- Employers with between 50 and 99 full-time employees: Employers with least 50 but fewer than 100 full-time employees (including full-time equivalent employees) will have an additional year, until 2016, to meet the requirements of Section 4980H if the employer provides an appropriate certification described in the final rule. This transition relief is provided for all of 2015 plus, in the case of any non-calendar plan year that begins in 2015, the portion of that 2015 plan year that falls in 2016. To qualify for this relief, during the period beginning on February 9, 2014 and ending on December 31, 2014, the employer must not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition. A reduction in workforce size or overall hours of service for bona fide business reasons will not be considered to have been made in order to satisfy the workforce size condition. For the period from February 9, 2014 and ending on December 31, 2015 (or from February 9, 2014 until the last day of the plan year that begins in 2015 for non-calendar year plans), the employer must not eliminate or materially reduce the health coverage, if any, it offered as of February 9, 2014.
- Employers with 100 or more full-time employees: For each calendar month during 2015 and any calendar months during the 2015 plan year that fall in 2016, employers with 100 or more full-time employees (including full-time equivalent employees) will not be subject to a penalty for failing to provide minimum essential coverage under Section 4980H(a) if the employer offers coverage to at least 70% (instead of 95%) of its full-time employees (and their dependents). Beginning in 2016, such an employer must offer coverage to at least 95% of its full-time employees (and their dependents) to avoid paying the penalty under Section 4980H(a). For each calendar month during 2015 and any calendar months during the 2015 plan year that fall in 2016, the penalty for employers that fail to offer health coverage to at least 70% of full-time employees (and their dependents) is calculated by subtracting their allocable share of 80 rather than 30 full-time employees. In other words, the penalty will be $2,000 per year multiplied by the number of full-time employees over 80. Employers qualifying for this transition relief from a penalty under Section 4980H(a) in 2015 are still subject to a potential penalty under Section 4980H(b).
- Non-Calendar Year Plans: Employers with healthcare plan years that do not start on January 1 will be able to begin compliance with the employer responsibility mandate at the start of their plan years in 2015, rather than on January 1, 2015, if certain conditions are met. If an employer maintains a fiscal year plan as of December 27, 2012, and offers affordable, minimum value coverage to a full-time employee no later than the first day of the 2015 plan year, no Section 4980H penalty will be due with respect to that employee for the period prior to the first day of the 2015 plan year. In addition, the scope of the transition relief is expanded to include employers that covered or offered coverage to a significant percentage of either full-time employees or a significant percentage of all employees.
- Shorter Measurement Period: For the purposes of stability periods beginning in 2015, employers may use a measurement period of at least six months that begins no later than July 1, 2014 and ends no earlier than 90 days before the first day of the first plan year beginning on or after January 1, 2015. Accordingly, employers can use a six-month measurement period for a stability period of up to 12 months in 2015.
- Shorter Period to Determine Large Employer Status for 2015: For the 2015 calendar year, employers can refer to the prior six-month period instead of 12 months in determining whether they are applicable large employers.
- Coverage for Dependents: The requirement to offer coverage to full-time employees' dependents will not apply in 2015 to employers that are taking steps during their 2014 plan year to arrange for such coverage to begin in 2016. The proposed rule defined a dependent as a child as defined under Section 152(f)(1) of the Internal Revenue Code (IRC) who has not reached age 26. The final rule modifies the definition of a dependent to exclude foster children, stepchildren, or a child who is not a U.S. citizen or a national (unless the child is resident of a country contiguous to the U.S or within the exception for adopted children described in Section 152(b)(3)(B)).
- Multiemployer Plans: The final rule extends the guidance in the proposed rule about the treatment of multiemployer plans. The transition guidance applies to an employer that is required by a collective bargaining agreement to make contributions with respect to some or all of its employees to a multiemployer plan that offers, to employees who satisfy the plans eligibility conditions, coverage that is affordable and provides minimum value, and that offers coverage to those employees' dependents. The guidance will apply unless and until further guidance is issued. Any further guidance that limits the scope of the interim guidance will be applied prospectively and will apply no earlier than January 1 of the calendar year beginning at least six months after issuance of the new guidance. Despite this guidance, the treatment of multiemployer plans under the ACA remains uncertain. Unions have voiced their concerns with the impact of the law on multiemployer plans and employers that contribute to multiemployer plans face challenges with the law's implementation.
