The Affordable Care Act Regulations Become Even More Complex With Regard to Employer Compliance

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Affordable Care Update:  New proposed regulations were released by the Department of the Treasury and IRS concerning employer shared responsibility provisions under the Affordable Care Act (the “Act”).  The proposed regulations are not yet final, but build on five earlier notices that address, in detail, large employer responsibilities and penalty assessment calculations under the law that goes into effect next January.

The proposed regulations include details on the classification and treatment of various types of employers and employees for purposes of determining whether an entity is a “large employer”  and an individual is a “full time employee” for purposes of the Act.   In general, the IRS has confirmed that the common law standard will be used to determine whether individuals are considered employees for purposes of the Act.  Under this standard, “an employment relationship exists when the person/entity for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work, but also as to the details and means by which that result is accomplished.”  In this connection it is unnecessary for the employer to actually direct or control how services are performed as long as it has the right to do so.   Interestingly, we note that this definition of who is an employee differs from that applied by the Fair Labor Standards Act.

The proposed regulations also confirm that:

  • Large employers (at least 50 full time employees or full time equivalents) that fail to offer minimum essential health coverage to employees and their dependents will be penalized at the rate of $166.66 per month per employee (1/12 of $2,000) in excess of the established threshold of 30 for every month that coverage is not provided when any full time employee receives a premium tax credit or cost sharing reduction that is certified to the employer.  This is known as the Section 4980H(a) penalty.
  • Large employers that offer coverage but still have full time employees who become certified for premium tax credits or cost sharing reductions will be liable for penalties based on the number of employees receiving the tax credits or cost sharing reductions.  The proposed regulations note that this situation may arise when, 1) coverage is “unaffordable” as defined by the Act, 2) the coverage provided does not meet the minimum essential coverage requirements, or 3) the employer offers coverage to least 95% of its employees but less than 100% of the full time workforce and has at least one uncovered employees that receives the tax credit or cost sharing assistance.  This penalty is equal to $3,000 per affected full time employee per year and is referred to under Section 4980H(b).
  • For purposes of the Act, dependents are defined as children under the age of 26.  The proposed rule confirms that spouses are not considered dependents for purposes of the Act.
  • Hours of service including vacation, sick leave, FMLA leave, jury duty and other paid leaves are considered for purposes of calculating full time status.
  • To establish the framework for calculating large employer status, the proposed regulations establish a “look-back measurement period” that can last for up to 12 months, followed by a “stability” period for determining the FTE count.  The proposed rules contain numerous details that address changes in employment status, changes in hours worked, employment breaks, treatment of new employees, measurement of service provided by variable hour and seasonal workers as well as the treatment of common law employees of temporary staffing agencies.

For more detailed information about the newly proposed rules, please request a copy of our whitepaper with full details on shared responsibility rules under the Affordable Care Act.  Please send your whitepaper request to debd@c3advisors.com.

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