That’s especially true when crop producers like Christian Yunker of Elba, NY, assess who is a full-time employee under the Affordable Care Act’s insurance mandates.

Thanks to a Treasury Department reprieve announced in July, “large” employers with more than 50 full-time equivalent workers won’t be obligated to offer health insurance until 2015. Postponement is a relief, but Yunker is still struggling with the government’s current definition of who is a full-time, part-time or seasonal employee.

For agriculture, determining who is full-time isn’t as simple or straightforward as it is for office workers. “Even people who wrote the law don’t seem to be aware that we rely on a lot of parttime and seasonal help,” said Yunker.

His winter payroll normally runs about 48 people, just under the wire for new employer health care mandates for “big” business. But the workforce on 6,000 acres of corn, alfalfa and specialty crops—and a heifer replacement facility—can swell to 70 or 75 with part-time and seasonal labor. Should Yunker’s CY Farms trigger that threshold in the future, it would be obligated to offer health insurance to all fulltime workers or pay a penalty, neither which he thinks CY Farms could afford.

Specifically, “large” employers must contribute at least 60 percent of employee health care cost to all fulltime employees and those of their dependents up to age 26, not including spouses. Another issue is that the employee’s contribution can’t exceed 9.5 percent of the employee’s W-2 income, so employers will need to do some extra calculations to keep their plans affordable.

Yunker would prefer to offer employees a fixed amount of cash to pay toward the insurance of their choice, but that will not help large employers avoid penalties under the law, certified public accountants say.

For the same reason, popular Health Reimbursement Accounts won’t be allowed unless they are offered in conjunction with insurance plans in 2015.

The current fine for large employers that don’t comply is $2,000 per employee, after an exemption for the first 30 workers. Someone like Yunker with 70 workers would pay $80,000 per year in penalties, and fines will increase for future inflation.

With those economics, some labor-intensive businesses began to downsize or outsource their work forces rather than be subjected to mandates. “It was a naive notion to believe people weren’t going to reduce the number of hours or number of employees who worked,” said Nicole Fallon, a Minne apolis-based health care consultant for CliftonLarsonAllen LLP.

So this year’s payroll wouldn’t hit the 50 full-time equivalent threshold, CY Farms quit raising cabbage, its most labor-intensive crop. But with employer mandates delayed a year, Yunker will need to re-evaluate his options for 2014, especially if Congress acts on immigration reform.

“This mandate wasn’t the only reason we got out of cabbage,” Yunker said. “The more significant reason is immigration and labor availability. But the health care mandate was a significant part of the decision.”

Definitions of full-time

For many farm owners, the Affordable Care Act’s definitions of who is a fulltime employee, full-time equivalent or a seasonal worker remain problematic. For example, here are guidelines that Michelle Van- Dellen, a dairy farmer’s wife, CPA and tax senior manager for Moss Adams LLP in Bellingham, WA, uses to determine whether you are a large employer:

• Start by counting full-time equivalents month-bymonth over a calendar-year period.

• Anyone who works 30 or more hours per week, or 130 hours per month, is a fulltime employee (FTE) for that month.

• Some non-hourly arrangements—such as truck drivers paid by the mile or workers by the piece—haven’t been clarified. Until further guidance is issued, employers must use a “reasonable method” for determining hours worked.

• Hours for part-time employees working fewer than 30 hours per week are lumped together and divided by 120 hours per month to calculate FTEs.

• Seasonal workers—including legal immigrants and those with H-2A visas— count in the initial equation depending on their hours. However, if seasonal workers push you over the 50- FTE limit no more than four months per year, seasonal workers are exempted from the final count.

• The definition of seasonal employees remains in flux. Seasonal employees who work for at least six months of the year will likely not qualify for the seasonal worker exemption and will be counted in the same manner as “regular” employees in the future, VanDellen said, even if farmers think of them otherwise.

Matthew Coffindaffer, a former health care adviser with the National Council of Agricultural Employers, agreed the definition poses problems for ag. “Many individuals mistakenly believed the seasonal worker exemption would be agriculture’s magic bullet, but it won’t help many large growers,” Coffindaffer said. The biggest problem: Growing seasons typically exceed 120 days a year and H-2A workers can legally stay for up to 10 months.

So, in summary, say an employer hires 40 full-time, year-round workers but adds another 20-40 full-time seasonal workers for June to September. Those seasonal workers won’t trigger mandatory insurance coverage even though the combined head count exceeds 50—unless they work another month or more. (It doesn’t even need to be a full month—any time into the fifth month puts the employer over the four-month limit).

Cost of care

The real problem is health care premiums for small business owners have escalated faster than profits in recent years, Yunker said. The farm offers coverage to key employees, but not its entire workforce. To keep expenses in check, it had scaled back its contribution on premiums from 80 percent to 50 percent the past two years. Even so, employee family plans through United Healthcare cost about $12,000 to $13,000 per year.

“Every year, there’s been another 16 percent rate hike in premiums, and neither employees nor employers can afford it,” Yunker said. “Society needs to manage these health care costs. We just can’t keep absorbing it. If there’s one good thing that could come out of health care reform, I’m hoping that’s it.” — Marcia Zarley Taylor, DTN

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