Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation

Nitty-gritty on 6 key provisions of employer mandate

Your article was successfully shared with the contacts you provided.

The raft of government regulations that came with the latest delay in the Patient Protection and Affordable Care Act employer mandate emerged only after much negotiation between business, representatives of workers’ interests and federal officials

The final rules – expressed across more than 200 pages – made plenty of headlines when they were released earlier this month. But what are the nitty-gritty details? What follows is a closer look at what the regulators had to say about six provisions with some of the greatest impact on the workplace: 

1. Employer relief

Employers with more than 50 but fewer than 100 workers got several special concessions in the mandate. The regulators demonstrated an appreciation of the challenges many businesses face in this critical growth range, and offered several concessions to enable them to more smoothly integrate the act’s requirements into their benefits plans. Perhaps the most important was the postponing of penalties for noncompliance until 2016.

“The Treasury Department and the IRS understand that application of (tax code) Section 4980H will involve changes for applicable large employers that did not previously offer coverage, or that did not offer affordable, minimum value coverage,” the rules says.  “A large percentage of those employers are in the smaller size range, such as those with fewer than 100 full-time employees (including FTEs). “To assist these employers in transitioning into compliance with section 4980H … no assessable payment under section 4980H(a) or (b) will apply for any calendar month during 2015 or any calendar month during the portion of the 2015 plan year that falls in 2016.”

See also: Midsize firms get more time on PPACA mandate

That’s the good news for employers. However, regulators wanted to make sure that employers also know that they are under the watchful eye of Big Brother, and that no funny business will be tolerated.

For example, transition relief will be offered only if “during the period beginning on February 9, 2014, and ending on December 31, 2014, the employer does not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition set forth in paragraph (1) of this section XV.D.6.” The phrase “satisfy the workforce size condition” refers to an employer that resorts to dirty tricks to try to duck just below the 50-employee trigger point.

But, if an employer has a good reason for doing so, that’s OK. “A reduction in workforce size or overall hours of service for bona fide business reasons will not be considered to have been made in order to satisfy the workforce size condition,” the rules read. Bona fide actions include the sale of a division, changes in the employer’s economic marketplace, and terminations of employment for poor performance.

2. Full-time equivalent employees

The definition of a full-time equivalent employee is critical because it can mean the difference between being at 50 employees or being under. Other calculations in the law also use the FTE number. This is an area where employers got into a hair-splitting negotiation with the feds. Here’s how the final rules resolved it: 

“A commenter suggested that the final regulations provide rounding rules for the monthly FTE calculation. 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. The proposed regulations and these final regulations provide that in determining the number of FTEs for each calendar month, fractions are taken into account. In response to a request for a rounding rule, the final regulations provide, as an option, that an employer may round the resulting monthly FTE calculation to the nearest one hundredth. For example, an employer with a calculation of 30.544 FTEs for a calendar month may round that number to 30.54 FTEs.”

3. Break in service

This was another area that saw a lot of back and forth. How long can an employee who stops working and then is rehired be off the payroll and still be considered for purposes of coverage an ongoing employee and not a rehire? The initial rules stated that an employee could go as long as 26 weeks without being on the payroll and still be considered an ongoing employee, which entitles that employee to either retain existing health coverage or use the time to qualify for it. Employers thought this was way too long. Here’s how the final rule came down:

“Commenters requested that the length of the break in service required before a returning employee may be treated as a new employee be reduced from 26 weeks to some shorter length, such as four or 10 weeks. The Treasury Department and the IRS believe that it would be inequitable to employees who had become eligible for coverage prior to the break in service to be subjected to a new period of exclusion from the plan (which can be over a year for variable-hour employees) based upon a brief break in service. The Treasury Department and the IRS also remain concerned that without an objective standard for determining when an employee who returns after a break in service may be treated as a new employee, there is a potential for an employer to attempt to evade the requirements of section 4980H through a pattern of terminating and rehiring employees and then treating the returning employees as new employees.

“However, the Treasury Department and the IRS agree with the commenters, suggesting that a break-in-service period shorter than 26 weeks would be sufficient to curtail the potential for abuse. Accordingly, the final regulations … reduce the length of the break in service required before a returning employee may be treated as a new employee from 26 weeks to 13 weeks (except for educational organization employers). This break-in-service period applies for both the look-back measurement method and the monthly measurement method.”

See also: PPACA mandate battle reaches Senate floor

4. Temp agencies

A key question for employers was when separation officially occurs in the temp industry. The answer didn’t satisfy anyone. Here’s what the regulators had to say:

“Temporary staffing firms vary widely in the types of assignments they fill for their clients and in the anticipated assignments that a new employee will be offered. Accordingly, the final regulations do not adopt a generally applicable presumption. Accordingly, until further guidance is issued, temporary staffing firms, like all employers generally, may determine when an employee has separated from service by considering all available facts and circumstances and by using a reasonable method that is consistent with the employer’s general practices for other purposes, such as the qualified plan rules, COBRA, and applicable state law.”

5. Administrative practices

This is an area where the feds made quite a few concessions based on the comments. Essentially, all the rules are administrative on some level. However, some will require more time to interpret and to determine how they can be integrated into existing admin systems. 

Specifically, the new rules make allowances for companies that are not on a calendar year, permitting their deadlines to begin on the plan start date and spill over into the next year until the 12-month cycle had run its course. But, of course, there would be zero tolerance for employers who changed their plan start date to try to get additional transition time.

See also: Feds could change PPACA deadlines again

The new rules give employers that, at year-end, are close to the 50-employee trigger point, the option to wait three months before determining if they truly do fall into the large employer category.  They also made allowances for companies whose first payroll of the year does not start on Jan. 1. Concerns had been raised by employers with payroll schedules that did not begin on Jan. 1, but rather later in January. The rule-makers agreed to give them a grace period of the number of days between Jan. 1 and the first payroll date during which they would not be liable for an assessment for employees not offered coverage by a PPACA-approved health plan.

6. Dependent coverage

Many benefits plans, particularly among companies at or near the 50-employee threshold, don’t currently cover dependents. Now, they have to, including “kids” up to the age of 26. So the mandate gives companies that don’t have dependent coverage extra time to integrate this into their plans. And they don’t even have to fully accomplish the mission; it’s enough, the rules say, to give it the old college try.

“Any employer that takes steps during its plan year that begins in 2014 (2014 plan year) toward satisfying the section 4980H provisions relating to offering coverage to full-time employees’ dependents will not be liable for any assessable payment under section 4980H solely on account of a failure to offer coverage to the dependents for that plan year. This relief is extended to plan years that begin in 2015 (2015 plan years).”


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.