The Treasury Department has released the long-awaited final regulations under Internal Revenue Code section 4980H, which implements the employer shared responsibility (the “pay-or-play” employer mandate) provisions of the Affordable Care Act (“ACA”).  Generally, this mandate requires employers with 50 or more full-time and full-time equivalent employees (“FTE”) to either (1) offer full-time employees and their dependents “minimum essential coverage”, that is health coverage that meets affordability and “minimum value” requirements, or (2) pay a penalty.  Employers with fewer than 50 workers are exempt from the employer responsibility provisions.  A few highlights in the final regulations include:

  • important guidance for counting full-time and FTEs both for purposes of determining whether an employer meets the statutory threshold and for whether an employee is a full-time employee entitled to coverage;
  • examples illustrating the effect of newly hired employees and employees with status changes (e.g., from part-time to full time);
  • safe harbors for the affordability of employer-offered coverage; and
  • phase-in rules that delay until 2016 penalty payments for certain employers and lower compliance thresholds and penalty amounts for 2015 for certain large employers.

This bulletin will briefly discuss the phase-in rules and guidance on counting employees.  Please feel free to contact an attorney in Shuttleworth & Ingersoll’s Labor & Employment Law Practice Group if you or your organization have further questions.

Phase-in rules.  The penalty payments under section 4980H 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.

The mandate will not apply until 2016 to employers with at least 50 but fewer than 100 full-time employees, provided such employers complete certain certification requirements (e.g., certification that the employer had not laid off any employees or reduced hours to come under the 100-employee threshold, and that the employer has not materially reduced health coverage as compared to previously offered health coverage).

Employers that are required to comply with the employer mandate in 2015 (generally employers with 100 or more employees) may avoid the penalty if they offer coverage to 70 percent of their full-time employees in 2015, rather than the 95 percent that will be required in 2016 and beyond.  In addition, to the extent an employer has to pay a penalty, the regulations reduce the amount of the penalty for 2015.

Employers with healthcare 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.

Counting employees.  The final regulations provide rules for counting full-time employees and FTEs.  An employee who works at least 30 hours a week is considered a full-time employee.  The number of FTEs an employer has for a given month is calculated by adding up the number of hours of service for all employees (including seasonal workers) who were not full time employees for any month in the preceding calendar year (but not more than 120 hours of service for any employee) and dividing the total by 120.

The final regulations clarify whether certain types of employees – including volunteers, educational employees, seasonal employees, student workers in work-study programs, adjunct faculty – are considered full-time for purposes of the mandate.

Volunteers: Hours contributed by bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, are not counted in determining FTEs or full-time status.

Educational employees: Teachers and other educational employees will not be treated as part-time for the year simply because schools are closed or operating on limited schedules 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 counted FTEs or full-time status.

Adjunct faculty: 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 under the circumstances and consistent with the employer responsibility provisions.  However, to accommodate the need for predictability and ease of administration, 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.

Jonathan C. Landon
Jonathan Landon is an Attorney and Vice President with Shuttleworth & Ingersoll, P.L.C. Jon advises individuals, businesses, and tax-exempt organizations in: Federal and state tax matters; general business transactions; deferred compensation and employee benefits; and estate and succession planning.