PPACA added Employer Shared Responsibility (ESR) provisions, also called the Play or Pay mandate, to the Internal Revenue Code. On February 10, 2014, the Internal Revenue Service (IRS) issued final regulations to implement the mandate. Earlier, the IRS had announced that it would not be enforcing any of the ESR provisions in 2014 because it had not finalized the reporting requirements needed for any enforcement efforts. The final ESR regulations provide some significant transitional relief for 2015, the first year that the ESR provisions will be enforced.
Beginning in 2015, certain large employers may be subject to a penalty if:

• They fail to offer substantially all full-time employees (and certain dependents) employer-sponsored health coverage that provides minimum essential coverage (MEC)
  OR
• The coverage offered provides MEC but it is unaffordable or does not provide minimum value
  AND
• At least one of the employer’s full-time employees receives a premium tax credit or cost-sharing reduction through an Exchange

My company has a plan year that does not begin on January 1, 2015. When must our plan begin to comply with the Play or Pay Mandate?
The IRS has provided transitional relief for non-calendar year plans during 2015. During 2015, plans must comply with the mandate by the first day of the plan year. This means that there will not be any penalty imposed for not offering coverage during the calendar months that are part of the 2014 plan year, provided that the plan is in compliance on the first day of its 2015 plan year.

Which employers are subject to the Play or Pay Mandate?
The mandate applies to employers that employ, on average, at least 50 full-time and/or full-time equivalent (FTE) employees during the preceding calendar year.

I am an employer with 50-99 full-time and FTE employees. Is there any transitional relief for my company?
Yes. In 2015 only, employers with 50-99 full-time and FTE employees will not be subject to the Play or Pay Mandate provided that the employer has not either

• Reduced the size of its workforce or overall hours of service, or
• Eliminated or materially reduced coverage offered as of February 9, 2014

How do I know which of my employees is a full-time employee?
A full-time employee is one who performs an average of 30 hours of service per week or 130 hours in a calendar month. The following people are generally not “employees” for purposes of this calculation: sole proprietors, partners in partnerships, 2% S corporation shareholders, leased employees, and employees who work outside the United States.

How do I determine the number of FTE employees my company has in any given month?
For each month, you must add up the total number of hours of service of all employees who were not employed for an average of 30 hours per week and divide that number by 120. This is the number of FTE employees for the month.

How do I calculate the average number of full-time and FTE employees?
For each month, you determine the total number of full-time and FTE employees. Then, you add together the monthly totals and divide by 12. For this calculation, if your answer is not a whole number, you round down to the next lowest whole number.

My company hires seasonal employees. Did the final regulations define seasonal employees?
Yes. A seasonal employee is defined as one who works six months or less annually. Seasonal employees do not have to be counted as full-time employees, even during the period of their seasonal employment.

My company has fewer than 50 permanent employees, but more than 50 employees during the months when we have seasonal employees. Will we be considered an “applicable large employer?”
No. As long as your company

• has more than 50 employees for fewer than 120 days during a calendar year, and
• the employees in excess of 50 are seasonal employees, it will not be considered an applicable large employer. The 120 days do not have to be consecutive.

My company uses the services of volunteers. Must we include volunteer hours in determining our number of full-time and FTE employees?
No. Hours worked as a bona fide volunteer are not included in the hours of service calculation.

My company is an institution of higher education. Must we include hours worked by student employees in the hours of service calculation?
If the student employee is working as part of the federal work study program, the student’s hours are not included in the hours of service calculation. However, if the student employee is paid or entitled to payment in a capacity other than the federal work study program, the student employee’s hours must be included in the hours of service calculation.

My company is an institution of higher education which employs adjunct faculty. How do we determine the number of hours to credit to those employees?
The final regulations recognize that the category of adjunct faculty members is a particularly challenging category in which to accurately determine the number of hours an employee performs services. For this reason, the final regulations provide a permissible method of crediting hours of service to adjunct faculty. That method is to credit 2.25 hours of service for each hour of classroom time and an hour of service for each additional hour outside of the classroom spent performing required duties such as mandatory office hours or faculty meetings.

What year do I look at to make the calculations?
In making the calculations, you look at the preceding calendar year. This means that you look at 2014 when determining whether the Play or Pay mandate applies to your company in 2015. Note: For 2015 only, the IRS has adopted a transition relief rule. Under the transition relief rule, you have the option to use a reference period of between 6 and 12 consecutive months.

