ACA: Shared Responsibility for Employers


Reference

 

Final Regulations Under Section 4980H Issued February 10, 2014

Overview

Large Employer Defined

Who Must Be Offered Coverage

What Constitutes an Offer of Coverage

What Constitutes Affordable, Minimum Value Coverage

Assessment for Failure to Offer Affordable Coverage that Provides Minimum Value

Employer Exchange Subsidy Notices

Overview

This regrettably but necessarily lengthy reference material outlines the Shared Responsibility Rules for large employers under the ACA. These rules went into effect beginning in 2015, subject to certain transition provisions affecting calendar years 2014 and 2015.

A large employer is subject to an assessment under the ACA (the so-called “play or pay” requirement) if:

The ACA rules on shared responsibility require coverage to be offered to an employee and his or her dependents. In this context, dependents are an employee’s children under age 26. However, this does not include foster children or stepchildren. It also does not include the employee’s spouse.
For purposes of this material, any reference to the requirement to offer coverage to an employee should be read as requiring an offer to his or her dependents as well.
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Large Employer Defined

A large employer with respect to a calendar year is an employer that employed an average of at least 50 employees, including full-time equivalent employees (FTEs), on business days during the preceding calendar year. The common-law standard is used to determine whether a person is an employee.

Employers that rely on PEOs, employee leasing services or staffing agencies should confer with counsel on the status of the workers that they provide.

Many employers will know whether they are large employers without the need to perform any elaborate calculations or analysis. However, those employers whose employee count hovers around the 50-employee mark will need to do the math beginning with employment data from 2014.

On July 31, 2015, a new law states that individuals enrolled in a health plan under the VA or TRICARE will be exempt from being counted in the 50 full-time employee threshold when calculating whether or not you are an applicable large employer.  This change was effective January 1, 2014.

 

Rules for Determining Full-Time Employee

A full-time employee is one who is employed an average of at least 30 hours of service per week with an employer. For hourly employees, this determination must be calculated based on actual hours of service as reflected in the records of the employer.

An “hour of service” is any hour for which an employee is entitled to be paid, even when no work is done. This includes periods such as vacation, holidays, sick leave, jury duty, disability, military duty and the like.

 

For non-hourly employees, the employer may:

An employer may use different methods for different classifications of non-hourly employees provided that the classifications are reasonable and consistently applied. However, an employer may not use a method that substantially understates an employee’s actual hours worked or understates the hour of service for a substantial number of employees (even if the understatement does not cause any particular employee to be misclassified).

The rules permit employers to exclude hours of service performed outside the United States for which the employee does not receive U.S. source income.

Hours of service do not include hours worked as a ‘‘bona fide volunteer.’’ A bona fide volunteer is a person who is an employee of a government entity or a tax exempt non-profit (501(c)) organization whose only compensation from that entity or organization is in the form of (i) reimbursement for (or reasonable allowance for) reasonable expenses incurred in the performance of services by volunteers, or (ii) reasonable benefits (including length of service awards), and nominal fees, customarily paid by similar entities in connection with the performance of services by volunteers.

Hours of service also exclude services provided by student interns or externs to the extent the student is not entitled to and does not receive pay for those services.

Until further guidance is issued, a religious order is permitted, for purposes of determining whether an employee is a full-time employee, to not count as an hour of service any work performed by an individual who is subject to a vow of poverty as a member of that order when the work is in the performance of tasks usually required of an active member of the order.

Rules for Determining Large Employer

Employees are counted by taking the sum of the total number of full-time employees (including any seasonal workers) for each calendar month in the preceding calendar year and the total number of FTEs (including any seasonal workers) for each calendar month in the preceding calendar year, and dividing by 12. The result, if not a whole number, is then rounded to the next lowest whole number. If the result of this calculation is less than 50, the employer is not a large employer for the current calendar year. If the result of this calculation is 50 or more, the employer is a large employer for the current calendar year.

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. No rounding is permitted.

All employers that are in a controlled group are considered a single employer when determining large employer status. If the member employers in the controlled group employ at least 50 employees in the aggregate, each employer in the controlled group is considered a large employer irrespective of how many persons that entity employs.

 

Individuals Covered under the VA or TRICARE
Individuals enrolled in a health plan under the VA or TRICARE will be exempt from being counted in the 50 full-time employee threshold

Counting Seasonal Workers
Certain adjustments are permitted for employers with seasonal workers. Note that seasonal workers must be included in the initial count of full-time and full-time equivalent employees. However, if the sum of an employer’s full-time employees and FTEs (including seasonal workers) exceeds 50 for 120 days or fewer during the preceding calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days are seasonal workers, the employer is not considered to employ more than 50 full-time employees (including FTEs) and is not a large employer for the current calendar year.

A seasonal worker is one who performs services on a seasonal basis. This includes certain agricultural workers as well as retail workers employed only during holiday seasons. Pending further guidance, employers may apply a reasonable, good faith interpretation of the law in deciding whether other types of workers qualify as seasonal2.

Work Outside of U.S.
The rules permit employers to exclude hours of service performed outside the United States for which the employee does not receive U.S. source income.

Volunteers
Hours of service do not include hours worked as a ‘‘bona fide volunteer.’’ A bona fide volunteer is a person who is an employee of a government entity or a tax exempt non-profit (501(c)) organization whose only compensation from that entity or organization is in the form of (i) reimbursement for (or reasonable allowance for) reasonable expenses incurred in the performance of services by volunteers, or (ii) reasonable benefits (including length of service awards), and nominal fees, customarily paid by similar entities in connection with the performance of services by volunteers.

Interns or Externs
Hours of service also exclude services provided by student interns or externs to the extent the student is not entitled to and does not receive pay for those services.

Religious Orders
Until further guidance is issued, a religious order is permitted, for purposes of determining whether an employee is a full-time employee, to not count as an hour of service any work performed by an individual who is subject to a vow of poverty as a member of that order when the work is in the performance of tasks usually required of an active member of the order.

Other Workers
Some employees are not compensated based on hours of service; others are subject to safety-related regulatory limits (for example, salespeople compensated on a commission basis or airline pilots whose flying hours are subject to limits). The government has asked for guidance on how full-time status should be determined for these types of workers; employers are permitted to use reasonable methods for crediting hours of service consistent with the purposes of the law. The final regulations offer a few additional clarifications:

New Employers
New employers are not likely to have 12 months of data. An employer not in existence during an entire preceding calendar year is a large employer for the current calendar year (Year 1) if it is reasonably expected to employ an average of at least 50 full-time employees (including FTEs) on business days during the current calendar year. Its status as a large employer in Year 2 is based on its actual number of full-time employees (including FTEs) during Year 1, even if it was in existence only for a portion of Year 1.

In addition, a new employer will not be treated as an applicable large employer if it reasonably expects (1) its workforce to exceed 50 full-time employees (including FTEs) for 120 days or fewer during the current calendar year, and (2) the employees in excess of 50 employed during such 120-day period to be seasonal workers.

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Footnotes

[1] Persons with income between 100% and 400% of the federal poverty can obtain tax credits or assistance with cost-sharing in connection with coverage purchased through an Exchange.

[2] An employee of an educational organization who works during the active portions of the academic year cannot be treated as a seasonal employee.