Massachusetts is a small state. The entire population is less than that of New York City, and geographically Massachusetts is about 1/25th the size of Texas. As we have heard repeatedly during this heated election season, however, this little state stomps an oversized health care reform footprint. The Massachusetts package of reforms, including the state health care marketplace (called the exchange) and the individual mandate, have led to near-universal health care coverage for Massachusetts residents, and national health care reform is loosely based on the Massachusetts model. In addition, Massachusetts' health care laws impose an employer mandate, known as the Fair Share Law, that reaches across state lines to employers doing business in Massachusetts.
Many employers assume that because they have only modest Massachusetts operations, or are not headquartered in Massachusetts, that the Fair Share Law does not apply to them. Other employers believe that, because an employer mandate under national health care reform is imminent, the Massachusetts Fair Share Law can be disregarded. But the Fair Share Law is alive and well, and companies with any employees in Massachusetts may be required to follow it. Often employers learn this the hard way—on the receiving end of an enforcement action by the Massachusetts Division of Unemployment Assistance, or DUA, the state agency that enforces the Fair Share Law.
In essence, employers with 11 or more full-time-equivalent employees, or FTEs, working in Massachusetts are subject to the Fair Share Law. The number of FTEs is generally determined by dividing total payroll hours for all employees by 500, so it is possible to have more than 11 employees but fewer than 11 FTEs (e.g., if an employer has several part-time workers). And an employee is considered to be "working in Massachusetts" if the employer reports the employee's wages in Massachusetts for unemployment insurance purposes. (There are many factors that a multistate employer must consider in deciding where to report its employees for unemployment purposes, including the place work is performed, the base of operations and the worker's residence.)
Employers subject to the Fair Share Law must provide employees with health insurance that passes certain tests, or pay the Commonwealth $295 per year per FTE. The primary test requires employers to demonstrate that at least 25 percent of their "full time" employees are enrolled in their health insurance at the end of each calendar quarter. Under the secondary test, employers must offer health insurance with a 33 percent (or more) employer premium contribution to full-time employees within 90 days of hire. Employers with 50 or more FTEs must meet both tests or show a 75 percent enrollment; other employers may comply by meeting either test.
For purposes of the primary and secondary tests, a "full-time" employee (not to be confused with an FTE) is generally one who works at least 35 hours per week; however, if an employer's hours requirement for participation in its full-time medical benefits is less than 35 hours (30 or 32 hours are fairly common standards), then a "full time" workers is an employee who satisfies that lesser (e.g., 30 or 32) hours standard. Employers must submit online filings demonstrating compliance with these rules.
Employers must not underestimate the state's resolve regarding enforcement of the Fair Share Law. Since the Law's enactment in 2006, the DUA has significantly increased its audit and enforcement activity against employers in all industries, with a specific focus on employers with substantial part-time or temporary workforces (e.g., staffing firms, restaurants, home health agencies and cleaning services). In its audits, the DUA requires production of exhaustive documentation in order to prove compliance, including weekly payroll information, a signed and dated "waiver" of coverage from employees who are entitled to coverage but decline it, a compliant methodology for determining when an employee with fluctuating hours becomes "full time," plan documents and carrier bills. Employers who cannot produce the documents requested by the DUA, in their requested form, generally fail their audits.
Employers who cannot convince the DUA of compliance face a steep penalty: back payment of the $295 per year fair share contribution, plus interest of 12 percent per year. These unlucky employers are left with limited recourse—either they must pay the penalty or appeal the finding to the DUA and then to state court.
As with all enforcement activity, the best defense is a good offense. An employer with any Massachusetts workforce should, at a minimum determine if it is subject to the Fair Share Law. If subject to the Fair Share Law:
- Confirm that it meets the requirements of the Fair Share Law.
- Anticipate a DUA audit by keeping files of all records the DUA will need to conclude an audit in the employer's favor.
- Prepare and submit the quarterly online filings required under the Fair Share Law.
In light of the significant increase in enforcement activity under the Fair Share Law and the steep penalties for noncompliance, employers must take a proactive approach to ensure that they meet the Fair Share Law's requirements and maintain appropriate documentation regarding the same. Employers who do not comply with the Fair Share Law will soon realize that the small state of Massachusetts has the ability to create big legal and financial problems for them.
Andrew Matzkin and Patricia Moran are attorneys with law firm Mintz Levin based in its Boston office. Matzkin is a member of the firm and practices in its Employment, Labor and Benefits section. Moran is an associate in the firm's Employee Benefits and Executive Compensation practice. Comment below or email email@example.com.