‘Pay or Play’ Delayed Until 2016 for Large Employers with Less Than 100 Full Time Equivalent Employees

By MBPA Staff

March 11, 2014 – On February 10, 2014, the Department of Treasury released the final rules regarding compliance with the employer’s shared responsibility requirements (Pay or Play) under the Affordable Care Act (ACA). The newly issued final rules provide guidance for large employers. These employers may be liable for a penalty if they do not offer affordable health care insurance that provides a minimum level of coverage to full time employees, and if any of these employees receives a premium tax credit for purchasing individual coverage on the Health Insurance Marketplace/Exchange.

The “Pay or Play” requirements apply to employers employing at least a certain number of full-time equivalent employees (FTEs). Employers must determine each year, based on their current number of employees, whether they will be subject to the requirements for the next year.

Employers with fewer than 50 FTEs are not penalized for not providing health care insurance to their employees.

Employers with 50 to 99 FTEs are subject to “Pay or Play” rules, but the requirements will not apply until 2016.  Employers must certify that they meet certain eligibility criteria related to their workforce size, maintenance of the workforce, aggregate hours of work, and maintenance of previously offered health care coverage to be exempt in 2015.

Employers with 100 or more FTEs are subject to the “Pay or Play” rules in 2015 and are required to offer coverage to at least 70% of full time employees to avoid a penalty for not offering health care coverage. This rule is intended to provide relief to employers that, for example, may offer coverage to employees working 35 or more hours per week, but not yet to those employees who work 30 to 34 hours per week. In 2016, the same employer would be required to offer coverage to at least 95% of full time employees. Please note that employers that offer coverage to at least 70% of full time employees in 2015 may still owe a penalty if any full time employees purchase individual coverage on the Health Insurance Marketplace/Exchange and receives a premium tax credit.

The final rules also extend to 2015 a package of limited transition rules which applied to 2014 under the proposed regulations. They include:

Employers First Subject to “Pay or Play” Requirements:  Employers can determine whether they had at least 100 FTEs in the previous year by reference to a period (Look Back Period) of at least six consecutive months, instead of a full year.

Non-Calendar Year Plans:  Employers with plan years that do not start on January 1st will be able to begin compliance at the start of their plan year in 2015 rather than on January 1, 2015.  The conditions for this relief rule are expanded to include more plan sponsors.

Dependent Coverage:  The rule that employers offer coverage to dependents of their full time employees will not apply in 2015 if the employer is taking steps to offer dependent coverage beginning in 2016.

The final regulations also provide clarifications regarding certain types of employees and/or certain occupations and whether they are considered full time.

Volunteers:  Hours contributed by bona fide volunteers for a government or tax exempt entity, such has volunteer firefighters and emergency responders will not be considered full time employees.

Educational Employees:  Teachers and other educational employees will not be treated as part time for the year because their school is closed or operating on a limited schedule during the summer.

Seasonal Employees:  Individuals in positions which the customary annual employment is six months or less generally will not be considered full time employees.

Student Work Study Programs:  Service performed by students under a federal or state sponsored work study program will not be counted when determining whether they are full time employees.

Adjunct Faculty:  Employers of adjunct faculty are to use a method of crediting hours of service that is reasonable in the employee’s circumstance and consistent with the shared responsibility provisions of the ACA. To accommodate the need for predictability, ease of administration, and consistency, the final regulations allow crediting an adjunct faculty member with 2.25 hours of service per week for each hour of teaching or classroom time. Expect further guidance on this type of employee.