The IRS issued Notice 2011-36 (the Notice) detailing potential approaches that could be incorporated in future proposed regulations and requesting comments on PPACA's employer shared responsibility provisions (sometimes referred to as the "play or pay" mandate), effective in 2014.  

  • Employer Shared Responsibility Provisions. As background, PPACA requires "applicable large employers" (50 or more full-time employees) that do not offer minimum essential health care coverage to employees and dependents to pay an annual excise tax of $2,000 per employee if at least one full-time employee receives a federal tax credit for coverage through an exchange. In addition, applicable large employers that offer coverage that is deemed unaffordable under PPACA (employee premiums of more than 9.5% of household income), or that does not satisfy PPACA's minimum actuarial value test, must pay an annual excise tax of $3,000 for each full-time employee who receives a federal tax credit for exchange coverage (up to a maximum penalty of $2,000 per full-time employee over the 30-employee threshold).  
  • Definitions of Employer, Employee and Hour of Service. The Notice discusses definitions of "employer,” "employee" and "hours of service" and notes that these definitions and the rules for calculating hours of service will generally conform to well-established definitions and rules applicable to employer-provided health and pension plans. The Notice proposes that "employer" would mean the entity that is the employer under the common-law test and the controlled group rules of Code sections 414(b), (c), (m) and (o). The Notice also proposes that "employee" would mean a worker who is an employee under a common-law test (excluding leased employees), with a special rule for seasonal employees. Finally, the Notice proposes that "hours of service" would mean actual hours worked plus hours for which an employee is entitled to payment for periods during which no work was performed (vacation, holiday, illness, etc.). For hourly employees, hours of service would be calculated based on employer records. For nonhourly employees, hours of service could be calculated based on actual hours or using a days-worked or weeks-worked equivalency method.  
  • Applicable Large Employer. The Notice describes a process for determining whether an employer is an applicable large employer and therefore subject to PPACA's employer shared responsibility provisions. An applicable large employer is an employer that employed at least 50 full-time employees (including full-time equivalents) on business days during the preceding calendar year. A full-time employee with respect to a given month is an employee who is employed at least 30 hours per week (or, under the Notice's proposed rule, at least 130 hours in a calendar month). An employee who is not considered a full-time employee is taken into account to determine full-time equivalences. Full-time equivalences are determined by calculating the aggregate hours of service (up to 120) for non-full-time employees and dividing the total hours by 120.

The Notice also indicates that the IRS is considering proposing alternatives to a month-by-month determination of full-time employees and describes a lookback/ stability period safe harbor that would provide certainty as to which employees are considered full-time for a particular coverage period.  

  • Request for Comments. The IRS has requested comments on the potential approaches described in the Notice. The IRS also requested comments on the 90-day limitation on any waiting period for group health plans under PPACA, including comments on which employees are subject to the limitation, when the waiting period may apply and how the 90-day limitation should be calculated.  

Reinhart Comment: Although the Notice is not considered official IRS guidance, it describes potential approaches that the IRS may incorporate into future proposed regulations and provides insight into issues the agencies are currently reviewing relating to certain PPACA requirements.