- How do I determine whether I am a small employer?
You have to determine how many eligible employees you have – an “eligible employee” is defined by the SEH Program Act. You must employ at least 2 but no more than 50 eligible employees in the prior calendar year, and at least 2 eligible employees at the beginning of each plan year. Also, the majority of your eligible employees must work at a location in New Jersey.
- How is “eligible employee” determined?
In general, the SEH law defines "eligible employee" as a bona fide employee who works a normal work week of 25 or more hours. For purposes of determining whether an employer is a small employer, “eligible employee” does not include employees: (a) who work less than 25 hours a week; (b) who are independent contractors (sometimes called 1099 employees); (c) who are hired on a temporary or substitute basis; or, (c) who participate in an employee welfare arrangement under a collective bargaining agreement. The employer can be an eligible employee.
Note: Eligible employees as defined by the SEH Program do not include all employees as defined by federal and state tax and employment laws. As illustrated in the examples below, it is possible for an employer to have employees on his or her payroll for whom the employer must collect and remit taxes, but who are not eligible employees for purposes of determining the business’ small employer status under the SEH Program.
Example A: An employer had a total of 100 employees last calendar year, including the partners who own the company. All of the employees are employed in New Jersey. 75 of the employees worked more than 25 hours per week, and 25 worked less than 25 hours per week. The 25 employees who work fewer than 25 hours per week are not eligible employees, and so, are not included in the count when determining the employer’s size. Of the 75 employees that worked more than 25 hours per week, 50 were hired to work for approximately four months in the calendar year. Although the employees hired on a temporary basis worked more than 25 hours per week, because they were temporary, they also are not considered eligible employees, and are excluded from the count when determining the employer’s size. So:
Employee Types |
Subttls |
Totals |
1 |
Total employees in the prior calendar year of all affiliated companies |
|
100 |
2 |
Employees hired on a temporary basis |
50 |
|
3 |
Employees with work schedules of less than 25 hours/week |
25 |
|
4 |
Employees in the union’s collectively-bargained health plan |
0 |
|
5 |
Add rows 2, 3 and 4 |
|
75 |
6 |
Subtract row 5 from row 1 to get Total Eligible Employees |
|
25 |
Consequently, the employer is considered to have had an average of 25 (or fewer) eligible employees in the prior calendar year. If the employer has at least 2 eligible employees when seeking or renewing coverage, then the employer will be considered a small employer.
Example B: An employer had a total of 100 employees last calendar year, all employed in New Jersey. Of that total, 40 participate in a collectively-bargained health plan, and are not considered eligible employees, regardless of the number of hours they work per week. Of the remaining 60 employees, 10 worked fewer than 25 hours per week each, and are not considered eligible employees. So:
Employee Types |
Subttls |
Totals |
1 |
Total employees in the prior calendar year of all affiliated companies |
|
100 |
2 |
Employees hired on a temporary basis |
0 |
|
3 |
Employees with work schedules of less than 25 hours/week |
10 |
|
4 |
Employees in the union’s collectively-bargained health plan |
40 |
|
5 |
Add rows 2, 3 and 4 |
|
50 |
6 |
Subtract row 5 from row 1 to get Total Eligible Employees |
|
50 |
This means that the employer averaged 50 or fewer eligible employees in the prior calendar year. If the employer has at least 2 eligible employees when seeking or renewing coverage, then the employer will be considered a small employer.
Example C: An employer has four employees, all working in New Jersey. One employee works 40 hours per week, and the other three each work 20 hours per week. Only one employee is an eligible employee. The employer is not a small employer for purposes of purchasing health insurance in New Jersey because the employer has fewer than two eligible employees.
Employees Types |
Subttls |
Totals |
1 |
Total employees in the prior calendar year of all affiliated companies |
|
4 |
2 |
Employees hired on a temporary basis |
0 |
|
3 |
Employees with work schedules of less than 25 hours/week |
3 |
|
4 |
Employees in the union’s collectively-bargained health plan |
0 |
|
5 |
Add rows 2, 3 and 4 |
|
3 |
6 |
Subtract row 5 from row 1 to get Total Eligible Employees |
|
1 |
Example D: A New Jersey business owner wishes to obtain health coverage. The business employs three people, all of whom work 30 hours per week in New Jersey; however, the owner is not one of the business’ employees. The owner qualifies as a small employer, but the owner is not eligible to be covered under the small employer group plan, because he does not work 25 or more hours per week for the business.
