On February 10, 2014, the Department of the Treasury issued final regulations on the Affordable Care Act's ("ACA") Employer Shared Responsibility Payment.  Starting January 1, 2015, employers will be subject to potential penalties if they fail to offer affordable health coverage to substantially all full-time employees.   This article answers common questions independent schools ask about the final regulations that may be unique to educational organizations.

Do smaller schools get a break if they are a "mid-size" employer?

Yes.  The IRS will not assess penalties against employers with 50 to 99 full-time employees, including full-time equivalents, during 2015 and, in the case of a non-calendar plan year, for the portion of the 2015 plan year that falls into the 2016 calendar year, if the employer meets certain conditions.  An employer who wishes to take advantage of this relief must meet the following conditions:  (1) the employer does not reduce the size or overall hours of their workforce except for bona fide business reasons from the period beginning February 9, 2014 through December 31, 2014; (2) the employer does not eliminate or materially reduce the health coverage offered as of February 9, 2014; and (3) certify, on an IRS form, that they met these conditions.

My school operates on the fiscal year and has a fiscal year plan rather than a calendar year health plan.  Is there any transitional relief for us?

The preamble to the final regulations offers three variations of transition relief for employers with non-calendar year plans.  Although we do not cover the details of the three variations here, all three variations have some of the same requirements.  This transition relief applies for the period before the first day of the first non-calendar year plan year beginning in 2015 (the 2015 plan year), but only for employers that maintained non-calendar year plans as of Dec. 27, 2012, and only if the plan year was not modified after Dec. 27, 2012, to begin at a later calendar date. 

Employers will not be penalized with regard to employees who are offered coverage by the first day of the plan year that begins in 2015 where the plan terms governing eligibility were in effect on February 9, 2014.  Such employees cannot have been eligible for coverage under any calendar year plan offered by the employer as of February 9, 2014.

Regardless of the plan terms in effect February 9, 2014, no penalty will apply with regard to all other employees who are offered coverage by the first day of the plan year that begins in 2015, as long as employers meet the following conditions:

A sufficient percentage of employees  were either covered or offered coverage under the non-calendar year plan prior to February 9, 2014;

The coverage offered as of the first day of the plan year beginning in 2015 is affordable and meets ACA's minimum value requirements;

The employees offered coverage as of the first day of the plan year beginning in 2015 were not eligible for coverage under a calendar year plan maintained by the employer as of February 9, 2014.    

Schools that wish to take advantage of this transition relief should note that there are additional specific requirements for each of the three variations of transition relief.

How should we determine whether our part-time teachers qualify as "full-time" under ACA's definition?

Since part-time teachers are compensated based on the number of courses they teach, lecture hour equivalents, or load, schools must determine a "reasonable method" to calculate their hours of service.  The final regulations also state that it is not reasonable to credit only teaching hours.  Time spent for preparation, grading and ancillary duties also must be considered when the school calculates hours of service.

The final regulations describe one method that the Treasury Department will deem reasonable:  "one (but not the only) method that is reasonable for this purpose would credit a part-time teacher with (a) 2 and 1⁄4 hours of service (representing a combination of teaching or classroom time and time performing related tasks such as class preparation and grading of examinations or papers) per week for each hour of teaching or classroom time (in other words, in addition to crediting an hour of service for each hour teaching in the classroom, this method would credit an additional 1 and 1⁄4 hours for activities such as class preparation and grading) and, separately, (b) an hour of service per week for each additional hour outside of the classroom the teacher spends performing duties he or she is required to perform (such as required office hours or required attendance at faculty meetings)." 

A part-time teacher who performs no ancillary duties and has no office hours or stipend work, but has a lecture hour equivalent of 13.33 would be considered full-time under this method – 13.33 x 2.25 = 30 hours of service per week.  It is important to note that this formula does not consider office hours, ancillary duties or other work (either required or actually performed), which also must be added to the total hours of service.

The above 2 and ¼ hours method is only one method deemed reasonable.  The final regulations recognize that a wide variation of work patterns, duties, and circumstances apply in different institutions, academic disciplines, and departments, and apply to different courses and individuals, and that this might factor into the reasonableness of a particular method of crediting hours of service in particular circumstances.  

How do we track the hours of student employees (e.g. student workers)?

Hours of service for students in the federal work study program or a similar state work study program are exempt from the full-time determination.  However, there is no other exception for student employees or students working for pay as interns, externs or co-op workers.  Schools should track non-work study student worker hours using the same methods applicable to all other ongoing employees or new hires.  Paid hours of graduate assistants and students in cooperative ("co-op") programs will also count for purposes of the Employer Shared Responsibility Payment.

What is the difference between the credit method and exclude method for calculating hours of service over an employment break period?

An employment break period is at least 4 consecutive weeks (but less than 26 weeks).  Schools must give employees credit for hypothetical hours worked, either by excluding the break period (up to 501 hours) or crediting hours to the break period (up to 501 hours).  The final regulations clarify that both the exclude method and credit method are intended to have the same result. 

Additional Information

For further information on the final regulations applicable to all large employers, see:  http://www.lcwlegal.com/86353.

The final regulations are available at this link:   https://s3.amazonaws.com/public-inspection.federalregister.gov/2014-03082.pdf.

Additional information regarding the Employer Shared Responsibility Provisions is located on the IRS website at http://www.irs.gov/uac/Newsroom/Questions-and-Answers-on-Employer-Shared-Responsibility-Provisions-Under-the-Affordable-Care-Act#Transition.

A summary fact sheet may be viewed at this link:   http://www.treasury.gov/press-center/press-releases/Documents/Fact%20Sheet%20021014.pdf.