Shared Responsibility for Employers (2)


Reference

 

Who Must Be Offered Coverage

While the determination of whether an employer is large employer is made by counting employees in the preceding calendar year, the determination of which employees are full-time employees for purposes of offering coverage and assessing penalties is made monthly on a current basis. There are two permissible methods.

Monthly Measurement Method
Under the monthly measurement, an employer will not be subject to an assessable payment with respect to an employee because of a failure to offer coverage to that employee before the end of the period of three full calendar months beginning with the first full calendar month in which the employee is otherwise eligible for an offer of coverage under a group health plan of the employer if the employee is offered coverage no later than the day after the end of that three-month period.

Look-Back Measurement Method
The rule recognizes that this may be administratively difficult for some employers and therefore provide for an optional “look-back” method of determining who is a full-time employee in the current month. The method is applied differently for on-going employees versus new full-time, seasonal and variable-hour employees.

An employer may use the monthly method for some categories of employees and the look-back method for other categories.  The permitted categories are:

Ongoing Employees

A person who has been employed by an employer for at least one standard measurement period is an “ongoing employee”. If an ongoing employee is a full-time employee during the standard measurement period, then the employee would be considered a full-time employee during a subsequent stability period, regardless of the number of hours worked during the latter period.

There are a couple of terms here that need to be defined.

A “standard measurement period” is a period between 3 and 12 months, selected by the employer during which an employee’s status as a full-time employee is determined.

The “stability period” is period lasting at least 6 consecutive months or the length of the standard measurement period, whichever is greater.

In general, the stability period must immediately follow the measurement period; however, the rule does permit an employer to insert an “administrative period” of up to 90 days between the end of the measurement period and the start of the stability period. This is primarily for employees who are being offered coverage for the first time. The administrative period does not permit an employer to create a gap in coverage between the start of two successive stability periods.

The standard measurement period, stability period and administrative period (if any) must be the same for all employees; however, an employer member may apply different periods for the following categories of employees:

  1. Each group of collectively bargained employees covered by a separate collective bargaining agreement;
  2. Collectively bargained and non-collectively bargained employees;
  3. Salaried employees and hourly employees; and
  4. Employees whose primary places of employment are in different states.

New Full-Time Employees

In the case of an employee who is reasonably expected at his or her start date to be employed on average 30 hours of service per week (and who is not a seasonal employee), an employer that offers coverage to the employee at or before the conclusion of the employee’s initial three calendar months of employment will not be subject to an assessable payment by reason of its failure to offer coverage to the employee for up to the initial three calendar months of employment.

New Variable Hour and Seasonal Employees

An employer that uses the look-back measurement method for its ongoing employees may also use it for new variable hour and seasonal employees.

A person is a variable hour employee if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to be employed on average at least 30 hours per week. A new employee who is expected to be employed initially at least 30 hours per week may still be a variable hour employee if, based on the facts and circumstances at the start date, it cannot be determined that the employee is reasonably expected to be employed on that basis over the initial measurement period.

As of January 1, 2015, an employer is required to assume for this purpose that although the employee’s hours of service might be expected to vary, the employee will continue to be employed by the employer for the entire initial measurement period (however, this does not apply to seasonal employees).

As noted above, pending further guidance, employers may make a good faith, reasonable interpretation of who is a seasonal employee.

An employer may use both an initial measurement period and administrative period for variable hour and seasonal employees the same as for ongoing employees. However, the initial measurement period and the administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee’s start date (totaling, at most, 13 months and a fraction of a month).

If a new variable hour or seasonal employee is determined not to be a full-time employee during the initial measurement period, the employer is permitted to treat the employee as not a full-time employee during the following stability period. This stability period must not be more than one month longer than the initial measurement period and must not exceed the remainder of the standard measurement period (plus any associated administrative period) in which the initial measurement period ends.

A new variable hour or seasonal employee who has a change in employment status during an initial measurement period3 is treated as a full-time employee as of the first day of the fourth month following the change in employment status or, if earlier and the employee averages more than 30 hours of service per week during the initial measurement period, the first day of the first month following the end of the initial measurement period (including any optional administrative period applicable to the initial measurement period).