- If some of my employees work outside of New Jersey does that change the way eligible employee is determined and whether I am a small employer that can buy coverage under the SEH Program?
There is no difference in determining who is and is not an eligible employee for purposes of the SEH Program Act based on an employees’ work location(s). A small employer must have the majority of its eligible employees working in a physical location in New Jersey in order for the employer to be eligible to purchase SEH Program health benefits plans for the group. An employee that works from his or her home located outside of New Jersey is not considered to be working in New Jersey, even if the employer’s offices are located in New Jersey.
Example: An employer with a total of 40 employees had business locations in multiple states in the prior calendar year. All 40 employees had a work schedule of more than 25 hours per week, and none were hired on a temporary basis. None of the employees were part of a collective bargaining agreement. However, of the 40 employees, 25 worked at locations outside of New Jersey. So:
Employees Types |
Subttls |
Totals |
1 |
Total employees in the prior calendar year of all affiliated companies |
|
40 |
2 |
Employees hired on a temporary basis |
0 |
|
3 |
Employees with work schedules of less than 25 hours/week |
0 |
|
4 |
Employees in the union’s collectively-bargained health plan |
0 |
|
5 |
Add rows 2, 3 and 4 |
|
0 |
6 |
Subtract row 5 from row 1 to get Total Eligible Employees |
|
40 |
7 |
Employees working at locations outside of New Jersey |
|
25 |
8
|
Subtract row 7 from row 6 to get Total Eligible Employees in New Jersey |
|
15 |
If row 8 is greater than row 7, the employer is a small employer eligible to purchase an SEH plan.
If row 8 is equal to or less than row 7, the employer is not eligible to purchase an SEH plan. |
|
|
Because the law requires that the majority of eligible employees work in New Jersey in order for an employer to meet the definition of a small employer, this employer is not considered to be a small employer, and would not be eligible to purchase small employer coverage in New Jersey.
- Does it matter what order you use to determine your employee count?
Not really. However, if you have multi-state employment locations, you need to determine the total number of eligible employees you have before determining whether a majority of them work in New Jersey. In other words, it doesn’t matter what order you use to subtract union employees, employees with work schedules of less than 25 hours, or temporary employees. But you first must subtract union employees (who participate in a collectively-bargained health plan), part-time employees and temporary employees to determine the total number of eligible employees before you determine whether the majority of eligible employees work in New Jersey. In addition, please note that you can not include any independent contractors, only bona fide employees, when determining whether an employer is a small employer.
- What if I define “full-time” as 35 or 40 hours per week or “part-time” as less than 25 hours?
An employer is permitted to establish a definition for full-time and part-time that differs from the SEH Program Act, and offer fringe benefits to employees based on the employer’s definitions. However, for purposes of meeting the health benefits plan participation requirement, all eligible employees as defined by the SEH Program Act have to be taken into consideration. So, regardless of who the employer offers health coverage to, the group’s eligibility to be covered through the SEH Program depends on whether 75% of the eligible employees as defined by the SEH Program Act participate in health coverage recognized by the SEH Program Act.
Example: A small employer has 5 eligible employees. The small employer wants to offer coverage to only the two employees that work 40-hours/week. The carrier would request information about all 5 eligible employees. The 40-hour/week employees compose only 40% of the total eligible employees. If coverage is only being offered to the 40-hour/week employees, and the other eligible employees do not have even the option to waive coverage (for example, because they are covered through a spouse), this group cannot possibly meet the 75% participation requirements for the SEH market.
- How is “temporary” or seasonal employee defined?
The SEH Program Act does not define what constitutes “temporary” or seasonal, and the SEH Board has not defined the terms by regulation. Carriers establish criteria for who is considered a temporary or seasonal employee, and so the standards may differ slightly from one carrier to another. An employer or a broker should consult with a carrier on this issue.
- If I own multiple businesses, do I count my employees for all businesses together, or separately?
