After more than a year of anticipation, on Monday, February 10, 2014, the US Treasury Department issued final regulations and announced yet another delay of the Patient Protection and Affordable Care Act’s Employer Shared Responsibility provision, which requires employers with more than 50 employees to offer health insurance coverage to full-time workers or pay a penalty. Notably, the final regulations include welcome transition relief for employers with fewer than 100 full time equivalent employees and for employers with 100 or more full time equivalent employees. Employers with fewer than 100 full time equivalent employees will not be required to offer health insurance coverage to full time employees until January 1, 2016 if the employer meets certain conditions. Employers with 100 or more full time equivalent employees must offer coverage to at least 70% of their full-time employees in 2015. This will increase to 95% in 2016. The final regulations also include other transition relief for non-calendar year plans.
Other important changes and clarifications include the following:
- COMMONLY OWNED ENTITIES: The final regulations have retained the rule applying the aggregation rules under the IRS Code to employers. This means that all employees within a controlled group of corporations or affiliated service groups will be counted for determining the applicable large employer member’s size. However, penalties will still be calculated on an entity-by-entity basis.
- ROUNDING: When calculating full time equivalent employees, employers may round to the nearest one hundredth.
- HOURS OF SERVICE: Equivalency methods for calculating an employee’s hours of service do not require that an employee must have actually worked one hour during a day or week to be credited with 8 or 40 hours respectively for that period. Employees must be credited with hours of service for all paid hours.
- VOLUNTEERS: Hours worked by a “bona fide volunteer” are not treated as hours of service. A bona fide volunteer includes any volunteer who is an employee of a government entity or an organization described in section 501(c) that is exempt from taxation under section 501(a) whose only compensation from that entity or organization is in the form of (i) reimbursement for (or reasonable allowance for) reasonable expenses incurred in the performance of services by volunteers, or (ii) reasonable benefits (including length of service awards), and nominal fees, customarily paid by similar entities in connection with the performance of services by volunteers.
- STUDENT EMPLOYEES: Hours of service for section 4980H purposes do not include hours of service performed by students in positions subsidized through the federal work study program or a substantially similar program of a State or political subdivision thereof. However, the final regulations do not include a general exception for student employees. All hours of service for which student employee of an educational organization (or of an outside employer) is paid or entitled to payment in a capacity other than through the federal work study program (or a State or local government’s equivalent) are required to be counted as hours of service.
- ADJUNCT FACULTY: Employers of adjunct faculty are required to use a reasonable method for crediting hours of service. However, the IRS and Treasury have proposed multiples that might be applied to credit additional hours of service for each credit hour or hour of classroom time assigned to the adjunct faculty member.
- DEFINITION OF FULL-TIME EMPLOYEE: The hours of service threshold for a full-time employee remains at an average of 30 hours of service per week.
- SEASONAL EMPLOYEES: A seasonal employee means an employee in a position for which the customary annual employment is six months or less.
- BREAKS IN SERVICE: The length of the break in service required before a returning employee may be treated as a new employee is reduced from 26 weeks to 13 weeks (except for educational organization employers).
- AFFORDABILITY SAFE HARBORS: Employers are not permitted to use the prior year’s Form W-2 to determine affordability under the Form W-2 safe harbor. Additionally, no accommodation was provided for tipped employees under the Rate of Pay safe harbor. The IRS and Treasury advise employers with tipped employees to use either the Form W-2 safe harbor or the Federal Poverty Line safe harbor.
- PARTICIPATION: In the large group market, a minimum participation requirement cannot be used to deny guaranteed issue.
- STAFFING AGENCIES: Health insurance coverage offered by a staffing agency to its employees (in the typical case in which the staffing agency or PEO is not the common law employer of the employee) may be treated as an offer of coverage made on behalf of the client employer if the offer of coverage meets certain requirements.
- PENALTY CALCULATION: The following two questions in the IRS Q&A also make an important change to the way penalty amounts will be calculated for employers with 100 or more full time equivalent employees in 2015. Notice the (minus 80) and (minus up to 80) parentheticals in the third line of each answer below:
38. For 2015, if an employer with at least 100 full-time employees (including full-time equivalents) that does not offer coverage or that offers coverage to fewer than 70% of its full-time employees (and their dependents) owes an Employer Shared Responsibility payment, how is the amount of the payment calculated?
For any calendar month in 2015 or any calendar month in 2016 that falls within an employer’s non-calendar 2015 plan year, if an applicable large employer with at least 100 full-time employees (including full-time equivalents) does not offer coverage to at least 70% of its full-time employees (and their dependents), it owes an Employer Shared Responsibility payment equal to the number of full-time employees the employer employed for the month (minus 80) multiplied by 1/12 of $2,000, provided that at least one full-time employee receives a premium tax credit for that month. See questions 24 and 25.
39. For 2015, if an employer with at least 100 full-time employees (including full-time equivalents) offers coverage to at least 70% of its full-time employees, and, nevertheless, owes an Employer Shared Responsibility payment, how is the amount of the payment calculated?
For an employer with at least 100 full-time employees (including full-time equivalents) that offers coverage to at least 70% of its full-time employees in 2015, but has one or more full-time employees who receive a premium tax credit, the payment is computed separately for each month. The amount of the payment for the month equals the number of full-time employees who receive a premium tax credit for that month multiplied by 1/12 of $3,000. The amount of the payment for any calendar month is capped at the number of the employer’s full-time employees for the month (minus up to 80) multiplied by 1/12 of $2,000. See questions 24 and 25
The 227 pages of guidance issued contain many clarifications and additional rules – the bullets in this posting only provide highlights from the final regulations. Please consult your legal counsel regarding the impact these rules might have on your organization. You may find the Treasury Fact Sheet here and the final regulations here. Politico and the Washington Post were the first to report. We will continue to post additional insight into the impact of these final regulations in the future.
