President Obama Signs Legislation Changing Definition of “Small Employer”Publications - Client Alert | October 12, 2015
On October 7, 2015 President Obama signed the Protecting Affordable Coverage for Employees Act (“PACE Act”) into law. The PACE Act amends the definitions of “large employer” and “small employer” for certain purposes under the Patient Protection and Affordable Care Act (“ACA”).
Prior to the enactment of the PACE Act, a “large” employer generally meant an employer who employed an average of at least 101 employees in the previous calendar year. Following the enactment of the PACE Act, a “large” employer generally means an employer who employed an average of at least 51 employees during the preceding calendar year. Similarly, the PACE Act changed the definition of a “small” employer from an employer who employed an average of not more than 100 employees during the previous calendar year to an employer who employed an average of not more than 50 employees during the preceding calendar year. Importantly, the PACE Act permits states to treat as a “small” employer an employer who employed an average of at least one but not more than 100 employees during the preceding calendar year.
Changing the definitions of “small employer” and “large employer” is important because of the ACA’s requirements that apply to insurance sold in the small group market. For example, insurance in the small group must cover certain essential health benefits and satisfy actuarial value levels. By modifying the definition of “small employer,” the PACE Act decreases the number of employers that are considered “small,” thereby reducing the number of employers to which the small group market insurance provisions may apply. The PACE Act does not affect the definition of “applicable large employer” that is used for determining whether an employer is subject to the ACA’s employer shared responsibility provision.
If you employ between 50 and 100 employees, you should consider whether you will be considered a “small” or “large” employer following the enactment of the PACE Act and whether the changes to the definitions of “small” and “large” employer will affect the health insurance you offer.
If you have any questions regarding the PACE Act’s changes to the definitions of “small employer” and “large employer,” please contact a member of our Employee Benefits Practice Group.