Healthcare.jpgThis blog post was authored by Heather DeBlanc

On February 10, 2014, the Department of the Treasury issued final regulations on the Affordable Care Act’s (“ACA”) Employer Shared Responsibility Payment.  Starting January 1, 2015, depending on the number of full-time employees and equivalents, employers will be subject to potential penalties if they fail to offer affordable coverage to substantially all full-time employees.  This article answers common questions employers have about the final regulations and what they can do now to prepare for full implementation of the new law.  

1. Is my organization considered a large employer?

 An applicable large employer is defined by the IRS as an employer who employed an average of at least 50 full-time employees, including full time equivalents, on business days during the preceding calendar year.  The final regulations allow an employer to determine its status as an applicable large employer for 2015 based on data from at least six consecutive calendar months (selected by the employer) during the 2014 calendar year, rather than the entire year.  Also, an employer who becomes an applicable large employer for the first time will not be subject to penalties for failure to offer coverage to an employee for January through March of the first year in which the employer is an applicable large employer, as long as it offers the employee coverage by April 1 of that year.

Do we get a break if we are a “Mid-Size” Employer?

Yes.  The IRS will not assess penalties against employers with 50 to 99 full-time employees, including full-time equivalents, during 2015 and, in the case of a non-calendar plan year, for the portion of the 2015 plan year that falls into the 2016 calendar year, if the employer meets certain conditions.  An employer who wishes to take advantage of this relief must meet the following conditions:  (1) the employer does not reduce the size or overall hours of their workforce except for bona fide business reasons from the period beginning February 9, 2014, through December 31, 2014; (2) the employer does not eliminate or materially reduce the health coverage offered as of February 9, 2014; and (3) certify, on an IRS form, that they met these conditions.

Do we get extra time to comply if we have 100 or more full-time employees, including full-time equivalents?

No.  However, the final regulations do provide some transitional relief to large employers:

  • During 2015, large employers will not be penalized as long as they offer affordable coverage to at least 70% of full-time employees.  The “substantially all” requirement will increase to 95% in 2016 and thereafter.    
  • Employers who choose to adopt the Look Back Measurement Method Safe Harbor may average employee hours over as few as six months during 2014 (“transitional measurement period”), and still implement a stability period of up to twelve months during 2015.  The transitional measurement period must be at least 6 months and begins no later than July 1, 2014.  The transitional measurement period also must end no earlier than 90 days before the stability period.  Employers with plan years beginning on July 1st will likely need to use a measurement period longer than 6 months to comply.
  • When calculating the “no coverage” penalty, an employer is permitted to disregard the first 30 full-time employees.  For 2015 plan years, the IRS has increased this threshold from 30 to 80 employees.  The 30-employee offset will apply beginning in 2016.
  • If a large employer offers coverage to a full-time employee no later than the first day of the first payroll period that begins in January 2015, the employee will be treated as having been offered coverage for the month of January during 2015.

4. What if my organization has not yet adopted the Look Back Measurement Method Safe Harbor?

 If you employ 100+ employees and have not yet adopted the Look Back Measurement Method Safe Harbor (which allows an employer to average employee hours over the course of up to a year in order to determine which employees are considered full-time under ACA), you should think about whether to do so now.  If an employer does not adopt the safe harbor, any penalties assessed by the IRS will be imposed on a monthly basis.  If an employer chooses to adopt the safe harbor, employee hours of service during 2014 will count toward the determination of which employees will be considered “full-time” for purposes of ACA’s employer penalties in 2015.  Employers who have not yet started tracking employee hours may benefit from adopting the shorter “transitional measurement period” permitted by the final regulations during 2014 only—see question 3 for more details.  


5. What if my organization has already adopted the Look Back Measurement Method Safe Harbor?

 If you have already adopted and implemented the safe harbor, continue tracking and assessing employee hours in preparation for 2015.  Provide training for management and supervisors on the operation of the safe harbor including the rules that apply to new hires.  Under the final regulations, the determination of whether a new hire is reasonably expected to be full-time is based on the facts and circumstances at the employee’s start date.  Factors to consider include, but are not limited to:

  • Whether the employee is replacing an employee who was full-time;
  • Extent to which employees in same or comparable positions are full-time;
  • How was the job advertised?
  • What does the job description state?
  • What hours did the employer communicate to the new hire?

