13 Feb IRS Issues Final Regulations on Employer Shared Responsibility (Play or Pay)
Originally posted by United Benefit Advisors (UBA)
On February 10, 2014, the IRS issued final regulations on the employer-shared responsibility requirements, often known as “play or pay.” This is the requirement that large employers offer adequate coverage to their full-time employees or pay penalties. The final regulations follow the proposed regulations (which were issued in January 2013) in many respects, but also contain some surprises.
- Has not reduced the size of its workforce or the overall hours of service of its employees so that it could qualify for this delay, and
- Has not eliminated or materially reduced any coverage it had in effect on February 9, 2014. A material reduction means that:
- The employer’s contribution is less than 95% of the dollar amount of its contribution for single-only coverage on February 9, 2014, or is a smaller percentage than the employer was paying on February 9, 2014.
- A change was made to the benefits in place on February 9, 2014, that caused the plan to fall below minimum value, or
- The class of employees or dependents eligible for coverage on February 9, 2014, has been reduced.
- Only “common law employees” are counted. This means that sole proprietors, partners, 2% shareholders and leased employees will not be counted. All other employees are counted, including those who are eligible for Medicare and Medicaid and those who are exempt from the individual mandate.
- An employee who averages 30 or more hours per week is considered a full-time employee. An employee who averages fewer than 30 hours per week is counted as a partial employee; these partial employees are then combined to get “full-time equivalent” employees.
- When counting an employee’s hours, all hours for which an employee is paid are included. This means that vacation, holiday, sick pay, jury duty pay and paid leave count, as well as pay for hours actually worked. An employer does not need to count the hours of “bona fide” volunteers, which includes many volunteer firemen and volunteers for a non-profit organization. A person is a bona fide volunteer if the person volunteers for a government entity or a 501(c) organization and is not paid, or is only paid a nominal amount (for instance) to cover expenses. An employer does not need to count hours worked by a student under a federal work-study program, but all other hours for which a student is paid must be counted. There is an optional safe harbor for adjunct professors under which the employer would credit 2.25 hours of service for each hour taught. The IRS is still considering special rules for employees who are solely paid commissions. In the meantime, employers are to adapt an existing method in a “reasonable” way — presumably the weekly or daily equivalency method will fit best.
- Employers must count an hourly employee’s actual hours. For salaried employees, an employer may use actual hours, daily equivalents (a day with at least one paid hour of service is considered eight hours worked) or weekly equivalents (a week with at least one paid hour of service is considered 40 hours worked).
- Hours worked in the U.S. (those that generate U.S. source income) are counted, whether the worker is a U.S. citizen or not. Conversely, work done overseas by a U.S. citizen does not count.
- Seasonal employees generally must be counted. When deciding if the employer is large, they may be excluded only if:
- The employer exceeds 100 full-time or full-time equivalent employees for less than 120 days during 2014, and
- Only seasonal employees (who work less than 120 days per year — whether consecutive or non-consecutive) pushed the employer over the 100-employee threshold.
Example: Acme has 120 full-time employees, but only offers minimum essential coverage to 30 employees. Acme will owe the $2,000 penalty, but for 2015 it may exclude 80 employees so it will only owe 40 x $2,000. For 2016, Acme may only exclude 30 employees from the penalty so it will owe 90 x $2,000.
- The employee’s Box 1 W-2 income for the current year.
- The employee’s rate of pay on the first day of the plan year, multiplied by 130 for hourly employees to create the assumed monthly income.
- The most recently published FPL for a single person (for 2014, FPL for a single person in the 48 contiguous states is $11,670, for Alaska it is $14,580, and for Hawaii it is $13,420).
- The employer had a group health plan in place on December 27, 2012.
- The employer has not changed the plan year since December 27, 2012, (this means that most plans that opted for early renewal are not eligible for this delay).
- Affordable, minimum value coverage is offered to most (70%) employees as of the start of the 2015 plan year and most employees were eligible under the rules in place on February 9, 2014.
- Affordable, minimum value coverage is offered to most (70%) employees as of the start of the 2015 plan year and although most employees were not eligible under the rules in place on February 9, 2014, on at least one day during the period from February 10, 2013, through February 9, 2014, either:
- One-quarter of its full-time employees were covered by a group health plan sponsored by the employer, or
- Coverage was offered to at least one-third of its full-time employees during the open enrollment period that ended most recently before February 9, 2014.