Final Rules on Employer Mandate Include 2015 Transition Relief for Mid-sized Employers

Practical Law Legal Update 1-557-4945 (Approx. 5 pages)

Final Rules on Employer Mandate Include 2015 Transition Relief for Mid-sized Employers

by Practical Law Employee Benefits & Executive Compensation

Clarifications

The final regulations make the following clarifications (among others) to the proposed regulations:

Regarding the determination of whether a new employer is a large employer subject to the employer mandate, the final regulations include rules for employers that did not exist in the prior year. For new employers, the large employer determination depends on the average number of employees the employer is reasonably expected to employ on business days in the current calendar year. In addition, the final regulations:
- clarify that an employer is treated as not having been in existence during the prior calendar year only if the employer did not exist on any business day in the prior calendar year; and
- adopt a suggestion to apply the seasonal worker exception in determining whether new employers are subject to the mandate.
Regarding the definition of hours of service (HOS), the final regulations provide that:
- HOS do not include hours worked as a "bona fide volunteer," as defined in the regulations.
- an anti-abuse rule intended to prevent understatement of employees' HOS also applies to HOS equivalency methods.
Regarding the rules for identifying full-time employees, the final regulations clarify that under the monthly measurement method, an employee must be treated as a continuing employee, rather than a new employee, unless the employee had at least a 13-week period during which no HOS were credited.
Addressing the look-back measurement method, the final regulations provide that whether an employer's determination that a new hire is a full-time employee is reasonable is based on the facts and circumstances. Factors that can be considered include:
- whether the employee is replacing an employee who was a full-time employee; and
- the extent to which employees in the same or comparable positions are full-time employees.
Reflecting a rule for variable hour and seasonal employees, the definition of administrative period is clarified to include, for situations where an initial measurement period does not begin on an employee's start date, the time between a new employee's:
- start date; and
- the beginning of the initial measurement period.
Regarding the meaning of variable hour employees, the final regulations provide factors to be considered in determining whether an employer, at an employee's start date, could not determine whether an employee was reasonably expected to be employed on average at least 30 HOS per week during the initial measurement period. The regulations include additional factors for determining whether a new employee of a temporary staffing firm intended to be placed on temporary assignments at client organizations is a variable hour employee.
For look-back measurement method purposes, the final regulations:
- define a seasonal employee as an employee in a position for which the customary annual employment is six months or less;
- add a definition of part-time employee; and
- extend application of a change in employment status rule to reach employees who change from part-time to full-time employee status during the initial measurement period.
The final regulations clarify that the initial measurement period need not be based on calendar months (in contrast, a stability period must be based on calendar months).
The final regulations make numerous clarifications regarding periods during which employers are not subject to employer mandate payments (for example, a transition rule for an employer's first year as a large employer subject to the employer mandate).

April 1 Coverage Rule

The final regulations include transition relief, applicable for an employer's first year as a large employer subject to the employer mandate, if employees were not offered coverage at any time during the previous calendar year. If an employer that becomes subject to the employer mandate offers coverage to these employees on or before April 1 of the first year that it must comply with the mandate, it is not subject to a payment for failing to offer the employees coverage for January through March of that year. However, the coverage offered by April 1 must provide minimum value (as defined by the ACA and underlying guidance).

Multiemployer Plans

The preamble to the final regulations includes transition guidance for employers required under a collective bargaining arrangement (CBA) to contribute to a multiemployer plan offering coverage to employees and their dependents that is affordable and provides minimum value. Under the guidance, an employer will not be treated as failing to offer those employees (for whom it was required to make multiemployer contributions under the CBA) an opportunity to enroll in minimum essential coverage (MEC).

Transition Relief

The final regulations include various pieces of transition relief, and rules for how the pieces of relief coordinate with one another.

Employers with Fewer Than 100 Full-time Employees

Transition relief is available for employers with fewer than 100 full-time employees (including full-time equivalent employees (FTEs)), under which employer mandate payments will not apply for any calendar month:

During 2015.
In the portion of a 2015 plan year that falls in 2016.

To be eligible for the relief, an employer must have employed on average, on business days during 2014:

At least 50 full-time employees, including FTEs.
Fewer than 100 full-time employees, including FTEs.

To take advantage of the relief, an employer generally cannot:

Reduce its workforce size or overall HOS to meet these workforce size conditions, though reductions for bona fide business reasons are permitted.
Eliminate or materially reduce any health coverage offered as of February 9, 2014.

The employer must certify its eligibility for the transition relief to the IRS. According to the IRS, employers will likely be required to provide this certification as part of a transmittal form under a related ACA reporting rule addressing health care coverage offered by the employer.

Non-calendar Year Plans

Transition relief is available for employers that maintain non-calendar year plans. This relief applies for the time before the start of such a plan's 2015 plan year regarding employees who, under a plan's eligibility terms in effect on February 9, 2014, are:

Eligible for coverage as of the first day of the plan's 2015 plan year.
Offered affordable coverage providing minimum value by the first day of the plan's 2015 plan year.

In general, for employers that satisfy the transition relief, no employer mandate payment is due for these employees for the time before the first day of the 2015 plan year.

Additional Transition Relief

Other transitional relief includes:

Shorter measurement periods for stability periods beginning during 2015 (which extends earlier IRS guidance) (see Practice Note, Health Insurance Exchange and Related Requirements under the ACA).
Shorter periods (for 2015) for calculating whether an employer is a large employer subject to the employer mandate. This guidance permits employers to determine their large employer status using a period:
- chosen by the employer; and
- of at least six consecutive calendar months during 2014 (rather than the entire 2014 calendar year).
Rules for covering dependents, which extends earlier IRS guidance, and is available for 2015 plan years for plans under which dependent coverage:
- is not offered;
- that is not MEC is offered; or
- is offered for some, but not all, dependents.

The relief involving coverage of dependents is only available for employers that take steps during the 2014 or 2015 plan year (or both) to extend plan coverage to dependents not offered coverage during 2013 or 2014 (or both).

Final Rules on Employer Mandate Include 2015 Transition Relief for Mid-sized Employers | Practical Law