The Internal Revenue Service and its parent, the U.S. Treasury Department, are asking for comments about how they should define terms such as “employer” and “employee” when applying Affordable Care Act group health mandates.

The IRS has issued the “employer responsibility” mandate request for comments in IRS Notice 2011-36, to prepare for working with the U.S. Labor Department and the U.S. Department of Health and Human Services on implementing Section 4980H of the Internal Revenue Code (IRC).

Congress created IRC Section 4980H when it passed Section 1513 of the Patient Protection and Affordable Care Act of 2010 (PPACA) and Section 1003 of the Health Care and Lightning Education Reconciliation Act of 2010 (HCERA).

PPACA and HCERA are the two components of the Affordable Care Act package.

Republicans and others are trying to block implementation of part or all of the Affordable Care Act.

If IRC Section 4980H and related sections take effect as written and work as supporters hope, they will require an affected “large employer” to provide health coverage.

  • Section 4980H(a) could require the employer to make an “assessable payment” if it fails to provide a minimum level of coverage and at least one full-time employee uses a new federal PPACA tax credit to buy individual health coverage through a state insurance exchange. Regulators will base the annual assessable payment under Section 4980H(a) all but the first 30 full-time employees.
  • Section 4980H(b) could require the employer to make an assessable payment – even if the employer provides what appears to be the minimum required level of group health coverage – if officials determine that the employee could not afford the coverage, or if the plan had failed to provide a minimum level of value. Regulators will base the annual assessable payment under Section 4980H(b) on the number who qualify for health insurance tax credit subsidies.

“The definition of full-time employee is key in determining whether and, if so, to what extent, an employer may incur Section 4980H(a) liability or Section 4980H(b) liability,” officials say.

IRC Section 4980H(c)(4) defines “full-time employee” to mean an employee who is “employed on average at least 30 hours of service per week” in any month.

Section 4980H(c)(2) defines an “applicable large employer” to be an employer that “employed an average of at least 50 full-time employees on business days during the preceding calendar year.”

“For purposes of determining whether an employer is an applicable large employer, full-time equivalent

employees (FTEs), which are determined based on the hours of service of employees who are not full-time, are taken into account,” officials say.

In a section on the definition of “employee,” officials say, “‘Employee’ would mean a worker who is an employee under the common-law test.”

A special rule would apply to “seasonal employees.”

If employer’s workforce exceeded 50 full-time employees for 120 or fewer days during a calendar year, and the extra employees employed during those 120 days were seasonal employees, the employer would not be an applicable large employer, officials say.

In a section on “hours of service,” officials say they are thinking about treating an employee who works for 130 hours in a calendar month as the equivalent of an employee who works 30 hours per week.

The hours of service could include up to 160 hours for which an employee was paid, or entitled to be paid, for time off work as a result of vacations, holidays, illness, disability, layoffs, jury duty, military duty or leaves of absence, officials say.

Comments are due June 17.

Other PPACA group health mandate coverage from National Underwriter Life & Health: