As we approach the end of the 2014 calendar year and turn toward 2015, the “pay-or-play” penalties of the Patient Protection and Affordable Care Act (“PPACA”) will quickly approach.  Many employers are looking once again at whether they must provide health care coverage to employees in order to avoid the penalties and, if so, to which employees.  The pay-or-play rules, just like the entire PPACA, contain many subtleties and distinctions, but here are the basics.

The employer pay-or-play or “shared responsibility” rules in the PPACA impose penalties on large employers that do not offer affordable health care coverage to nearly all full-time employees and their dependents (to age 26).

When is it effective?

In general, compliance by large employers must begin on January 1, 2015.

How big is a “large employer”?

A large employer is one that employed, on average, 100 or more full-time employees or full-time equivalent employees in 2014.  In 2016, a large employer will be considered one that employed 50 or more full-time employees or full-time equivalents in the prior calendar year.

Must a large employer cover all full-time employees?  

In 2015, in order to avoid the pay-or-play penalty, a large employer must offer coverage to 70% of its full-time employees and their dependents.  In 2016, it must offer coverage to 95% of its full-time employees and dependents in order to avoid the penalty.

What is “full-time employee” status?

A full-time employee is one who is employed on average at least 30 hours per week or 130 hours per calendar month, including vacation and paid leaves of absence.  There are two methods for determining full-time status of employees.  The first is the average number of hours worked each calendar month.  The second method uses a “look-back” analysis.  Under the look-back measurement, an employer selects a “standard measurement period” of three to twelve months and determines whether the employee worked an average of 30 hours per week during that period.  For each employee who did, the employee will be considered full-time for (and thus must be covered during) the “standard stability period.”  That stability period generally must be at least six consecutive months but not shorter than the chosen standard measurement period.

For new employees, a full-time employee is one whom the employer reasonably expects to be full time (and not seasonal) at the time of hire.

How much is the penalty?

In general, the penalty for large employer non-compliance with the pay-or-play rules will be $2,000 per employee per year, beyond the first 30 employees.  An annual penalty also is imposed on an employer who fails to provide affordable coverage meeting minimum essential value (as defined by a complex methodology), and one or more full-time employees receive subsidized coverage on the available health insurance exchanges.  This latter penalty is $3,000 annually for each employee covered under the subsidized exchange.

When must an employee’s coverage begin in order to avoid the penalty?

Coverage must begin by the first day of the month immediately following the employee’s initial three months of employment.