In yet another alteration to the Affordable Care Act, certain mid-size companies now have an additional year before the "play or pay" employer mandate kicks in. This surprising news became known when final regulations were issued by the U.S. Treasury Department on February 10. These regulations include important information for larger businesses as well. Find out if your company is affected and what your responsibilities are in relation to the changes.
Employers that have 50 to 99 full-time employees or full-time equivalent employees (FTEs) now have a one-year reprieve, until 2016, to comply with the employer "play or pay" mandate. This delay is small, but significant for those affected. It's part of the 227-page final regulations regarding the employer mandate, which were released by the U.S. Treasury Department on February 10. (You can find the information in section 4980H of the Internal Revenue Code in the "shared responsibility" segment.)
Basics about "Play or Pay"
Under the Affordable Care Act, there is a shared responsibility mandate that imposes a penalty on a "large employer" if it does not offer "minimum essential" health insurance coverage or if one or more of its full-time employees obtains a premium tax credit to help purchase health coverage. The employer mandate applies to for-profit companies, not-for-profit organizations and government entities.
If your company falls into the 50-to-99 employee category that was given a reprieve to 2016, the delay may be good news, but your business is still required to take action as described below.
Note: Employers having fewer than 50 FTEs were not required to comply with the play-or-pay mandate in the first place.
How to Calculate FTEs
The U.S. Treasury Department provides these instructions for determining your number of FTEs, in their final regulations:
"The number of FTEs for each calendar month in the preceding calendar year is determined by calculating the aggregate number of hours of service for that calendar month for employees who were not full-time employees (but not more than 120 hours of service for any employee) and dividing that number by 120.
"The proposed regulations and these final regulations provide that in determining the number of FTEs for each calendar month, fractions are taken into account. In response to a request for a rounding rule, the final regulations provide, as an option, that an employer may round the resulting monthly FTE calculation to the nearest one hundredth. For example, an employer with a calculation of 30.544 FTEs for a calendar month may round that number to 30.54 FTEs".
Important takeaway: Employers in 50-99/FTE bracket won't be subject to the mandate until 2016, but they will be required to certify their eligibility for the delay.
Here's what you need to know, as well as possible responses.
Although employers in the 50-to-99 employee/FTE bracket won't be subject to the mandate until 2016, they will be required to certify their eligibility for the delay. Also, employers with more than 100 FTEs are not permitted to trim their workforces simply to qualify for the mandate delay.
The IRS has left the door open to pushing back the mandate for larger employers as well. "As these limited transition rules take effect, we will consider whether it is necessary to further extend any of them beyond 2015," the Treasury Department stated.
2015 Coverage Standard Lowered for Larger Employers
While the 100 and above full-time/FTE worker employers will still have to meet the mandate in 2015, they will only be required to offer coverage meeting minimum standards to 70% (versus the original 95% requirement) of full-timers, and their dependents. That threshold will jump to 95% in 2016 and later years.
In the original proposed regulations, employers needed to determine whether they are large enough to be subject to the mandate based on a calculation of their entire prior year's payroll. The idea was to make it hard for employers to manipulate their employee roster to dodge the mandate. But under the less stringent final rules, employers with at least 100 employees (that is, those for whom the mandate takes effect in 2015) can choose any consecutive six-month period to use for that determination.
Also, the six-month consecutive "look-back" period can begin as early as the first day of the plan's fiscal year, even if this begins after the calendar year. The IRS may offer similar relief to the smaller employer in that 50 to 99 employee bracket in 2016.
In 2015, the lower standard "may help employers who, for example, may offer coverage to employees with 35 or more hours, but not yet to the fraction of their employees who work 30 to 34 hours," according to a fact sheet issued by the Treasury Department.
Delay in Dependent Coverage Requirement
The original requirement that employee dependents also be covered in 2015 was pushed back to 2016, "as long as the employer is taking steps to arrange for such coverage to begin in 2016," states the Treasury Department fact sheet.
The final rules clarified whether certain categories or workers will be considered full-time or not. Two examples:
- Seasonal employees: Those in positions for which the customary annual employment is six months or less generally will not be considered full-time employees.
- 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.
The final rules also addressed the treatment of educational employees, student work-study employees and adjunct faculty members.
Independent Contractor Requirements
Additional highlights of the final rules:
- If you pay for the services of independent contractors, the IRS will decide whether it agrees with your classification of those individuals as independent contractors as opposed to employees based on common law alone, not safe harbors applicable to employment tax requirements. The purpose of this scrutiny is to prevent companies from misclassifying individuals as a way to avoid the need to provide health coverage.
- The final regulations feature a new rule applicable to employers that secure workers via staffing agencies. Employers will only be treated as meeting their shared responsibility requirements if the staffing company employee working for the employer is covered by a health plan offered by that agency, and the fee paid to the staffing agency is higher than it would have been had the agency not provided health coverage to the individual.
Where does all of this leave you as an employer? If you have 100 or more employees, you'll have to move forward with plans to comply with the mandate in 2015. If your company fits into the 50-to-99-employee size bracket, it might be tempting to just forget about it for now. Then, in a year or so, refocus on the issue, and survey the regulatory landscape before making any changes.
Keep in mind, however, that you are probably in the same labor market as some of those big employers in your area that will be subject to the mandate in 2015. This is why it might make more sense to stay in sync with those larger companies if possible. This could help you remain competitive when you need to expand your workforce.