Final Employer Shared Responsibility Regulations Issued
BACKGROUND
Under the ACA and Internal Revenue Code (“IRC”) §4980H, an applicable large employer that, for a calendar month, fails to offer to at least 95% of its full-time employees health coverage that is both affordable and provides minimum value may be subject to a penalty if any of its full-time employees for that month purchase a qualified health plan through a state-based marketplace through the use of a premium tax credit or subsidy. An applicable large employer is defined as one that employed, during the preceding calendar year, an average of at least 50 full-time employees, including full-time equivalents.
Coverage under an employer-sponsored plan is deemed to be affordable for an employee as long as the employee’s required contribution toward the cost of single only health coverage does not exceed 9.5% of their household income. To determine household income, several safe harbors exist. For example, an applicable large employer can use an employee’s Form W-2, Box 1 wages as household income. Other safe harbors include hourly rates paid to employees or Federal poverty level. Coverage under an employer-sponsored plan provides minimum value as long as the plan’s share of the total allowed costs of benefits provided under the plan is at least 60% of those costs. A health plan meets this standard if it is designed to pay at least 60% of the total cost of medical services for a standard population.
The employer shared responsibility provision was originally set to take effect on January 1, 2014. Last summer, the IRS issued Notice 2013-45 delaying the effective date of this provision to January 1, 2015. Please refer to our previous alert dated July 26, 2013. The release of these final regulations provides further transitional relief for certain employers.
DEFINITION OF FULL-TIME EMPLOYEE
For purposes of the employer shared responsibility provision, a full-time employee is defined in the final regulations as an employee, with respect to a calendar month, who is employed and provides an average of at least 30 hours of service per week, or 130 hours of service per month.
TRANSITIONAL RELIEF
As noted earlier, the final regulations provide transitional relief for large and mid-sized employers. The Department has stated that this transitional relief was instituted to ensure a gradual phase-in of the employer shared responsibility provision and to assist employers that are subject to the provision.
Applicable large employers that have at least 50 but no more than 99 full-time employees, including full-time equivalents, have been granted an additional year until January 1, 2016 to comply with the employer shared responsibility provision.
In addition, applicable large employers that have 100 or more full-time employees, including full-time equivalents, are still subject to the employer shared responsibility provision on January 1, 2015; however, they will only be required to offer health coverage that is affordable and provides minimum value to at least 70% of their full-time employees during 2015. This will increase to the 95% indicated above effective for the 2016 year. The Department believes that this transitional relief will help employers that, for example, may be currently offering coverage only to those employees that work an average of 35 hours per week or more but not yet to those employees that work an average of between 30 and 34 hours of service per week.
To qualify for the transitional relief, employers must provide appropriate certification as defined in the final regulations.
TYPES OF EMPLOYEES
The final regulations also address and provide clarifications with respect to certain types of employees or occupations and whether or not these employees are considered full-time for purposes of the employer shared responsibility provision. The Department provides the following in a Fact Sheet which summarizes the final regulations:
- Bona fide volunteers of government or tax-exempt entities, such as volunteer firefighters, will not be considered full-time employees.
- Teachers and other educational employees are to be treated as full-time even if their school is closed or operating on a limited schedule (e.g. summer).
- Seasonal employees with customary annual employment of six months or less generally will not be considered full-time employees.
- Service performed by students under federal or state-sponsored work-study programs will not be counted in determining whether or not they are full-time employees.
- Until further guidance is issued, employers of adjunct faculty are to use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer shared responsibility provision. The final regulations expressly allow crediting an adjunct faculty member with 2¼ hours of service per week for each hour of teaching or classroom time as a reasonable method for this purpose.
OTHER PROVISIONS
Certain other provisions that were originally slated to take effect in 2014 that have already been delayed until 2015 still remain:
- To help accommodate employers that will be subject to the employer shared responsibility provision for the first time, employers can determine whether they had at least 100 full-time employees, including full-time equivalents, in the previous year by reference to a period of at least six consecutive months; instead of a full year.
- Employers with non-calendar year plans will not be subject to the employer shared responsibility provision until their plan year starts in 2015; not on January 1, 2015.
- The policy that employers offer coverage to their full-time employees’ dependents will not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.
- On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months even with respect to a stability period – the time during which an employee with variable hours must be offered coverage – of up to 12 months.
The Department has stated that as these limited transition rules take effect, they will take into consideration whether or not it will be necessary to further extend any of them beyond 2015.
CONCLUSION
Although the enforcement of the employer shared responsibility provision for certain employers has been delayed, it is important for employers to consider the potential applicability of this provision in the future. It is estimated that 96% of employers are small businesses and have less than 50 employees thus exempting them from the employer shared responsibility provision. The Department has indicated that final regulations with respect to the employer reporting requirements associated with the employer shared responsibility provision under IRC §6055 and §6056 will be forthcoming from the Internal Revenue Service (“IRS”). In addition, the IRS has released a series of 46 questions and answers related to the employer shared responsibility which can be accessed at the following link:
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