- Volunteers: Hours contributed by bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not cause them to be considered full-time employees.
- Student employees: Hours of service do not include work performed by students in positions subsidized through the federal work study program or a substantially similar state or local program. However, hours of service for student interns who receive or are entitled to compensation from the employer would be included in the calculation to determine full-time employee status.
- Adjunct faculty: The final regulations provide that, 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, consistent with the request for a "bright line" approach suggested in a number of the comments, 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.
- Airline employees: The IRS is continuing to consider how to determine hours of service, including layover hours, for airline industry employees and other employees whose hours of service are difficult to track. Until further guidance is issued with respect to categories of employees whose hours are particularly challenging to track, employers must use a method of crediting hours of service for those employees that is reasonable under the circumstances and consistent with the employer responsibility provisions. With respect to layover hours, it is not reasonable for an employer not to credit a layover as an hour of service if the employee receives any additional compensation for the layover.
- On-call hours: The IRS is considering additional rules the treatment of on-call hours. Until further guidance is issued, the preamble to the final rule states that it is not reasonable for an employer to fail to credit an employee with an hour of service for any on-call hour for which payment is made or due by the employer, for which the employee is required to remain on-call on the employer's premises, or for which the employee's activities while remaining on-call are subject to substantial restrictions that prevent the employee from using the time effectively for the employee's own purposes.
- Service outside the United States: An hour of service does not include any hour of service to the extent the compensation for such work constitutes foreign source income. Therefore, hours of service generally do not include hours worked outside the United States.
- Ongoing employees: For ongoing employees, an employer would determine each employee's full-time status by looking back at a defined measurement period of three to 12 months to determine full-time status for a subsequent "standard stability period." If an employee worked an average of 30 hours per week during the measurement period, the employer would treat the employee as full-time during the subsequent stability period, the duration of which would be at least the greater of six consecutive calendar months or the length of the measurement period. If an employee did not work an average of 30 hours per week during the standard measurement period, the employer would treat the employee as not full-time during the subsequent stability period, which may be no longer than the associated measurement period.
- New or seasonal employees: As with the proposed rules, the final rule allows employers to use a look-back measurement period for determining the full-time status of variable hour or seasonal employees. The application of the look-back measurement period to a new employee depends on the employer's reasonable expectations of the status of the employee at the start date. The final regulations provide that whether an employer's determination that a new hire is or is not a full-time employee is reasonable is based on the facts and circumstances. Factors to consider include, but are not limited to, whether the employee is replacing an employee who was or was not a full-time employee, the extent to which employees in the same or comparable positions are or are not full-time employees, and whether the job was advertised, or otherwise communicated to the new hire or otherwise documented (for example, through a contract or job description), as requiring hours of service that would average 30 (or more) hours of service per week or less than 30 hours of service per week.
- New employees reasonably expect to work full-time: If an new employee is reasonably expected to work full-time at his or her start date, the employer must offer health coverage by the first day of the month immediately following the employee's initial three full calendar months of employment to avoid the penalty under 4980H(a). The employer will not be subject to a penalty under 4980H(b) for the initial three-month period only if the coverage offered provides minimum value.
- New variable hour employees: A new employee is considered a variable hour employee if the employer cannot determine whether the employee is reasonably expected to work full-time at the employee's start date. For new variable hour employees (as well as new part-time and seasonal employees), an employer may determine whether a new employee is a full-time employee using an initial measurement period of between three and 12 months that begins on any date between the employee's start date and the first day of the first calendar month following the employee's start date (or on the first date of the first payroll period starting on or after the start date, if later). The stability period for such employees must be the same length as the stability period for ongoing employees. If the new variable hour employee has averaged at least 30 hours of service during the initial measurement period, the employer must treat the employee as full-time during the subsequent stability period, which must be at least six consecutive calendar months and no shorter than the initial measurement period. If the new variable hour employee did not average at least 30 hours during the initial measurement period, the stability period must not be more than one month longer than the initial measurement period and must not exceed the remainder of the first entire standard measurement period (plus any associated administrative period). The final rule clarifies that the initial measurement period need not be based on calendar months, although the stability period must be based on calendar months. The employer must retest a new variable hour employee once he or she has been employed for an entire standard measurement period.
