Employer-Shared Responsibility Provisions: When Do These Rules Apply To You And Your Business?

By Kristi R. Gauthier, Esq.
Clark Hill PLC

March 31, 2014 – As most businesses are aware, the IRS and U.S. Treasury Department recently issued final regulations on the employer-shared responsibility provisions under PPACA.  The final regulations contain an implementation timeline for these provisions that is dependent upon employer size.   The final regulations provide as follows:

Employers with less than 50 full-time employees:

The employer-shared responsibility provisions do not apply to employers with less than 50 full-time and/or full-time equivalent employees.

• Employers with at least 50 but less than 100 full-time employees:  The final regulations provide that employers with at least 50 and fewer than 100 full-time and/or full-time equivalent employees in 2014 will not be subject to the employer-shared responsibility provisions until 2016, provided the following conditions are met:   

1. The employer must employ on average at least 50 full-time and/or full-time     equivalent employees but fewer than 100 full-time and/or full-time equivalent        employees on business days during 2014;

2. During the period beginning February 9, 2014 and ending on December 31,  2014, the employer may not reduce the size of its workforce or the overall  hours of service of its employees in order to qualify for the transition relief (Note: reductions in workforce or hours is permitted for bona fide business  reasons); and

3. During the period beginning on February 9, 2014 and ending on December 31, 2015 (or for employers with non-calendar year plans ending on the last day of the 2015 plan year), the employer does not eliminate or materially reduce  health coverage, if any, it offered as of February 9, 2014.  An employer will not be treated as eliminating or materially reducing health coverage if (i) it continues to offer each employee who is eligible for coverage an employer contribution towards the cost of employee-only coverage that is either at least 95% of the dollar amount of the contribution towards such coverage that the employer was offering on February 9, 2014 or is at least the same percentage of the cost of coverage that the employer was offering to contribute toward coverage on February 9, 2014; (ii) in the event of a change in benefits under the employee-only coverage offered, that coverage provides “minimum value” after the change; and (iii) it does not alter the terms of its group health plans to narrow or reduce the class(es) of employees and/or dependents to whom coverage under the plan was offered on February 9, 2014.

• Employers with 100 or more full-time and/or full-time equivalent employees:     Employers that (i) had at least 100 full-time and/or full-time equivalent employees in 2014 or (ii) had at least 50 but less than 100 full-time and/or full-time equivalent  employees in 2014 and do not qualify for the transition relief discussed above will be liable for employer-shared responsibility penalties beginning in 2015 if:

1. The employer does not offer health coverage or the employer offers coverage to fewer than 70% of its full-time employees and their dependents (95% after 2015), and at least one of the full-time employees receives a premium tax credit to help pay for coverage on a Marketplace/Exchange; or

2. The employer offers health coverage to at least 70% of its full-time employees and their dependents (95% after 2015), but at least one full-time employee receives a premium tax credit to help pay for coverage on a Marketplace/Exchange because the employer-provided coverage was “unaffordable” or not of “minimum value”.

The final regulations also provide that for purposes of determining employer size in 2015, employers can determine the number of full-time and full-time equivalent employees by reference to a period of at least six consecutive months in 2014, instead of the full calendar year.  For determining employer size in 2016 and beyond, employers will have to average the number of employees over the entire previous calendar year.

Employers should work closely with their benefits consultants and legal advisors to properly identify the number of full-time employees and full-time equivalent employees in order to determine when and if the employer-shared responsibility provisions are applicable to their organization.  

*This article is not intended to give legal advice. It is comprised of general information. Employers facing specific issues should seek the assistance of legal counsel.

Kristi R. Gauthier is a senior attorney in Clark Hill’s Birmingham office and concentrates her practice in Employee Benefits Law. Kristi has represented clients in a wide variety of employee benefits issues involving health and welfare benefits, as well as retirement plans. Kristi is admitted to practice in the State of Michigan, the U.S. District Court for the Eastern District of Michigan, and the U.S. Sixth Circuit Court of Appeals. She also is active in the legal community with memberships in the American Bar Association, the State Bar of Michigan, and the Oakland County Bar Association where she is a member of the Employee Benefits Committee. Kristi also serves as a member of the Clark Hill Diversity and Inclusion Committee. Kristi has lectured on various employee benefits issues, including ERISA compliance, healthcare reform, COBRA, section 125 plans, 403(b) plans and IRS plan correction programs. Kristi is also a co-author of the ABA publication ERISA Survey of Federal Circuits. Kristi was named a “Rising Star” by Michigan Super Lawyers in 2011.