Final ACA Employer Mandate Rules Bring Relief to Employers

Author: Tracy Morley, XpertHR Legal Editor

February 12, 2014

The Internal Revenue Service issued final regulations implementing the employer shared responsibility provisions (commonly referred to as the employer mandate or the pay or play mandate) under the Affordable Care Act (ACA). The final rule includes a number of changes from the proposed regulations, the most significant of which is a phasing in of the requirements for employers with less than 100 full-time employees and for employers that offer coverage to most, but not all, of their full-time employees.

The employer mandate generally requires an employer with an average of 50 or more full-time employees (including full-time equivalent employees) to pay a penalty if it does not offer full-time employees (and their dependents) health coverage that meets the ACA's affordability and minimum value requirements. According to a fact sheet on the final rule:

  • Small businesses with fewer than 50 employees are still exempt from the employer mandate requirements.
  • Employers with 100 or more employees are generally required to comply with the employer mandate in 2015. The new rule phases in the percentage of full-time employees to whom coverage must be offered. To avoid a penalty for failing to offer coverage, employers need to offer coverage to 70 percent of their full-time employees in 2015 and to 95 percent in 2016 and beyond.
  • The employer mandate will not apply to employers with 50 - 99 employees until 2016, as long as the employer certifies that it has not reduced its workforce to drop under the 100 employee threshold.

The final rule also provides clarification regarding whether certain types of employees are considered full-time for the purposes of the mandate, including volunteers, educational employees, seasonal employees, students in work-study programs and adjunct faculty members.

Similar to the proposed rules, the final rule allows employers to use:

  • An optional look-back measurement method to determine full-time employee status; and
  • Affordability safe harbors that permit employers to use the wages they pay, their employee's hourly rates, or the federal poverty level to determine whether coverage is affordable.

The final rule also extends the following transition rules through 2015:

  • Employers can determine whether they had at least 100 full-time or full-time equivalent employees in the prior year by using a period of at least six months instead of 12.
  • Employers with non-calendar year plans (plan years that do not start on January 1) will be able to begin compliance with the employer mandate at the beginning of their plan year in 2015 rather than on January 1, 2015. The conditions for this relief are expanded to include more plan sponsors.
  • The requirement to offer coverage to dependents of full-time employees will not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.
  • On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months even with respect to a stability period (the time during which an employee with variable hours must be offered coverage) of up to 12 months.