Saturday, March 5, 2016

Employer Penalty Amount Finalized

Next week the Dept of HHS will publish the final rule for, among other things, the per-full-time-employee amount that large employers will be penalized for not offering federally approved health insurance coverage.

2017 $2,265

These are set according to the HHS Secretary's "Premium Adjustment Percentage."

As explained in my book, the employer penalty has a special business tax treatment that makes it more expensive than employee salaries. The salary equivalent of the employer penalties are:

2014 $3,046
2015 $3,174
2016 $3,299
2017 $3,449

After increasing 4 percent in each of the first two years, the lasted annual increase is 5 percent.

Another interesting way to look at it is the number of hours that a $7.25/hour worker has to work to create enough value for his employer to pay the penalty on his behalf (let alone pay the employee's wages):

2014 8.1 hours per week, 52 weeks per year
2015 8.4 hours per week, 52 weeks per year
2016 8.8 hours per week, 52 weeks per year
2017 9.1 hours per week, 52 weeks per year

In other words, only after the ninth hour of work in 2017 will the penalty be paid and there will be value creation that can go toward employee wages, employer profits, or other taxes.

Fortunately, taxing employment relationships to the tune of 9 hours per week, every week of the year, has essentially no adverse effect on those relationships.

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