This publication was
written by members of Ballard Spahr's Employee
Benefits and Executive Compensation Group.
Very large employers will
be required to offer health care coverage to their full-time employees or pay a
penalty to the federal government beginning January 1, 2015. Under the final
regulations released by the U.S. Department of Treasury (Treasury
Department) on February 10, 2014, however, employers with fewer than 100
full-time employees will have an extra year to plan for and implement the
employer mandate.
For larger employers,
enforcement in 2015 will apply only to employers who fail to offer coverage to
at least 70 percent of their full-time workforce. The regulations also provide
additional guidance for determining the status of full-time employees and
counting hours of service. Otherwise, the final regulations retain most of the
guidance issued in the proposed regulations and four
earlier Internal Revenue Service notices on minimum
value and reporting requirements and methods
for determining employee status.
The shared responsibility
provisions of the Patient Protection and Affordable Care Act (ACA) require
large employers to offer full-time employees (and their dependents) the
opportunity to enroll in adequate and affordable coverage under an
employer-sponsored plan or pay a penalty. The rules are often referred to as
the employer mandate or pay-or-play requirement. In July 2013, the Treasury
Department announced that no penalties would apply for 2014 and delayed related
informational reporting obligations for large employers and providers of their
plans. With the issuance of these final regulations, employers subject to
the mandate can now make employee coverage decisions and prepare for
enforcement beginning as early as January 1, 2015.
Highlights of the final
regulations include:
Delay of Employer
Mandate
The final regulations
reaffirm that the requirement to offer health coverage applies only to
employers with an average of at least 50 full-time employees, based on the
prior year's data. To ensure a gradual phase-in of the employer mandate,
however, the final regulations provide that only employers with 100 or more
full-time employees will be subject to the employer mandate for 2015. Employers
that are subject to the employer mandate provisions in 2015 must offer coverage
to at least 70 percent (as opposed to 95 percent) of their full-time employees
(and their dependents) to avoid a penalty.
Beginning in 2016,
employers with 50 or more full-time employees will be subject to the employer
mandate. Employers that are subject to the employer mandate provisions in 2016
must offer coverage to at least 95 percent of their full-time employees (and
their dependents) in order to avoid a penalty.
Full-Time Employee
Status Determinations
Like the proposed
regulations, the final regulations 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 employees (employees who
average at least 30 hours of service per week). The final regulations clarify
the application of this method (along with the associated administrative and
stability periods) and the alternative monthly method of determining full-time
employee status.
Hours of Service
Guidance
The Treasury Department
discusses the challenge of determining "hours of service" for
employees of certain types or in certain occupations and identifies certain
methodologies that will be accepted as reasonable until further guidance is
issued, including:
- Adjunct faculty: Employers of adjunct faculty must use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer mandate provisions. The Treasury Department has determined that one reasonable method is to credit an adjunct faculty member with 2¼ hours of service per week for each hour of teaching or classroom time and one hour of service per week for each additional hour outside of the classroom the faculty member spends performing required duties.
- Employees with "on-call" hours: Employers of employees with on-call hours 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. The Treasury Department provides a few examples, including that an employer must credit an employee with an hour of service for any on-call hour for which the employee has been paid or is entitled to payment.
- Temporary staffing firms: The final regulations discuss how employees of temporary staffing firms should be categorized and when such employees have separated from service with the staffing firm.
- Seasonal employees: Employees in positions for which the customary annual employment is six months or less generally will not be considered full-time employees.
- Rehired employees: The final regulations retain the rehire rules contained in the proposed regulations but reduce, in most situations, the length of the break in service required before a returning employee may be treated as a new employee from 26 weeks to 13 weeks.
The regulations exclude
from "hours of service" certain workforce activities, including:
- Hours contributed by bona fide volunteers for a government or tax-exempt entity
- Service performed by students under federal or state-sponsored work-study programs
- Any work performed by an individual who is subject to a vow of poverty as a member of a religious order when the work is in the performance of tasks usually required of an active member of the order
Notably, the final
regulations do not include any special provisions that address short-term employees
or employees in high-turnover positions.
Affordability Safe
Harbors
The final regulations
preserve several safe harbors that are designed to make it easier for employers
to determine whether the coverage they offer is affordable to employees. These
safe harbors permit employers to use the Form W-2 wages they pay, their
employees’ hourly rates, or the federal poverty level in determining whether
employer coverage is affordable under the ACA. The Treasury Department
clarified a few outstanding questions on how these safe harbors should be
administered.
2015 Transition
Provisions
In addition to the 2015 transition relief provided regarding the employer
mandate (addressed above), the final regulations extend 2015 transition relief
to several other rules that originally applied only to 2014 under the proposed
regulations, including:- Non-calendar year plans: Employers with plan years that do not start on January 1 will be subject to the employer mandate when their plan years begin in 2015, rather than on January 1, 2015.
- Transition measurement period: For stability periods that begin in 2015, employers may adopt a transition measurement period that is shorter than 12 months but no less than six months, even if the corresponding stability period is 12 months.
- Determining large employer status in 2015: Employers can determine whether they are a large employer for 2015 by reference to a period of at least six consecutive months in 2014, instead of the full 2014 calendar year.
- Dependent coverage: The requirement 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.
- Multiemployer plans: Like the proposed regulations, the final regulations contain transition guidance that is intended to provide employers that contribute to multiemployer plans with an administratively feasible means to comply with the employer mandate.
As the federal health care
reform effort gained steam, Ballard Spahr attorneys established the Health
Care Reform Initiative to monitor and analyze legislative developments.
With federal health care reform now a reality, our attorneys are assisting
health care entities and employers in understanding the relevant changes and
planning for the future. They also have launched the Health
Care Reform Dashboard, an online resource center for news and analysis on
developments under the Affordable Care Act.
If you have questions about the shared responsibility provisions of the ACA or any other implications of the law, contact Brian M. Pinheiro at 215.864.8511 or pinheiro@ballardspahr.com, Jean C. Hemphill at 215.864.8539 or hemphill@ballardspahr.com, or Jonathan M. Calpas at 215.864.8385 or calpasj@ballardspahr.com.
Source: Ballard Spahr
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