- New part-time employees: The final rule adds a definition of part-time employee, and clarifies that the measurement period rules applicable to new variable hour employees also apply to new part-time employees.
- Seasonal employees: Employers are also permitted to use the same measurement period rules to determine the full-time status of seasonal employees. The final rule defines a seasonal employee as one in a position for which the customary annual employment is six months or less.
- Change in employment status: The final regulations provide a special rule for an employee who changes status during the initial measurement period, from part-time to full-time status.
- Administrative period: As in the proposed rule, the final rule allows employers to use administrative periods of up to 90 days between the measurement period and stability period to determine which ongoing employees are eligible for coverage, and to notify and enroll employees. The final rule revises the definition of the administrative period to include periods before the initial measurement period. The employer can use an administrative period of up to 90 days for new variable hour, part-time and seasonal employees, which may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of their start date.
- W-2 safe harbor: Health coverage is deemed affordable if that employee's required contribution for the calendar year for the employer's lowest cost self-only coverage that provides "minimum value" during the entire calendar year (excluding COBRA or other continuation coverage) does not exceed 9.5% of that employee's Form W-2 wages from the employer for the calendar year. The IRS rejected requests to use the wages from the prior year's W-2 instead of the current year's.
- Rate of pay safe harbor: Under the rate of pay safe harbor, an offer of coverage is deemed affordable to an hourly employee if the employee's required contribution for the calendar month for the lowest cost self-only coverage that provides minimum value does not exceed 9.5% of an amount equal to 130 multiplied by the employee's hourly rate of pay as of the first day of the coverage period (generally the first day of the plan year) or the lowest hourly rate during the calendar month. The final rule allows an employer to use the rate of pay safe harbor even if an hourly employee's rate of pay is reduced during the year. For non-hourly employees, the coverage is treated as affordable for the calendar month if the employee's required contribution for the calendar month for the lowest cost self-only coverage that provides minimum value does not exceed 9.5% of the employee's monthly salary.
- Federal poverty level safe harbor: An offer of coverage is deemed affordable if the employee's required contribution for the lowest cost self-only coverage that provides minimum value does not exceed 9.5% of the federal poverty level for a single individual.
2 An employer has several options for determining minimum value (MV), including the MV Calculator, available at http://cciio.cms.gov/resources/regulations/index.html. Alternatively, a plan may determine MV through one of the safe harbors being established by HHS and the IRS. For plans with nonstandard features that are incompatible with the MV Calculator or a safe harbor, the plan may determine MV through an actuarial certification from a member of the American Academy of Actuaries after the member performed an analysis in accordance with generally accepted actuarial principles and methodologies. 79 Fed. Reg. at 8545.
3 78 Fed. Reg. 217 (Jan. 2, 2013). See also Ilyse Schuman and David Weiner, IRS Issues Proposed Rule on ACA Play or Pay Requirements, Littler ASAP (Jan. 4, 2013), available at http://www.littler.com/publication-press/publication/irs-issues-proposed-rule-aca-play-or-pay-requirements.
4 78 Fed. Reg. 54996. (Sept. 5, 2013).
5 Permissible employee categories are (1) collectively bargained employees and non-collectively bargained employees, (2) each group of collectively bargained employees covered by a separate collective bargaining agreement, (3) salaried and hourly employees, and (4) employees whose primary places of employment are in different states. 26 CFR § 54.4980H-3(d)(1)(v).
6 See Ilyse Schuman, Michael Lotito, Steve Friedman, Barry Hartstein, Linda Jackson, and Tammy McCutchen, Workplace Policy Institute: The Labor, Employment and Benefits Law Implications of the Affordable Care Act - Are You Prepared? Littler Report (May 9, 2013), available at http://www.littler.com/publication-press/publication/workplace-policy-institute-labor-employment-and-benefits-law-implicati.
Ilyse Schuman, Co-Chair of Littler's Workplace Policy Institute™, is a Shareholder in the Washington, DC office. If you would like further information, please contact Ms. Schuman at firstname.lastname@example.org.
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