- Play or Pay Final Regulations Offer Transition Relief and Compliance Guidance
- August 4, 2014 | Author: David J. Ledermann
- Law Firm: Barley Snyder - Lancaster Office
With publication of final regulations under the Affordable Care Act’s employer mandate (“play or pay”), the Internal Revenue Service has made available certain transition relief to ease the burden on employers during the first years of the mandate’s operation. The regulations also provide guidance concerning various compliance issues arising in connection with the mandate. The guidance includes assistance for employers who engage workers under arrangements with temporary staffing agencies and for academic employers with respect to their adjunct faculty, as well as additional guidelines for other mandate-related rules.
Transition Relief from Play or Pay
Under play or pay, as originally promulgated (and once fully implemented), employers with 50 or more full-time employees (or “full-time equivalent employees,” after taking into account hours worked by part-time personnel) must provide health plan coverage to at least 95 percent of their full-time employees and their dependents or risk liability for penalties. A full-time employee is one who works an average of 30 hours or more per week. The mandate was initially to become effective January 1, 2014, but was delayed a full year pursuant to IRS guidance announced last July.
The final regulations provide that employers of between 50 and 99 full-time equivalent employees, based on their 2014 head count, may be exempt from the employer mandate in 2015, as well. To qualify for the exemption, an organization must employ on average fewer than 100 full-time equivalent employees on business days during 2014. Additionally, the employer must certify in writing by early 2016 that it did not reduce the size of its workforce or its employees’ overall working hours, other than for business reasons unrelated to the exemption, and that it did not eliminate or materially reduce the health coverage, if any, previously offered to the organization’s employees. A material reduction includes any reduction in the percentage of the premium the employer pays or more than a five percent reduction in the dollar amount of the employer’s premium contribution. Organizations qualifying for exemption from the employer mandate in 2015 will only become subject to it beginning in 2016.
While the employer mandate will be effective in 2015 for employers with 100 or more full-time equivalent employees, the final regulations nevertheless offer a measure of relief to these organizations. Specifically, the minimum percentage of full-time employees who must be covered by the employer’s health plan in 2015 will be 70 percent instead of 95 percent. Additionally, if the organization did not offer dependent coverage for 2013 or 2014, penalties forfailing to offer coverage to the dependents of full-time employees in 2015 will generally not apply. The final regulations confirm that employees’ spouses, foster children, and stepchildren can be excluded from health plan coverage even in years after the transition relief expires.
That being said, meeting the 70 percent coverage threshold in 2015 will not necessarily relieve a large employer from penalties, particularly if the coverage is not “affordable” or does not provide “minimum value,” as defined under previously released IRS guidance. The penalties, however, will generally be less than—and can never exceed—the penalty amount for failing to offer coverage to the minimum threshold percentage of full-time employees. Beginning in 2016, the minimum threshold percentage increases from 70 percent to 95 percent.
Staffing Agency Employees
An organization that utilizes the services of individuals engaged through a temporary help or other staffing agency may need to include those individuals as its own employees for purposes of the play or pay rules. If the client organization is the common law employer (generally the case if the organization has the right to direct and control the individual’s performance), health plan coverage offered to an individual by the staffing agency may be deemed the client’s offer of coverage. For the client organization to be treated as having made an offer of coverage, the organization must be required to pay a higher fee for the services of an individual who is enrolled in the staffing agency’s health plan than the organization would pay for an individual not enrolled in the agency’s plan.
Adjunct Faculty Hours
The final regulations also include guidance regarding how colleges and universities that employ adjunctfaculty determine the status of these individuals for purposes of the play or pay rules. Acknowledging the difficulties inherent in counting service hours for adjunct faculty members, the IRS stated that it will allow, until further guidance is issued, crediting hours of service for an adjunct faculty member of 2.25 hours per week for each hour of scheduled classroom time, plus one hour per week for each additional hour outside the classroom performing other required duties (such as maintaining office hours, attending faculty meetings, etc.). While another reasonable method may be used to count an adjunct faculty member’s hours, this method is offered as a “safe harbor,” which the IRS will not challenge.
Importantly, the 2.25 safe harbor multiplier includes hours spent in the classroom, not in addition to them. For example, an adjunct faculty member with nine hours per week of scheduled classroom time would be credited, using this method, with 20.25 hours of service for the week attributable to those nine hours of classroom time (9 x 2.25 = 20.25). If this same faculty member is also required to maintain at least five in-office hours per week, those hours would be added to the hours attributable to classroom time, for a total of 25.25 hours of service per week. Thus, the adjunct faculty member in this example would not be deemed a full-time employee for purposes of the employer mandate.
Other Issues Addressed
The final regulations provide new guidance on many other issues, including further elaboration of the detailed guidance previously released on methods for determining the full-time or part-time status of variable-hour employees. Among other topics, the guidance discusses transition relief, enabling employers to utilize a measurement period in 2014 of as little as six months to establish a 12-month stability period in 2015 during which employees determined to be part-time (based on the measurement period) may be excluded from coverage without exposing the employer to potential penalty liability. Other parts of the guidance concern how to treat seasonal employees, the crediting of hours for on-call employees, rules governing status determinations for rehired employees and employees with a break in service from employment, and safe harbors for establishing whether employer-provided coverage is affordable for purposes of the play or pay rules.
Though not as accommodating as some would have liked, the final regulations offer employers welcome assistance on a number of significant compliance questions, while providing at least temporary relief from some of the Affordable Care Act’s more onerous requirements.