The U.S. Department of the Treasury and the Internal Revenue Service (IRS) issued final regulations for the Employer Shared Responsibility (ESR) provisions (also referred to as the employer mandate) under the Affordable Care Act. The final rules provide transition relief for 2015 and 2016, and provide a gradual phase-in of the employer responsibility provisions to guide employers with compliance.
Are You Affected by the New Regulations?
The employer mandate only applies to applicable large employers, defined as those businesses with 50 or more full-time employees (taking into account full-time equivalent [FTE] employees). This means that roughly 96 percent of small businesses are exempt from ESR and aren't required to provide coverage or fill out any forms regarding this provision. In review, those applicable large employers who do qualify may be subject to a penalty if they don't offer their full-time employees minimum essential coverage (MEC) that provides minimum value and is affordable, according to the provision's standards, and their employees receive a premium tax credit for coverage purchased through a marketplace.
Employers with 50-99 full-time and full-time equivalent employees may have until January 2016 before enforcement of the ESR provisions come into effect. Employers must meet certain conditions outlined in the regulation to qualify for the transition relief and must certify in ESR reporting that they have met these conditions. Before the one-year postponement, those businesses that did not offer adequate and affordable coverage to full-time employees and their dependents may have faced penalties in 2015.
It's important to note that larger businesses with 100 or more full-time employees (including full-time equivalents), most of which already offer quality coverage, will still be subject to ESR provisions for 2015; however, under transition relief in the final regulation, they only have to offer MEC to substantially all (70 percent) of their full-time employees and their dependents or potentially face one of the employer shared responsibility assessments. The provision outlining that companies must offer MEC to 95 percent of their full-time employees and their dependents (or all but 5 full-time employees, whichever is less) begins in 2016.
Companies that don’t qualify for the transition relief may still be liable for potential penalties if one of the non-covered employees receives a premium tax credit from a health insurance marketplace or if the coverage offered is not affordable or does not provide minimum value. However, the transition relief provided a change in the calculation of the penalty for not offering coverage to substantially all full-time employees and their dependents. It now allows the subtraction of the first 80 full-time employees before multiplying the remaining full-time employees by the annualized amount of $2,000 (adjusted for inflation). This will reduce to 30 in 2016, which is the number proposed in the original guidance.
If you are an employer of a controlled group of entities or an affiliated service, all employees are combined together when determining whether you employ 50 or more full-time employees including FTEs. Each separate company is subject to the Employer Shared Responsibility provisions if the combined total meets the 50 full-time-employee threshold.
Additional Changes and Clarifications
Under the final regulations, volunteers such as firefighters and emergency responders do not count as full-time employees. In addition, transition relief is in place for businesses with non-calendar year plans in effect prior to December 28, 2012 that were not modified to start at a later calendar date. They may be able to begin ESR compliance at the start of their plan years during 2015 rather than on January 1, 2015 if certain conditions are met. Affordability safe harbors will also aid employers in determining whether the coverage they offer is affordable to employees under the ACA by using the taxable wages they pay, their employees' hourly rates/monthly salaries, or the federal poverty level. Employers will also have the option of using a look-back measurement method to determine if employees are full-time.
Currently, other major health care provisions such as the individual mandate remain in effect for 2014 and 2015, as well as the application deadlines for the federal and state health insurance marketplaces.
These final regulations are commonsense improvements to the Affordable Care Act aimed to simplify and streamline the process for businesses. Paychex will continue to closely monitor the ESR provisions and develop solutions, tools, and resources for its clients. This transition relief affords clients more time to prepare and ensure that all aspects of these very complex provisions are fully addressed. By working with Paychex and using its ESR service offerings, clients can be sure they are up-to-date with the regulations. We will continue to work with our clients on their employee hours tracking, calculation, and reporting, as well as coverage evaluation. Despite the relief, clients who qualify as an applicable large employer can continue to take advantage of our solutions to assist them in avoiding potential penalties over the next few years.