ACA Pay or Play Penalties Increase for 2024: HR Professionals Take Note

Earlier this year, the IRS announced 2024 employer mandate penalties that apply to all employers with 50 or more employees — otherwise known as applicable large employers (ALE). If you’re a human resources professional at an ALE, it is essential for you to understand these penalties and how they could impact your workplace. 

The Affordable Care Act's (ACA) employer-shared responsibility (pay or play) provisions are a complex set of rules that can be difficult for HR professionals to navigate. However, with the IRS's recent announcement of increased penalty amounts for 2024, it is more important than ever for HR professionals to understand these rules and ensure that their organizations are in compliance.

Pay or Play Penalty Calculations

Under the pay or play rules, an ALE is only liable for a penalty if at least one full-time employee receives a subsidy for Exchange coverage. Employees who are offered affordable, minimum value (MV) coverage are generally not eligible for these Exchange subsidies.

Depending on the circumstances, one of two penalties may apply under the pay or play rules—the 4980H(a) penalty or the 4980H(b) penalty.

• Under Section 4980H(a), an ALE will be subject to a penalty if it does not offer coverage to “substantially all” (generally, at least 95%) of its full-time employees (and dependents) and any one of its full-time employees receives a subsidy toward his or her Exchange plan. The monthly penalty assessed on ALEs that do not offer coverage to substantially all full-time employees and their dependents is equal to the ALE’s number of full-time employees (minus 30) multiplied by 1/12 of $2,000 (as adjusted), for any applicable month.
• Under Section 4980H(b), ALEs that offer coverage to substantially all full-time employees (and dependents) may still be subject to a penalty if at least one full-time employee obtains a subsidy through an Exchange because the ALE did not offer coverage to all full-time employees, or the ALE’s coverage is unaffordable or does not provide MV. The monthly penalty assessed on an ALE for each full-time employee who receives a subsidy is 1/12 of $3,000 (as adjusted) for any applicable month. However, the total penalty for an ALE is limited to the 4980H(a) penalty amount.

IRS Pay or Play Penalty Resources

 The IRS provides a variety of resources on the pay or play provisions, which provide more information on calculating the penalty. Employers can use the following two IRS web pages for more details:

• Employer Shared Responsibility Provisions
• Types of Employer Payments and How They Are Calculated

HR professionals should carefully review these resources and ensure that their organizations are in compliance with the pay-or-play provisions. Failing to do so could result in significant penalties.

Here are some specific tips for HR professionals to help their organizations comply with the ACA's pay-or-play provisions:

• Determine if your organization is an ALE. ALEs are defined as employers with an average of at least 50 full-time employees or full-time equivalent employees during the preceding calendar year.
• Offer affordable, minimum essential health insurance coverage to at least 95% of your full-time employees and their dependents.
• Make sure that your coverage is affordable. The IRS provides an affordability calculator that you can use to determine if your coverage is affordable for your employees.
• Make sure that your coverage provides minimum value. Minimum value means that the coverage must pay at least 60% of the expected total cost of covered medical expenses for a standard population.

If you have any questions about whether your organization is in compliance, schedule some time with our Director of Compliance, Eric Gulko.