The employer mandate provisions of the Affordable Care
Act (ACA) apply to any employer that employs at least 50 full-time (or
full-time equivalent) employees. Under the mandate, an employer that does not
offer health insurance coverage to substantially all (95 percent) of its
full-time employees (and their dependents) potentially could be subject to a
penalty tax. The mandate was scheduled to go into effect on Jan. 1, 2014, but
the IRS previously delayed the effective date for all employers until Jan. 1, 2015.
Delay for medium-sized employers
Employers that have more than 49, but less than 100,
full-time employees will not be subject to the ACA penalty until plan years
starting in 2016.
In order to qualify for this transitional relief, an
employer will have to certify to the IRS that:
It did not reduce (other than for bona fide business
reasons) the size of its workforce or the overall hours of service of its
employees in order to satisfy the workforce size condition.
If it offered health coverage during the period beginning on Feb. 9, 2014,
and ending on the last day of its 2015 plan year (i.e., the “coverage
maintenance period”;), the employer did not eliminate or materially reduce
the health coverage it offered.
An employer cannot extend this relief period by changing
the plan year of its plan after Feb. 9, 2014, to begin on a later calendar date
(for example, by changing the start date of the plan year from Jan. 1 to Dec.
Determining large employer status
In most instances, a company is required to determine
whether it is a large employer by looking back to the prior calendar year.
However, for 2015, the IRS is allowing employers to use any consecutive
six-month period in 2014 (rather than the full calendar year).
For those plans that offer employee-only coverage (no
dependent coverage currently offered), the final regulations extend until 2016
the deadline for the employer to begin offering coverage.
Coverage relief for larger employers
The employer mandate will apply to firms with 100 or more
full-time employees starting in 2015. However, in 2015, such employers only
need to offer health coverage to 70 percent of their full-time employees. For
2016 and future years, a 95-percent standard will apply.
Similar to the rule for medium-sized employers, the
transition relief for large employers applies to all months of 2015 plus any
calendar months of 2016 that fall within the employer’s 2015 plan year,
provided the employer did not modify the plan year after Feb. 9, 2014, to begin
on a later calendar date.
The maximum penalty for an employer with 100 or more
full-time employees or full-time equivalent employees for its 2015 plan year
will be based on the number of full-time employees minus 80. For 2016 and
future plan years, the number will be 30.
For example: If an employer that does not offer health
insurance to its full-time employees (and their dependents) has 150 full-time
employees and at least one full-time employee buys tax-subsidized health
insurance, the employer’s penalty in 2015 will be $140,000 (150-80 × $2,000).
In 2016, that same employer’s penalty will be $240,000 (150-30 × $2,000).
Full-time employee determinations
Even with the IRS having issued final regulations, it
appears that this area will continually evolve. The preamble to the regulations
indicates that the IRS is continuing to consider additional rules for the
determination of hours of service with respect to certain categories of
employees (including adjunct faculty, commissioned salespeople and airline
employees), as well as certain categories of hours, including layover hours
(for airline employees, for example) and on-call hours.
The final regulations do provide guidance with respect
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.
Educational employees—teachers and other educational
employees are not to be considered part-time employees simply because their
school is closed or operating on a limited schedule during the summer.
Seasonal employees—an employee whose position customarily
involves annual employment of six months or less generally will not be
considered full-time employees.
Student employees—hours of service performed by students
under federally or state-sponsored work-study programs are not to 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 mandate provisions. In this regard, the regulations provide a
“bright-line”; approach that allows the employer to credit an adjunct
faculty member with 2 ¼ hours of service per week for each hour of teaching or
Non-calendar year plans
Provided certain conditions are met, those employers that
as of Feb. 9, 2014, sponsored plan years that do not start on Jan. 1 are not
subject to the employer mandate rules until the first day of their 2015 plan
year as opposed to Jan. 1, 2015.