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Small Businesses Warned Against Reimbursing Employees for Health Premiums

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Small Businesses Warned Against Reimbursing Employees for Health Premiums

November 24, 2014
On November 6, the Department of Labor (DOL) issued an FAQ document about Affordable Care Act (ACA) implementation. According to the document, companies may not reimburse employees for their insurance premiums with after-tax money, because doing so would constitute a group health plan. Such plans must comply with the ACA, and a plan that reimburses members for individuals policies would not comply with the law's requirements. Non-compliance could result in penalties of up to $36,500 a year for each affected employee. 
 
Employers of all sizes have been grappling with how to comply with the law's requirement to provide affordable health coverage to employees. Small businesses are not required to provide coverage, though there are some tax incentives available to do so. Large employers (with 50 or more full-time employees) must provide coverage or pay a penalty starting next year. The guidance from the DOL makes clear that reimbursing individual premiums or conditioning additional compensation on purchasing insurance are not permissible compliance strategies.