February 21, 2014
The United States Treasury Department issued much anticipated final regulations on the Affordable Care Act’s (“ACA”) employer shared responsibility provision on Monday, February 10, 2014. The final regulations’ major impact will be to delay the employer mandate for employers with between 50 to 99 employees until 2016. Employers with 100 or more employees also receive “phase-in” relief for 2015 that reduces potential penalties and lowers thresholds for offering full-time employees coverage. Employers with less than 50 employees are still not required to offer health insurance to employees under the ACA.
Delay for “mid-size” employers between 50 to 99 employees
The most significant impact from the final regulations is the delay of the employer shared responsibility provision (the so-called “employer mandate” or “pay or play penalties”) for mid-size employers until 2016. The delay will impact about two percent of all American business and seven percent of all workers according to the Treasury.
This transitional relief will be available to employers that satisfy the following criteria:
Phase-in relief for “large” employers with 100 or more employees
The regulations extend phase-in relief for employers with 100 or more employees. For 2015, to avoid penalties under the ACA, such employers must offer minimum essential coverage to 70 percent of their full-time employees. The threshold increases to 95 percent in 2016. Also, for 2015 plus any calendar months of 2016 that fall within the employer’s 2015 plan year, an employer subject to the penalty for not offering health insurance to its full-time employees may exclude the first 80 full-time employees for purposes of the penalty calculation rather than 30. The exclusion figure will revert to 30 for 2016.
Additional Transition Rules for 2015
Much of the transition rules that were published in the proposed regulations for 2014 were carried over to 2015. They include:
Temporary Staffing Firm Rules
The regulations set forth several provisions applicable to temporary staffing firms. Among them, the regulations provide that if a staffing firm makes an offer of coverage to an employee performing services for the client of the staffing firm under a plan established by the staffing firm, it will be treated as an offer of coverage made by the client. To qualify, the fee the client pays to the staffing firm must be higher than the fee would be if the employee did not enroll in health coverage under the plan, and the employee must not be considered the common law employee of the staffing firm.
Monthly Measurement Method To Determine Full-Time Employee Status
The final regulations detail an alternative monthly measurement method to determine an employee’s full time status on a month-to-month basis, rather than using the measurement and stability period method. Under this method, employers will determine an employee’s full-time status based on whether the employee averages 30 or more hours of service for the month.
Reasonable Expectations for Variable Employees
Full-time employees continue to be defined as employees who are reasonably expected to work 30 or more hours of service per week. If an employer cannot determine whether an employee is reasonably expected to be employed on average at least 30 hours of service per week during the initial measurement period because the employee’s hours are variable or otherwise uncertain, then the employee may be designated “variable.”
The facts and circumstances that may be considered in determining if an employee is variable are based on factors, which include, but are not limited to:
Seasonal Employees versus Seasonal Workers
The proposed regulations defined seasonal workers for purposes of the large employer determination, but did not define seasonal employees. In the final regulations, seasonal employees are defined as those employees hired into a position for which customary annual employment is six months or less. The preamble to the regulations sets forth that the period of employment should begin each calendar year in approximately the same part of the year. Seasonal employees’ employment status may be determined using the measurement period and stability period method used for variable employees.
Rehire Rules Modified
Under the proposed regulations, employees returning to work after a layoff of up to 26 weeks, could be required to be considered a continuing employee upon return. The final regulations lowered the threshold period to 13 weeks (except for educational organizations, which remain subject to the 26-week period). However, the final regulations retained an optional “rule of parity” for leaves of more than four weeks. Under the rule of parity, an employee must be treated as a continuing employee if the length of the leave is less than the length of time that the employee was employed. For example, an employee who left employment for eight weeks, could be treated as a new employee upon return if the employee had only worked for the employer for seven weeks prior to the leave. However, the same employee would have to be treated as a continuing employee if the employee had worked for the employer for nine weeks prior to the eight week break in service.
The final regulations continue to exclude spouses from the definition of dependents, meaning that employers do not have to offer health insurance to full-time employees’ spouses. Dependents, however, includes children until they reach age 26. The final regulations establish that adopted children are dependents, but foster children and stepchildren are not dependents. The IRS rejected suggestions to add grandchildren and other relatives as dependents under the ACA.
The above summary covers some of the more significant highlights of the final regulations, but additional changes to the rules are contained in the final regulations, which are too numerous to discuss in detail here. A more in-depth analysis will be forthcoming, including an update on these and other ACA issues at the Employment Law Conference on March 27, 2014. We will keep you apprised of updates as they become available and are scheduled. In the meantime, if you have any questions, please contact one of the authors.