The “affordability” of Health Insurance coverage offered by a large employer (50 or more employees) is a key point in complying with PPACA mandates. The IRS recently issued a notice confirming two new safe harbor standards for determining whether or not your plan is affordable.

Under the original PPACA law, coverage is considered affordable if the employee’s contribution does not exceed 9.5% of their household income. Because employers generally do not know an employee’s household income, the IRS released Notice 2011-73 that allows employers to determine affordability in three new ways:

Form W-2 Safe Harbor
The required employee contribution for self-only coverage must not exceed 9.5% of the employee’s Form W-2 wages for that calendar year (can be adjusted if employee did not work full-time for the entire year). If this method is adopted, it would be best to set the employee’s contribution to a percentage of wages, otherwise contributions would apply on an employee-by-employee basis and may not be known until the end of the year.

Rate of Pay Safe Harbor
The required employee contribution for self-only coverage must not exceed 9.5% of the employee’s monthly wage. The monthly wage can be determined by multiplying the hourly rate of all eligible hourly employees by 130. Note that this safe harbor will not apply if you reduce wages during the year.

Federal Poverty Level (“FPL”) Safe Harbor
The required employee contribution for self-only coverage must not exceed 9.5% of the most recently published federal poverty level for a single individual.