Rehired Employees, Breaks in Service and Leaves of Absence

For purposes of applying the monthly measurement period, an employee who goes for at least 13 consecutive weeks (26 weeks for an educational institution) during which no hours of service are credited4 for an employer may be treated as a new employee upon his or her return. Otherwise, the employee is treated as a continuing employee.

For an employee who is treated as a continuing employee, the measurement and stability period that would have applied to the employee had the employee not experienced the break in service would continue to apply upon the employee’s resumption of service. For example, if a continuing employee returns during a stability period in which the employee is treated as a full-time employee, the employee must be treated as a full-time employee upon return and through the end of that stability period.

Special Unpaid Leave

Special unpaid leave is unpaid leave under FMLA, USERRA and leave for jury duty. If a measurement period includes a period of special unpaid leave, an employer must credit hours of service during that period using one of two permitted averaging methods.

  1. Under the first method, the employer determines the average hours of service per week for the employee during the measurement period, excluding any special unpaid leave period, and uses that average as the average for the entire measurement period.
  2. Alternatively, the employer may choose to treat employees as credited with hours of service for special unpaid leave at a rate equal to the average weekly rate at which the employee was credited with hours of service during the weeks in the measurement period that are not special unpaid leave.

In the case of educational organizations, employees with a break of at least 4 consecutive weeks related to breaks in the academic year must credited with service according to the averaging methods described above provided that the required credits for such a break need not exceed 501 hours.

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What Constitutes an Offer of Coverage

Having learned how to determine who is a large employer and who is a full time employee, we can now get to the heart of then ACA’s shared responsibility requirements.

If a large employer wishes to avoid the play-or-pay penalty assessment, its first obligation is to offer minimum essential coverage to all full-time employees. The rule offers a little wiggle room in that it treats employers as having met this requirement if it offers coverage to “substantially all” full-time employees. An employer will be treated as offering coverage to its full-time employees for a calendar month if, for that month, it offers coverage to all but five percent or, if greater, five of its full-time employees.

The rules do not specify how offers of coverage are to be made, but do clarify that if an employee is not covered for a full calendar month, he or she will be treated as not having been offered coverage for that month. The only exception is if an employee terminates employment in the middle of a month.

There is a special rule for employers transitioning from small to large employer status.  During the first calendar year in which the employer is treated as a large employer, the employer will not be subject to penalties for the months of January through March with respect to an employee who was offered coverage in the prior calendar years if it offers coverage to that employee by April 1 of the current year.

Assessment for Failure to Offer Coverage

Assessments are made on a monthly basis. If an employer fails to offer coverage to substantially all its full-time employees for a given month and any employee is certified to receive a premium tax credit or cost-sharing reduction for that month, the employer may be liable for an assessment.

The amount of the assessment is determined by multiplying the number of full-time employees less 30 by the applicable payment amount. For example: in 2014 the applicable payment was 1/12 of $2000 and a statutory inflation adjustments are made as appropriate.

In the case of an employer in a controlled group, the 30-employee reduction is allocated among all related employers in proportion to each employer’s number of full-time employees .

Don’t confuse the rules for determining whether employers in a controlled group are large employers with the rules for determining the penalty amount. The former are applied on an aggregate basis and determine the large employer status of all members of the controlled group. The latter apply to the individual members of the controlled group (subject to the pro-rata adjustment of the 30-employee reduction).

 

Employees Who Purchase Coverage Through the Marketplace or Enroll in Medicare/Medicaid
An applicable large employer will not be subject to an Employer Shared Responsibility payment solely because one, some, or all of its employees purchase health insurance coverage through a Marketplace or enroll in Medicare or Medicaid. An employer will not be liable for an Employer Shared Responsibility payment unless at least one full-time employee receives a premium tax credit. In general, an employee will not be eligible for a premium tax credit if the employer has offered that employee health coverage that is affordable and that provides minimum value, even if that employee rejects the offer of coverage and instead enrolls in coverage through a Marketplace or enrolls in Medicare or Medicaid. If no full-time employee receives a premium tax credit, the employer will not be subject to an Employer Shared Responsibility payment.

