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February 15, 2014

Employer Mandate Delayed Again, for Some; Final Regulations Provide Transition Relief, More

The IRS issued final regulations for employer shared responsibility under IRC § 4980H, commonly known as the employer mandate or "Play or Pay," on Feb. 11. A summary fact sheet was also released, as was an updated Q&A on this section of the Affordable Care Act.

Highlights of the final regulations include:

  • While the employer responsibility provisions generally apply starting in 2015, they will not apply until 2016 for employers with 50-99 full-time employees who certify that they (a) have not fired employees in order to get below the 100-employee threshold and (b) will not drop health plans they already offer.
  • Employers that are subject to the employer responsibility provisions in 2015 must offer coverage to at least 70 percent of full-time employees as one of the conditions for avoiding an assessable payment, rather than 95 percent which will begin in 2016.
  • In addition to the two forms of 2015 transition relief just listed, a package of limited transition rules that applied to 2014 under the proposed regulations is extended to 2015 under the final regulations. These are outlined in the fact sheet and in the final regulations.
  • The final regulations provide clarifications (many in response to public comment received on the proposed regulations) regarding whether employees of certain types or in certain occupations are considered full-time, including:
    • Volunteers: Bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not be considered full-time employees.
    • Seasonal employees: Those in positions for which the customary annual employment is six months or less generally will not be considered full-time employees.
    • Student work-study programs: Service performed by students under federal or state-sponsored work-study programs will not be counted in determining whether they are full-time employees.
    • Adjunct faculty: As a general rule, 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 responsibility provisions. However, the final regulations expressly allow crediting an adjunct faculty member with 2 ¼ hours of service per week for each hour of teaching or classroom time as a reasonable method for this purpose.
    • Educational employees: Teachers and other educational employees will not be treated as part-time for the year simply because their school is closed or operating on a limited schedule during the summer.
  • Like the Dec. 2012 proposed regulations, the final rules allow employers to use an optional look-back measurement method to make it easier to determine whether employees with varying hours and seasonal employees are full-time. Responding to comments, the final regulations also clarify the application of this method and the alternative monthly method of determining full-time status.
  • Like the proposed regulations, the final rules provide safe harbors that make it easy for employers to determine whether the coverage they offer is affordable to employees. These safe harbors permit employers to use the wages they pay, their employees’ hourly rates, or the federal poverty level in determining whether employer coverage is affordable under the ACA.

For complete details, please refer to the fact sheetupdated Q&A, and final regulations.

Many comments on the proposed regulations for employer information reporting have urged that those final rules, when issued, provide streamlined ways to comply, especially for employers that offer highly affordable coverage to all or virtually all of their full-time employees. Others have asked for a single form for employer and insurer reporting provisions when possible. Treasury and the IRS have indicated they will issue final regulations shortly with the goal of simplifying and streamlining employer reporting requirements.