By: Douglas L. McSwain
The employer mandate under the Affordable Care Act (ACA) has been held up again, much to the relief of many employers. While some may question the validity of the hold up, the ACA’s enforcers have announced they will provide employers transitional relief by permitting the mandate to be phased-in with various stages for different-sized employers. As a result, reporting requirements to the IRS will be affected. Furthermore, certain industries will have special rules applied, and employers need to be aware of the affected industries. Here’s a synopsis of the Obama Administration’s latest “final rule” provisions pertaining to the employer mandate.
Business Size Matters:
(A) Employers with fewer than 50 full-time equivalent employees still have no “mandate” to provide health coverage to employees. Nothing’s changed here, and presumably tax credits for employers with 25 or fewer employees are still available.
(B) Employers with 50 up to 99 full-time equivalent employees do not have to come into compliance with the employer “mandate” until 2016 or face a tax penalty. This amounts to another year’s delay in the employer mandate for these employers. This will give employers of this size another year to follow and track the hours of their full-time and part-time employees to be better prepared as to how to treat them in 2016 when compliance will be required. Also, this new deadline aligns with the fully functional SHOP exchange rollout. SHOP exchanges may be limited to employers with only 50 or fewer employees if states so choose in 2014-2015, but SHOP exchanges may be expanded to employers with up to 100 employees in 2016. Kentucky’s SHOP exchange is currently limited to employers with 50 or fewer employees, but is expected to expand and be available to employers with up to 100 employees in 2016. So, the Obama Administration’s delay of the employer mandate for employers with fewer than 100 employees for another year means employers of this size may be able to take advantage of Kentucky’s expected-to-expand SHOP exchange in 2016. This should facilitate compliance with the mandate in 2016 by reducing employers’ administrative costs in providing coverage.
(C) Employers with more than 100 employees have been provided phase-in relief during 2015. During 2015, employers of this size need only offer health coverage to 70% or more of their employees to avoid a tax penalty for non-compliance. This percent will still rise to 95% in 2016 as originally required in last year’s regulations; however, the additional year to ramp up toward making the offer of health coverage to only 70% in 2015 should provide employers extra maneuvering room to adjust. Furthermore, while the ACA requires that the offer be made to an employee and his or her “dependents,” during 2015 employers of this size need only make the offer to 70% of the employees. Dependent coverage need not be offered during this first transition year so long as employers are taking steps to offer dependent coverage in 2016. The 70% threshold to whom coverage must be offered during 2015 provides employers of this size “room to make mistakes.” Many employers have been concerned they would not be able to accurately track employees’ full-time versus part-time status, and these transitional rules for 2015 should provide a lot of “room to err.”
Particular Rules for Specific Businesses:
Other points of note in the new changes to the employer mandate include specific rules applicable to certain types of businesses. For example, “volunteers” in bona fide volunteer capacities with governmental agencies or tax-exempt entities such as volunteer firefighters and emergency responders will not have to have their volunteer hours counted, nor be considered full-time employees. Furthermore, teachers for educational systems will not necessarily be treated as part-time just because they take time off or have only limited schedules during summers. “Seasonal” employee rules have been relaxed to account for some employees working seasonal positions for up to six months. Student-work study programs have been defined out of inclusion for purposes of determining full-time employment. “Adjunct” or part-time faculty in higher education institutions are given a “bright line” approach for the counting of hours of such personnel. Generally, for every hour of in-classroom instruction, “adjunct” faculty are to be credited with an additional 2.25 hours of out-of-classroom work hours. This means that if “adjunct” faculty teach more than a 12 hour semester load, they will be deemed full-time for purposes of being included in the calculation of full-time equivalency under the employer mandate.
Full-Time Employee Status Determinations:
The newly released “final rules” provide some clarifications on the application of the look-back method of measuring full-time employee status. They also provide a new, alternative monthly method of determining “full-time” status. This alternative method provides some relaxation of the original rules, and employers concerned with miscalculation or with employees who are “on the line” of being full-time (i.e., average right around 30 hours per week) may find this alternative a little more forgiving.
Other Phase-In Provisions:
Employers on the cusp of going over the 100-employee threshold in 2014, and thus potentially being subject to the ACA’s employer mandate and subject to a potential tax penalty for the first time in 2015, may use the last 6 months of 2014 instead of the entire year to calculate whether they had at least 100 full-time equivalent employees. Employers in 2014 may, on a one-time basis, also use a measurement period of 6 months even with respect to a 12-month stability period for variable hour employees. Finally, employers with plan years that do not align with the end of 2014 may begin compliance at the start of their plan years in 2015 rather than at the beginning of 2015.
These are all important changes of which employers need to be aware. A link to the IRS website explaining in further detail the ACA’s employer mandate and “Employer Shared Responsibility Payment is here: http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act
For more information in the Louisville, KY; Lexington, KY or New Albany, IN areas, contact Doug McSwain.
For more information in the Memphis, TN; Nashville, TN or Jackson, MS areas, contact Elizabeth O’Keeffe or Charles Key.