Whenever there are affiliated businesses, the first determination that must be made is whether the businesses are treated as a single employer under subsections (b), (c), (m) or (o) of section 414 of the Internal Revenue Code of 1986 (26 U.S.C. §414). The employer will need to obtain a statement from a tax accountant or a tax attorney specifying whether or not the affiliated companies are a single employer for tax purposes. If the affiliated companies are considered a single employer under the federal tax code, then the combined employment base is considered in the analysis of whether the affiliated companies are a small employer. If the affiliated companies are considered to be separate employers under the federal tax code, then the analysis of whether a small employer exists is performed separately for each company. So:
Example A: Company A and Company B are affiliated and according to the companies’ tax accountant, constitute a single employer pursuant to the federal tax code. Company A is located in Texas and employs 35 workers there. Company B is located in New Jersey, and employs 45 workers in New Jersey. All of the employees meet the definition of eligible employee. Because there is a total of 80 eligible employees, neither Company A nor Company B would be considered to be a small employer for purposes of the SEH Program.
Example B: Company C and Company D have a connection, but according to the companies’ tax accountant, they are not a single employer pursuant to the federal tax code. An analysis of whether Company C is a small employer would be performed separately from the analysis of whether Company D is a small employer.
- Does the law require that I provide health benefits for my employees?
No, the law does not require any employer to provide coverage to employees. However, if you provide small group health coverage, you must comply with the requirements of the law.
- May a self-employed husband and wife obtain group coverage under the small employer health benefits program?
Yes, if both spouses are full-time eligible employees of the business. A carrier may ask for tax records or some other documentation for you and your spouse as proof that you are both bona fide employees. If only one spouse is working full-time and there are no other eligible employees, the couple may obtain only individual health coverage. The process would be the same for partners in a civil union or domestic partnership.
- What if my business didn’t have employees in the previous calendar year?
If the business is in its first year of operation, and so had no employees in the prior calendar year, the employer does not have to wait a whole year to purchase coverage. Instead, the number of eligible employees will be based on the average number of eligible employees the business is reasonably expected to employ on business days in the current calendar year and the employer must have at least two eligible employees on the effective date of coverage.
If the business is not in its first year of operation, but is just now hiring one or more additional eligible employees, then the carrier will consider the prior calendar year employment average. Such a business might not meet the definition of a small employer even when it employs at least two eligible employees.
- If I decide to offer coverage, must I offer it to all employees?
No. You may elect to offer coverage to one class of employee and not another class. However, distinctions in classes of employees must be based on bona fide conditions pertaining to employment, such as job title, length of service, hours worked, salary, etc. Even if you decide to offer coverage to a class of employees, you still must meet the small group participation requirements based on the total number of eligible employees, not just the class of employees to which you offer coverage.
Example: A group has 10 eligible employees, 8 working 40 hours per week, and 2 working 30 hours per week. The employer establishes employee class by hours per week worked, and may offer coverage only to the eligible employees who work 40 hours per week. However, the 75% participation requirement applies to all 10 eligible employees, not just the 8 to whom the employer has offered coverage.
- May a small employer provide coverage to independent contractors?
Yes, the SEH Program Act permits it. However, there are a number of issues an employer should consider before deciding whether to cover independent contractors.
First, a small employer must elect to cover all independent contractors or none, and there must be at least 2 eligible employees (not classified as independent contractors) working for the small employer.
Second, to be eligible for coverage, the independent contractor must meet the SEH Program Act’s definition of an eligible employee (even though independent contractors will not be counted as eligible employees). In general, a person who is an independent contractor can be an “eligible employee” for purposes of the SEH Program Act if he/she: (1) is performing a service for the employer pursuant to a written contract for monetary or other legal consideration; (2) works 25 or more hours per week for the employer; (3) works on other than a temporary or substitute basis; and, (4) the independent contractor relationship has been established to serve a substantial business need of the employer and is not intended primarily to obtain insurance coverage.
Third, and probably most importantly, federal and state tax and employment laws and the regulators that enforce such laws may consider an “independent contractor” who meets the standards for coverage under the SEH Program Act to be an employee of the employer through which coverage was obtained, unless the situation qualifies as a statutory nonemployment scenario or the employer otherwise proves the individual is correctly classified as an independent contractor. The IRS and the U.S. Department of Labor (as well as the New Jersey Department of Labor) provide information on their websites regarding classification of workers and the criteria that will be considered in determining if someone is an employee or independent contractor (in particular, see IRS Publications 15-A and 15-B). Misclassification of employees may result in significant financial consequences for the employer. Employers should consult an accountant or tax attorney with questions regarding employment status.
- May a small employer provide coverage to employees who work fewer than 25 hours per week?
