Does Obamacare affect your Canadian company?

A woman reads a leaflet at an Obamacare event in Cudahy, California March 27, 2014. REUTERS/Lucy Nicholson

Canadian companies with at least 50 employees working in the United States could face lawsuits and painful tax fines if they fail to immediately upgrade their benefit systems to comply with Obamacare legislation.

The Patient Protection and Affordable Care Act applies not only to American companies, but also to Canadian ones operating in the U.S. And while larger companies have been subject to the law since the beginning of the year, smaller companies — with at least 50 employees — will be brought under enforcement starting Jan. 1, 2016.

Sibyl Bogardus, chief compliance officer with Chicago-based insurance broker Hub International, says smaller companies that haven’t yet looked into it may be taken aback by the complexity of the law and burdensome reporting requirements.

“We’re seeing companies in Canada that maybe have just a few U.S. locations not being aware of the requirements, and also employers where they have various small companies that they own in the U.S., but the dots are all connected,” she says.

The law requires companies to offer full-time employees affordable health-care insurance of a minimum value — specifically defined as coverage that covers at least 60 per cent of health-care costs but costs less than 9.5 per cent of income.

Compliance is then enforced by detailed annual reports to the Internal Revenue Service. Companies found non-compliant are required to pay a standard fine of US$2,000 per employee — or a minimum of $100,000 for a company with 50 employees.

That may seem straightforward enough, but Bogardus says there’s a lot more to it: “There are some tricky ways you have to take into account the part-time people, and so even employers who think, ‘I don’t have that many full-time people,’ if they have part-time people, then they caught up in it.”

For example, a Canadian parent company with a number of unrelated subsidiaries and only part-time employees may still be subject to the law if the total number of hours work add up to the equivalent of 50 full-time employees.

Relevant tax forms also require companies to provide a specific code for each employee. So a full-time employee with no dependents who started work in July and accepted coverage would fall under a different code than, say, a full-time employee with a dependent who refused coverage.

Tracking all that complex information and hours worked will require upgrades to payroll and benefit administration systems — a cost for mid-sized companies that can run as high as $80,000, plus a monthly fee per employee.

Nevertheless, Bogardus urges companies to get on contract with a benefits administration provider immediately, by September at the latest:

“They need to get under contract for that as soon as possible, because quite honestly, there are a limited number of companies in this space. And of those vendors, not all of them will get approval. They have to have their systems tested for connectivity by the Internal Revenue Service, and if they do not work they won’t get approved.”

Then there’s the threat of labour action. While the legislation specifies thresholds for compliance, Bogardus warns companies against trying to skirt the law — by forcing full-time employees into part-time positions, or by terminating employees as they approach full-time status.

“If you wait until the end of the year to try to manage a person to be part-time, the government can look at that and say, ‘It looks like abuse to us.’ And that would be both the IRS and the Department of Labor getting involved,” she says.

“We expect a lot of lawsuits around that. I still hear about employers who plan to terminate people if they get close to 1,560 hours, because that’s kind of the magic number for coverage for the year, and those are the employers that are going to get in trouble for their business practices and policies.”

Bogardus advises companies that can legitimately shift to part-time work to do so carefully.

“That means managing people part-time consistently across the entire year,” she says. “It means creating a part-time position where the person is aware it’s part-time, the position would be advertised as part-time, the job description is a part-time position. So everything would be consistent . . . it has to be a very diligent process.”
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