Spousal Coverage
An applicable large employer must offer health coverage that is affordable and provides minimum value to its full-time employees and must offer health coverage to the dependents of those employees. For this purpose, a spouse is not a dependent. An applicable large employer will not be subject to an Employer Shared Responsibility payment solely because it does not offer health coverage to an employee’s spouse or if the spouse purchases health insurance coverage through a Marketplace or enrolls in Medicare or Medicaid.

Assessment Procedures

The IRS will adopt procedures that ensure employers receive certification that one or more employees have received a premium tax credit.  The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed or notice and demand for payment is made.  The contact for a given calendar year will not occur until after the due date for employees to file individual tax returns for that year claiming premium tax credits and after the due date for applicable large employers to file the information returns identifying their full-time employees and describing the coverage that was offered (if any).If it is determined that an employer is liable for an Employer Shared Responsibility payment after the employer has responded to the initial IRS contact, the IRS will send a notice and demand for payment.  That notice will instruct the employer on how to make the payment. Employers will not be required to include the Employer Shared Responsibility payment on any tax return that they file.

Limited Non-Assessment Period for Certain Employees

Similar to the rule for employers transitions to large employer status (see above), there a grace period during which employers will not be assessed a penalty with respect to certain employees if they are offered coverage providing minimum value on or before the first day of the specified period.

  1. This applies in the case of:
    • An employer that uses the monthly method of determining full-time status; and
    • An employee who first becomes otherwise eligible for coverage during a calendar month except for completion of a waiting period; and
    • The employee has not previously been eligible or otherwise eligible for an offer of coverage.
      • An employer is not subject to an assessable payment with respect to an employee for each calendar month during the period of three full calendar months beginning with the first full calendar month in which the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage no later than the first day of the first calendar month immediately following the three-month period if the employee is still employed on that day.
  2. This applies in the case of:
    • An employer that uses the look-back method of determining full-time status; and
    • An employee who is reasonably expected on his or her start date to be a full-time employee.
      • The employer will not be subject to an assessable payment for any calendar month of the three-month period beginning with the first day of the first full calendar month of employment if, for the calendar month, the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage by the employer no later than the first day of the fourth full calendar month of employment if the employee is still employed on that day.
  3. This applies in the case of:
    • An employer that uses the look-back method of determining full-time status; and
    • A new variable hour, seasonal or part-time employee who has averaged 30 hours of service per week during the initial measurement period.
      • The employer will not be subject to an assessable payment for any calendar month during the initial measurement period and any associated administrative period if, for the calendar month, the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage by the employer no later than the first day of the associated stability period if the employee is still employed on that day.
  4. This applies in the case of:
    • An employer that uses the look-back method of determining full-time status; and
    • A new variable hour, seasonal or part-time employee who becomes a full-time employee during the initial measurement period.
      • The employer will not be subject to an assessable payment for the period before the first day of the fourth full calendar month following the change in employment status) if, for the calendar month, the employee is otherwise eligible for an offer of coverage under a group health plan of the employer, provided that the employee is offered coverage by the employer no later than the end of the period described above if the employee is still employed on that date.  Note however that if the initial measurement period ends sooner and the employee would qualify for coverage as described in rule C above, the employer must follow that rule. 
  5. This applies if the case of an employee whose employment begins on a date other than the first day of the month.
    • The employer is not subject to an assessable payment with respect to an employee for the calendar month in which the employee’s start date occurs if the start date is on a date other than the first day of the calendar month.

 

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Footnotes

[3] For example, an employee who is hired as a part-time employee and is promoted to full-time status during the initial measurement period. Note that this rule does not apply to ongoing employees.

[4] An employer may elect to use a shorter period of at least 4 weeks more than the number of weeks the employee worked for the employer immediately prior to termination of employment or other break in service.