No, they are not eligible employees under the SEH law.
- If I offer my employees a health benefits plan, may I impose a waiting period before they can enroll?
Yes, you currently have the option of requiring a service waiting period of up to six months. Beginning in 2014, federal law will permit waiting periods of no more than 90 days.
- May I impose a waiting period that is different for some employees?
Yes, although no waiting period can exceed six months, and the differing treatment of employees must be based on class distinctions established on bona fide conditions of employment, such as hours worked, salary, title, etc.
- May a carrier require that a certain number of my employees “participate” if I offer a health benefits plan?
Carriers are permitted by law to impose a participation requirement. However, the SEH Program Act does not permit carriers to require more than a 75% participation requirement. In addition, carriers are required by law to credit towards the 75% participation requirement all eligible employees that have certain other health coverage: Medicare, Medicaid or NJ FamilyCare, coverage as an employee through another employer’s group health plan, or coverage under any group health plan as a dependent. Carriers are not required to count the employer’s employees covered under another carrier’s policy offered by the employer. Note that even if an employer pays 100% of the cost of coverage, a carrier cannot require greater than 75% participation.
- What happens for purposes of the participation requirement if some of my eligible employees decline to participate in the carrier’s standard SEH plan?
An eligible employee’s decision not to take up the offer of coverage under a particular carrier's standard SEH policy does not necessarily mean the eligible employee will not count towards satisfying the carrier’s participation requirement. It depends on why the eligible employee is declining coverage under the carrier’s standard SEH policy. For purposes of satisfying a participation requirement, the carrier must count all eligible employees that: (1) elect coverage under the carrier’s standard SEH plan; (2) are covered as a dependent spouse under any other small employer plan you may make available; (3) are covered under any group health plan option available through the eligible employee’s spouse or parent; and, (4) are covered under a governmental program, such as Medicare, Medicaid or NJFamilyCare. A carrier is not required to count eligible employees towards the participation requirement if the employees are enrolled in another carrier’s small employer policy that YOU make available. An eligible employee who declines the offer of coverage under a carrier’s standard SEH policy because he or she decides it is unaffordable or thinks insurance is unnecessary will count against your group’s satisfaction of the participation rate.
Example A: If an employer has 20 eligible employees, the 75% participation requirement means that at least 15 of the eligible employees must participate in coverage. If 5 of the eligible employees decline because they are dependents under their spouse’s group coverage, 1 eligible employee declines because he is covered by Medicare, 5 eligible employees decline for unspecified reasons not related to having other health coverage, and 9 eligible employees elect to become covered, then the employer has met the participation requirement. This is so because the carrier must add together the 6 eligible employees who have coverage elsewhere with the 9 eligible employees who took up the employer’s coverage offer to determine the total number of participants. The total number of eligible employees participating is 15, which meets the carrier’s minimum participation requirement.
Example B: An employer has 20 employees, but only 16 are “eligible employees.” The employer must have 12 eligible employees that meet the participation requirement in order to provide coverage to the eligible employees (16 x .75 = 12). The employer may not offer coverage under the SEH Plan to the four ineligible employees. Seven of the eligible employees will take up the employer’s offer. Four of the eligible employees decline the employer’s offer because three have group coverage through another employer (by whom they are also employed) and one is still covered by a parent. Because only 11 eligible employees would be considered participating, the employer’s group does not satisfy the participation requirements.
- Could I offer my employees more than one standard SEH policy through my group health plan and still meet the participation requirements?
It is possible. Each of the eligible employees that takes up coverage counts towards the participation rate for both of the policies, if policies are through the same carrier. So, you could offer both PPO and HMO coverage from Carrier O, and even if only 50% of eligible employees chose each coverage option, you could still meet the participation requirement.
However, if you want to offer one plan from two different carriers, meeting the 75% participation rate for each carrier may be more difficult if either carrier will not count employees enrolled in the other carrier’s policy. You can find out whether a carrier will or won’t count the employees enrolled in the other carrier’s policy by reviewing the carriers’ underwriting guidelines. Most carriers will not count employees enrolled in another carrier’s policy issued to the same employer.
Note that even if a carrier will not normally count employees enrolled in another carrier’s policy issued to the same employer, carriers must count employees covered under a spouse’s group health plan under all circumstances. So, in those instances in which a married couple works for the same employer, the employee covered as a dependent spouse will count towards the 75% participation rate for all carriers, even though the employee does not.
