HRB 89 - Final Rules Addressing the Employer Shared Responsibility Requirement
Released February 12, 2014I Download as a PDF February 12, 2014 --
One of the centerpieces of the Affordable Care Act (ACA) is the so-called employer shared responsibility requirement. This requirement, which was to take effect on January 1, 2014, and was subsequently delayed until 2015, is the subject of final regulations
As background, the employer shared responsibility requirement applies to employers employing 50 or more employees. It requires affected employers to offer a certain standard of health coverage to their employees working 30 or more hours per week, or risk one of two penalties (see CBIZ Health Reform Bulletins, Shared Responsibility Guidance (1/9/13) and Employer Shared Responsibility Reporting Requirements Delayed, 7/3/13).
The final regulations do not change the requirement that employers offer coverage or risk a penalty; however, they do provide a limited reprieve for certain employers. It should be noted that for purposes of determining employer size in the first year of compliance, affected employers can use any consecutive 6-month period occurring in the preceding calendar year.
Employers employing between 50 and 99 full-time (plus full-time equivalent) employees in 2014 will not be subject to the employer shared responsibility requirement, generally, until their plan anniversary occurring in 2016, as long as the employer does not materially reduce the health benefits offered as of February 9, 2014. To maintain its level of benefits, the employer must continue its contribution toward single coverage (the employer contribution must be maintained at least 95% of its level as of that date) and the employer must continue to maintain the class of employees and dependents to whom coverage is offered. The employer will be required to certify that it has maintained this status on a form yet to be provided.
Employers employing 100 or more employees are subject to the employer shared responsibility requirement, effective January 1, 2015. Though, if an employer maintains a non-calendar year plan year as of December 27, 2012 and has not changed the plan year since that date, the employer, generally, will become subject to the requirement on its plan anniversary occurring on or after January 1, 2015.
These regulations do provide that while an employer generally must offer minimum essential coverage to at least 95% of its full-time employees in order to avoid the IRC §4980H(a) penalty (the $2,000 penalty), the 95% requirement is reduced to 70% through the end of the 2015 plan year. Furthermore, for the 2015 plan year, should the employer not offer minimum essential coverage to at least 70% of its full-time employees and at least one of those employees obtains cost-sharing or premium credit through the marketplace, the penalty is calculated by taking the total employee count, minus the first 80 employees, times $2000. The above notwithstanding, it is important to remember that the IRC §4980H(b) penalty (the $3,000 penalty) may still be imposed if a full-time employee qualifies for premium assistance when purchasing coverage through the marketplace.
Full-time Employee Definition
The final regulations include rules similar to the proposed regulations. They allow a month-by-month determination of full-time employee status. As an alternative, for individuals for whom it is not clear at the time of hire whether they will be full-time, i.e., working 30 or more hours per week, the rules permit the use of a measurement/stability period.
The final regulations also address issues relating to non-traditional work situations. As a general statement, the rules require a reasonable allocation of time to be granted for work performed. A few examples are:
- On-call employees. A reasonable method must be used to credit time that an employee is obligated to be “on call”.
- Adjunct faculty. For adjunct faculty members, a reasonable amount of time must be allocated for time worked. The regulations include a safe harbor of sorts that requires 75 minutes per hour of class time allocated to preparation. In addition, time must be counted if the individual is required to attend a faculty meeting.
- Airline personnel. For employees such as airline pilots who are subject to layovers, a reasonable amount of time, such as 8 hours in a day, must be granted for layover time.
- Bona fide volunteers. The regulations verify that volunteers, both government volunteers such as emergency responders and firefighters and the like, as well as volunteers for not for profit entities, need not be counted as employees for purposes of the shared responsibility requirement.
- Members of a religious order who have taken a vow of poverty need not be counted as employees for performing duties for the religious entity.
- Seasonal employee. The final regulations provide that a seasonal employee who generally works less than six months per year and generally works at the same time each year, such as a ski instructor in the winter or life guard in the summer, is not deemed to be a full-time employee for penalty purposes.
There is much more to these final rules than is included here. Over the weeks to come, we will analyze specific parts of the regulations and provide summaries on unique aspects of the regulations such as matters relating to school employees, matters relating to breaks in service, and matters relating to change in status. These are just a few of the individualized summaries that you can expect.
Additional Treasury Department and IRS information relating to final regulations:
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.
The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. The information contained herein is not intended to replace or substitute for accounting or other professional advice. Attorneys or tax advisors must be consulted for assistance in specific situations. This information is provided as-is, with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein. As required by U.S. Treasury rules, we inform you that, unless expressly stated otherwise, any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person for the purpose of avoiding any penalties that may be imposed by the Internal Revenue Service.