This guest post was authored by Heather DeBlanc.
As you know, the Affordable Care Act (ACA) will require large employers to provide “substantially all” of its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage at an affordable rate. Employers who fail to provide this will be assessed penalties. The ACA provides for “safe harbor” provisions including the optional Look Back Measurement Method Safe Harbor, which allows employers to determine whether an employee is full-time or part-time for purposes of the “assessable payment” (aka “penalty”). Large Employers with numerous seasonal employees who average over 30 hours of service per week in any given month will likely benefit from the Look Back Measurement Method Safe Harbor. Employers with calendar year plans who intend to adopt the Look Back Measurement Method Safe Harbor for determining full-time status will need to start tracking (or “measuring”) employee hours of service by July 1, 2013 at the latest, assuming they do not adopt an administrative period. Employers with calendar year plans who plan to adopt an administrative period of 90 days (the maximum) will need to start measuring employees’ hours of service on April 2, 2013. Employers with fiscal year plans may need to start measuring employees’ hours of service even earlier than July 1, 2013.
While the Look Back Measurement Method Safe Harbor provides rules for both ongoing employees and new variable hour employees, it appears that the IRS intends for all of these rules to operate in conjunction with one another. In other words, an employer cannot select portions of the safe harbor to use while disregarding others.
Starting January 1, 2014, ACA will subject large employers (i.e. over 50 full time equivalents) to a monthly penalty under two circumstances:
(1) the large employer fails to provide “substantially all” of its full-time employees (and their dependents) the opportunity to enroll in minimum essential coverage and any full-time employee is certified to the employer as having received a subsidy for coverage through the exchange (“no-coverage penalty”); or
(2) the large employer offers coverage to “substantially all” of its full-time employees (and their dependents) that is “unaffordable” or does not provide “minimum value” and a full time employee is certified to the employer as having received a subsidy for coverage through the exchange (“unaffordable coverage penalty”).
We recommend that large employers start assessing their current workforce, determine possible penalties they could face, and explore safe harbors that might minimize those penalties. In addition to the Look Back Measurement Method Safe Harbor, the IRS has also issued proposed regulations regarding various affordability safe harbors.
In connection with this law, the IRS has also proposed an appeal process for employers to challenge the exchange’s determination that an employee receive subsidized coverage. The IRS has expressed an intent to implement a process for employers to challenge the actual penalty as well. Employers should have evidence (i.e. written documentation) relating to the adoption and implementation of any safe harbor in order to effectively appeal these determinations.
Employers should start planning now by assessing potential penalties, determining the best plan of action and taking steps to formally adopt and implement any safe harbors they wish to use.