IRS Issues Final Regulations and Delays

Implementation of ACA for Smaller Employers


On Jan. 10, 2014, the U.S. Department of the Treasury and the Internal Revenue Service issued final regulations implementing the employer mandate under the Affordable Care Act (ACA). As a relief for smaller employers, transition rules set forth under the final regulations once again delay the employer mandate for certain employers.

Transition Guidance

Employers with 50 to 99 employees will not be required to offer health coverage to its full-time employees until 2016. In addition, employers with 100 or more employees will only be required to offer coverage to 70 percent of their employees in 2015, transitioning to coverage of 95 percent of employees in 2016. As the ACA has always provided, employers with fewer than 50 employees will not be required to offer coverage.

The transition rules clearly help employers with 50 to 99 employees to avoid any penalties for 2015. The transition rules are also designed to help large employers who, for example, may offer coverage to employees who work 35 or more hours per week, but do not offer coverage to employees who work between 30 and 35 hours per week. The transition rules will provide additional time for large employers to offer coverage to those employees who work more than 30 hours per week.

Final Regulations

The final regulations also contain some variations from the proposed regulations. For example, the final regulations specifically exclude seasonal employees from the definition of full-time employee if the seasonal employee is in a position whose customary annual employment is less than six months. There are additional changes from the proposed regulations with respect to determining full-time employees. As an example, the final regulations alter the method of determining full-time employee status for certain employees who change employment status during a measurement period or stability period. The final regulations also introduce a monthly measurement method concept rather than use a look-back method to determine full-time employees.

Importantly, the final regulations also will allow a six-month measurement period in 2014 for an associated stability period in 2015, even if the employer chooses a stability period of 12 months. This transition rule will prevent employers from having to track hours and calculate full-time employees dating back to late 2013. Additionally, employers may use a six-month consecutive period, rather than a full year, to determine whether the employer has 100 or more full-time employees in 2015 or 2016.

Action Items

In light of the final regulations, employers should consider performing the following tasks:

1. Establish whether the employer has 50 to 99 employees on a controlled-group basis based on a six-month period, using the new rules under the final regulations to determine hours of service and full-time employee status. Employers with fewer than 100 employees will need to provide appropriate certification.

If the employer has more than 100 employees on a controlled-group basis, we recommend the following:

2. Decide whether to use the monthly measurement method or whether to use a look-back period, and if using a look-back period, decide on the measurement period in 2014, the administrative period, and the stability period for 2015;

3. Determine full-time employees during the measurement period using the new rules under the final regulations for determining hours of service and full-time employee status;

4. Ensure that at least 70 percent of full-time employees are offered coverage (if the employer excludes any groups of employees from coverage); and

5. Implement administrative procedures to handle new employees, variable hour employees, and changes in status based on the new rules under the final regulations.

David Eckhardt is a member of the Employee Benefits Team at Whyte Hirschboeck Dudek S.C. in Milwaukee.

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