Example A: An employer has 4 eligible employees and wants to offer two different SEH standard policies from different carriers. One eligible employee elects coverage with Carrier A, and one elects coverage with Carrier B. One employee has coverage pursuant to COBRA under another group plan with a different employer, and one employee has coverage through a spouse’s group health plan, so both of these employees waive coverage offered by their employer. The employer has met the participation requirement for both policies, because each of the carriers must count 3 of the 4 eligible employees towards the participation goal even through neither carrier counts employees who are enrolled in a policy issued to the employer by another carrier.
Example B: Employer has 11 eligible employees, and wishes to offer coverage from two different carriers. Two eligible employees enroll in employer’s plan for coverage through Carrier X, and three eligible employees enroll in the employer’s plan for coverage through Carrier Y. Six of the eligible employees waive enrollment: two because they have coverage through Medicare, two because they have coverage through a spouse’s group health plan, and two for reasons that are not specified. Neither Carrier X nor Carrier Y will count employees covered under a policy issued to the employer by another carrier. So, Carrier X counts six employees as participating, and Carrier Y counts seven employees as participating. Because 11 x .75 = 8.25, and 8.25 must be rounded up to the next whole number, which is 9, the employer’s small employer group health plan fails to meet the participation requirements of both carriers.
- If I offer my employees coverage, do I have to contribute to the premium?
You must contribute at least 10% of the total group’s premium; of course, you can choose to contribute up to 100%. You are not required to contribute a specific percentage of each employee’s premium, but can choose to vary contributions by class of employee, so long as your total contribution is 10% of the group’s premium. Distinctions in classes of employees must be based on conditions pertaining to employment, such as job title, length of service, or salary.
- If I offer coverage to my employees, do I have to permit coverage of dependents?
No. But if you permit one employee within a class to cover dependents, then you must permit all employees within that class to cover dependents. Distinctions in classes of employees must be based on bona fide conditions pertaining to employment, such as job title, length of service, salary, etc.
- If I permit my employees to cover dependents, do I have to contribute to the premium for dependents?
No. While you are required to contribute 10% of the total premium for your covered employees, you do not necessarily have to contribute to the premium related to dependent coverage. Because the dependent premium is part of the total premium, if you contribute nothing towards dependent coverage, you’ll need to contribute more than 10% of the employee cost in order to satisfy the requirement to contribute at least 10% of the total premium. Of course, if you elect to contribute to the dependent premium, you may choose to contribute any amount you wish, by class of employee.
- If I contribute to a health savings account for my employees, does that amount count towards the required contribution for the health benefits plan?
No.
- May I change my contribution levels?
Yes. However, you may not contribute less than 10% of the group premium.
- Does my group have to continue to meet eligibility requirements?
Yes, on an annual basis. Once a year – several months prior to the anniversary date of your policy – you will have to complete an annual certification regarding your group’s census and work locations, and verify that contribution and participation requirements continue to be met.
- What happens to my group’s coverage if the number of my eligible employees eventually exceeds 50?
If your business grows to more than 50 eligible employees, you may become ineligible to purchase or amend small employer coverage, but not right away, because eligibility is based on average employment activity in the prior calendar year. So, even if you have 55 eligible employees today, the carrier will look at the number of eligible employees you had during the prior calendar year.
Once the number of eligible employees during the prior calendar year exceeds 50, an employer is no longer a small employer. If such an employer wishes to remain covered under the plan(s) purchased while the employer was a small employer, the employer may renew the previously purchased small employer plan(s) without any changes. However, the rates charged may no longer be the carrier’s SEH market rates. The carrier will refuse any application to make a change to the plan(s) in any way, no matter how minor, because the employer completing the application is no longer a small employer. Instead, the employer may apply for plans the carrier makes available to large employers.
- What happens to my group’s coverage if the number of my eligible employees eventually falls below 2 or the majority of my employees no longer work in New Jersey?
Annually upon renewal, you must show that you have at least 2 eligible employees, and the majority of your eligible employees work in New Jersey, or your SEH policy will be non-renewed. If only one employee remains (for example, the owner), coverage may be obtained in the individual market. If there continue to be a number of employees in the group working outside New Jersey, coverage might be available in the non-reform market in New Jersey, or in the group market of another State.
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