An initial measurement period (up to 12 months) applies to each new part-time, new variable hour or new seasonal employee who is not reasonably expected to be full-time after applying the factors above.  The initial measurement period can be based on a period that begins on the employee’s start date or any date up to and including the first of the month following the start date. 

The final regulations state that a returning employee who is re-hired after a termination may be treated as a new employee after a break in service of at least 13 weeks (26 weeks for educational organizations).

Employers will not be subject to any penalty during the initial measurement period regarding those employees whose hours are during that period.


6. Do we still need to provide coverage to dependents?

 Employers with 100 employees or more who take steps during the 2014 plan year toward offering dependent coverage will not be subject to the penalties during 2015 if their existing plan does not offer dependent coverage, OR offers dependent coverage that does not meet ACA’s minimum essential standards, OR offers coverage to some, but not all dependents.   The transition relief is NOT available if the employer had offered dependent coverage during 2013 or 2014 and dropped that coverage.

Also of assistance to employers: the final regulations exclude foster children and stepchildren from the definition of “dependents” for purposes of ACA’s employer mandate.  A qualifying child is considered a dependent for the entire calendar month during which he or she turns 26 years old.


7. How should we treat volunteers, seasonal, on-call and short-term employees?

 Volunteers:  The final regulations specify that hours of service for the large employer and penalty determinations do not include hours worked by “bona fide volunteers.”  The definition of “bona fide volunteer” includes any volunteer who is an employee of a government entity or an organization described in 501(c) that is exempt under section 501(a) and whose only compensation is reimbursement for reasonable expenses incurred for volunteer work or reasonable benefits and nominal fees customarily paid by similar entities in connection with the performance of services by volunteers.

Seasonal:  The final regulations define a “seasonal employee” as an employee who is hired into a position for which the customary annual employment is 6 months or less.  These employees will not be considered full-time.

On Call:  The final regulations give guidance on how employers should credit on-call hours of service.  An hour of service includes:

  • Each hour for which payment is made or due;
  • Each hour for which the employee is required to remain on-call on the employer’s premises;
  • Each hour for which the employee’s activities while remaining on-call are subject to substantial restrictions that prevent the employee from using the time effectively for the employee’s own purposes. 

Short Term:  The final regulations do not adopt any special provisions for short term employees or employees in high turnover positions.  The Treasury Department and IRS expressed concern for potential abuse of any exception.  If your organization has adopted the Look Back Measurement Method Safe Harbor, these employees generally will be measured under the same rules applicable to new hires who are part-time, variable hour or seasonal employees.  They will also be considered new employees if they are re-hired after at least a 13 week break in service.


8. How have the affordability guidelines changed?

 Under the ACA, coverage is affordable if an employee’s premium contribution toward the lowest cost-self only plan is 9.5 percent or less than the employee’s household income.  Because employers usually do not know an employee’s household income, the law includes three safe harbors for determining affordability: (1) Rate of Pay; (2) W-2; and (3) Federal Poverty Line.  The final regulations clarify that the Rate of Pay safe harbor may be utilized even if an hourly employee’s hourly rate of pay is reduced during the year.  If the hourly rate of pay is reduced, the rate of pay is applied separately to each calendar month, rather than to the entire year and the employee’s required contribution to the lowest cost self-only plan will be affordable if it is 9.5% or less than the lowest rate of pay for the calendar month multiplied by 130 hours.  The final regulations also state that employers who apply the Federal Poverty Line safe harbor may use the published poverty guidelines in effect 6 months prior to the beginning of the plan year.


9. Must an employer offer coverage each year to its employees who are enrolled in employer sponsor coverage from a prior year?

 Generally, no.  The final regulations clarify that an employee’s election of coverage from a prior year that continues for every succeeding plan year (unless the employee affirmatively elects to opt out of the plan) constitutes an offer of coverage.  Note:  Employers should still offer coverage every year to those employees who elect to opt out, as they are not receiving continued coverage. 

The final regulations are available at this link:

Additional information regarding the Employer Shared Responsibility Provisions is located on the IRS website at

A summary fact sheet may be viewed at this link: