The Treasury Department and the Internal Revenue Service issued final regulations Monday implementing the employer shared responsibility provisions of the Affordable Care Act, also known as the employer mandate, providing additional time to small and large businesses.
The provisions will take effect in 2015 following a delay last year (see Obama Administration Delays Employer Mandate for Affordable Care Act). The Treasury and the IRS said that future regulations would simplify reporting for businesses to substantially streamline the employer reporting requirements for employers that offer highly affordable coverage to all, or virtually all, of their full-time employees.
Businesses that employ between 50 and 99 full-time workers have until 2016 to comply with the employer mandate to provide health insurance. Those that claim the exemption for 2015 will need to certify under penalty of perjury that they did not reduce their workforce to fewer than 100 employees in order to qualify.
Large employers with 100 or more full-time employees were also given additional time. The proposed regulations had originally required that they offer coverage to 95 percent of their full-time employees starting in 2015. That requirement has now been reduced to 70 percent in 2015 and 95 percent beginning in 2016. However, there is no delay in the individual mandate that requires health insurance coverage for nearly all Americans this year.
The employer responsibility rules issued Monday are intended to help employers affected by these policies in providing quality, affordable coverage to workers. If employers decide not to offer insurance to their employees, they will make an employer shared responsibility payment beginning in 2015 to help offset the costs to taxpayers of their employees getting tax credits through the Health Insurance Marketplace.
“While about 96 percent of employers are not subject to the employer responsibility provision, for those employers that are, we will continue to make the compliance process simpler and easier to navigate,” said Assistant Secretary for Tax Policy Mark J. Mazur in a statement. “Today’s final regulations phase in the standards to ensure that larger employers either offer quality, affordable coverage or make an employer responsibility payment starting in 2015 to help offset the cost to taxpayers of coverage or subsidies to their employees.”
The final rules issued Monday implement the employer shared responsibility provisions of the Affordable Care Act, under Section 4980H of the Tax Code. The rules make a number of improvements in response to input on the proposed regulations that were issued in December 2012.
They address a number of questions about how plans can comply with the employer shared responsibility provisions and ensuring that volunteers such as firefighters and emergency responders do not count as full-time employees. In addition, the final regulations phase in provisions for businesses with 50 to 99 full-time employees and those that offer coverage to most but not yet all of their full-time workers.
Under the Affordable Care Act, companies that have fewer than 50 employees are not required to provide coverage or fill out any forms in 2015, or in any year. This covers about 96 percent of all companies.
For larger employers with 100 or more employees, the overwhelming majority of them already offer quality coverage, the Treasury and the IRS noted. The new rules phase in the percentage of full-time workers to whom employers need to offer coverage from 70 percent in 2015 to 95 percent in 2016 and beyond. Employers in this category that do not meet these standards will make an employer responsibility payment for 2015.
For the 2 percent of companies with 50 to 99 employees that do not yet provide quality, affordable health insurance to their full-time workers, they will report on their workers and coverage in 2015, but they will have until 2016 before any employer responsibility payments would apply.
The employer responsibility provision will generally apply to larger firms with 100 or more full-time employees starting in 2015 and employers with 50 or more full-time employees starting in 2016.
To avoid a payment for failing to offer health coverage, employers need to offer coverage to 70 percent of their full-time employees in 2015 and 95 percent in 2016 and beyond, helping employers that, for example, may offer coverage to employees with 35 or more hours, but not yet to that fraction of their employees who work 30 to 34 hours.
Various Employee Categories
The final regulations also provide several clarifications, many of which are based on comments on the proposed regulations, regarding whether employees of certain types or in certain occupations are considered full-time, including:
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 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.
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: Based on the comments received by the Treasury and the IRS, the final regulations provide as a general rule 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, to accommodate the need for predictability and ease of administration and 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 for this purpose.
To provide a gradual phase-in of the employer responsibility provisions and assist employers in complying and providing coverage, the final rules provide transition relief for 2015.
While the employer responsibility provisions will generally apply starting in 2015, they will not apply until 2016 to employers with at least 50, but fewer than 100, full-time employees if the employer provides an appropriate certification described in the rules.
Employers that are subject to the employer responsibility provisions in 2015 must offer coverage to at least 70 percent of their full-time employees as one of the conditions for avoiding an assessable payment, rather than 95 percent, which will begin in 2016.
Full-Time Employee Status Determinations
Like the December 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.
Affordability Safe Harbors
Like the proposed regulations, the final rules provide safe harbors to make it easier for employers to determine whether the coverage they offer is affordable to employees.
The 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.
Other Specific 2015 Provisions
In addition to the two forms of 2015 transition relief noted earlier, a package of limited transition rules that applied to 2014 under the proposed regulations is extended to 2015 under the final regulations, including:
Employers first subject to shared responsibility provision: Employers can determine whether they had at least 100 full-time or full-time equivalent employees in the previous year by reference to a period of at least six consecutive months, instead of a full year. This will help facilitate compliance for employers that are subject to the employer shared responsibility provision for the first time.
Non-calendar year plans: Employers with plan years that do not start on January 1 will be able to begin compliance with employer responsibility at the start of their plan years in 2015 rather than on January 1, 2015, and the conditions for this relief are expanded to include more plan sponsors.
Dependent coverage: 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.
As these limited transition rules take effect, the Treasury and IRS said they would consider whether it is necessary to further extend any of them beyond 2015.
Many comments on the proposed employer information reporting regulations have urged that final rules provide streamlined ways to comply with employer information reporting, 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.
The Treasury and the IRS said they would issue final regulations shortly that aim to substantially simplify and streamline the employer reporting requirements.
For more information on determining whether an employer is subject to the employer shared responsibility regulations, click here.