Who is a “dependent” that must be eligible to enroll in my company’s health coverage?
For purposes of the Play or Pay Mandate, a “dependent” is your full-time employee’s son or daughter, who has not reached the age of 26. Your full-time employee’s spouse is not a dependent for purposes of the mandate, nor is any other individual who may be a dependent for tax purposes. The final regulations eliminated foster and stepchildren from the definition of dependent for purposes of the Play or Pay Mandate only. Note: The IRS has provided transitional relief for employers who currently do not make coverage available to their employees’ dependents. Any employer that “takes steps” toward offering coverage to employees’ dependents during its plan year that begins in 2014 or 2015 will not be penalized solely for failing to make coverage available to dependents.

What percentage of full-time employees is substantially all?
The IRS has concluded that 95 percent is an administrable and appropriate interpretation of the requirement in the ACA to make coverage available to substantially all full-time employees and their dependents. Note: The IRS has provided transitional relief during 2015. During 2015, an employer that is subject to the Play or Pay Mandate must make coverage available to 70 percent of its full-time employees. The 95 percent rule will take effect in 2016.

How do I know if the plan offered to my employees provides MEC?
Most commercially available health plans, including plans offered in the large or small group market within a state, are deemed to provide MEC. Other examples of plans that provide MEC include self-funded student health plans, Medicare Advantage plans, and any plan treated as grandfathered under PPACA.

What is considered minimum value?
Minimum value is coverage of at least 60% of the total allowed cost of benefits provided under a plan. This is a measure of the benefits provided, not the premiums paid.

How do I know if my company’s plan is affordable?
In general, coverage is considered affordable if the employee’s self-only premium for the lowest cost health coverage that provides MEC and minimum value is no more than 9.5 percent of the employee’s household income.

How can my company be sure that the self-only premium paid by an employee is no more than 9.5 percent of the employee’s income?
The IRS has provided three affordability safe harbors. They are:

• Form W-2 Safe Harbor: If the employee’s annual contribution to the self-only premium is no more than 9.5 percent of the employee’s wages, as reported in Box 1 of the employee’s Form W-2. This safe harbor is applied after the end of the calendar year and on an employee-by-employee basis.
• Rate of Pay Safe Harbor: If the employee’s monthly contribution to the self-only premium is no more than 9.5 percent of the employee’s monthly wages. To determine an hourly worker’s monthly wages, multiply either the employer’s lowest rate of pay or the hourly rate of pay for each individual employee by 130.
• Federal Poverty Line Safe Harbor: If the employee’s monthly contribution for the self-only premium is no more than 9.5 percent of 1/12 of the Federal Poverty Line for the state in which the employee is employed.

Note: For any of the safe harbors, use the self-only premium of the lowest cost health coverage that provides both MEC and minimum value. The affordability safe harbors are not available for plans that do not provide MEC and minimum value.

How much is the penalty that can be imposed for not complying with the Play or Pay Mandate?
The penalty, also known as the Employer Shared Responsibility Payment, differs depending on the type of noncompliance:

• If, for any calendar month, your company fails to offer substantially all of its full-time employees and their dependents health coverage that provides MEC and any of your full-time employees is certified to receive a premium tax credit or cost-sharing reduction for purchasing health coverage through an exchange, the Employer Shared Responsibility Payment is calculated as follows:
  • For each calendar month, ($2,000/12) x (Number of full-time employees – 30)
    • For 2015 and any calendar months of 2016 that are within the employer’s 2015 plan year, the number of full-time employees will be reduced by 80 rather than 30
    • The penalty is calculated on a monthly basis but paid annually
    • The $2,000 annual amount will be adjusted for inflation in future years
• If, for any calendar month, your company offers all of its employees and their dependents health coverage that provides MEC but such coverage is either a) not affordable, or b) does not provide minimum value and any of your full-time employees is certified to receive a premium tax credit or cost-sharing reduction for purchasing health coverage through an exchange, the Employer Shared Responsibility Payment is calculated as follows:
  • For each calendar month, ($3,000/12) × the number of full-time employees certified to receive a premium tax credit or cost-sharing reduction
    • The penalty is calculated on a monthly basis but paid annually
    • The $3,000 annual amount will be adjusted for inflation in future years
    • The maximum amount of this penalty is the amount your company would pay if it were subject to the first penalty

This summary is provided for informational purposes only and is not intended to be either legal or tax advice. HNE strongly urges any employers who might be affected by these provisions of PPACA to consult with their own legal and tax advisors.