On Jan. 2, 2013, the Internal Revenue Service published in the Federal Register a proposed rule, “Shared Responsibility for Employers Regarding Health Coverage,” that provides details regarding the requirement that employers with 50 or more full-time employees or full-time equivalents offer employees health care coverage with “minimum value,” beginning in 2014. The proposed rule has a comment period that ends on March 18, 2013.
Relatedly, on Dec. 28, 2012, the IRS posted online new questions and answers regarding the employer mandate to provide health care.
The proposed rule and Q&As closely track the requirements outlined in the Patient Protection and Affordable Care Act (PPACA), which states that the “shared responsibility provisions” (that is, the employer health care mandate) applies to employers with 50 or more full-time employees or a combination of full-time and part-time employees that is equivalent to at least 50 full-time employees.
As defined by the statute, a full-time employee is an individual employed on average at least 30 hours per week, so half-time would be 15 hours per week, and 100 half-time employees equals 50 full-time employees. In another example, 40 full-time employees employed 30 or more hours per week on average plus 20 half-time employees employed 15 hours per week on average are equivalent to 50 full-time employees.
Among other points, the proposed rule and Q&As clarify the following:
• Employers will determine each year, based on their current number of employees, whether they will be considered a large employer subject to the shared responsibility provisions for the following year. For example, if an employer has at least 50 full-time employees/equivalents (FTEs) for 2013, it will be subject to the shared responsibilities provisions in 2014.
• Employers average their number of employees across the months in the year to see whether they meet the threshold of 50 FTEs. The averaging can take account of fluctuations that many employers may experience in their work force across the year.
The proposed rule applies a calculation method for FTEs that was included in IRS Notice 2011-36, issued in June 2011. Under that method, all employees (including seasonal workers) who were not full-time employees for any month in the preceding calendar year are included in calculating the employer’s FTEs for that month by 1) calculating the aggregate number of hours of service (but not more than 120 hours of service for any employee) for all employees who were not employed on average at least 30 hours of service per week for that month, and 2) dividing the total hours of service in step 1 by 120. This is the number of FTEs for the calendar month.
In determining the number of FTEs for each calendar month, fractions are taken into account. For example, if for a calendar month employees who were not employed on average at least 30 hours of service per week have 1,260 hours of service in the aggregate, there would be 10.5 FTEs for that month. After adding the 12 monthly FTE totals and dividing by 12, however, all fractions would be disregarded. For example, 49.9 FTEs for the preceding calendar year would be rounded down to 49 FTEs (and thus the employer would not be an applicable large employer in the current calendar year).
Determining ‘minimum value’
According to the new Q&As, a minimum value calculator will be made available by the IRS and the U.S. Department of Health and Human Services (HHS). The minimum value calculator will work in a similar fashion to the actuarial value calculator that HHS has made available. Employers can input certain information about the plan, such as deductibles and co-pays, into the calculator and get a determination as to whether the plan provides minimum value by covering at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.
The proposed regulations provide additional information about how to determine the average number of employees for a year, including information about how to take account of salaried employees who may not clock their hours and a special rule for seasonal workers.
Regarding seasonal workers, the PPACA provides that if an employer’s workforce exceeds 50 FTEs for 120 days or fewer during a calendar year, and the employees in excess of 50 who were employed during that period of no more than 120 days were seasonal workers, the employer is not an applicable large employer subject to the shared responsibility provisions.
The term seasonal worker under the PPACA is not limited to agricultural or retail workers.
The proposed rule states that until further guidance is issued, employers may apply a reasonable, good-faith interpretation of the statutory definition of seasonal worker, including a reasonable good-faith interpretation of the standard set forth under the U.S. Department of Labor regulations at 29 CFR 500.20(s)(1).
For those employers that may be close to the 50-FTE threshold and need to know what to do for 2014, special transition relief is available to help them count their employees in 2013. For instance, rather than being required to use the full 12 months of 2013 to measure whether it has 50 FTEs, an employer may measure using any six-consecutive-month period in 2013. For example, an employer could use the period from Jan. 1, 2013, through June 30, 2013, and then have six months to analyze the results, determine whether it needs to offer a plan and, if so, choose and establish a plan.
Stephen Miller, CEBS, is an online editor/manager for SHRM.
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