On February 10, 2014, the Internal Revenue Service released much-anticipated final regulations on the Affordable Care Act’s employer shared responsibility mandate, which is often referred to as the “Pay or Play Rule.” The final regulations retain most concepts from last year’s proposed regulations (discussed in our prior alert here), add new concepts, and answer several open questions. Overall, employers will likely welcome the certainty that comes with having final regulations along with some of the new transitional relief provided.
Background. The Pay or Play Rule requires large employers to offer health plan coverage to their full-time employees or pay a tax penalty to the federal government. The Pay or Play Rule was originally supposed to go into effect in 2014. However, during 2013 the Obama administration delayed the Pay or Play Rule for one year until 2015.
Same Core Structure Applies. The final regulations retain the same core provisions of the proposed regulations. For example, large employers will still generally want to establish a “measurement period,” “administrative period,” and “stability period” to determine which employees are “full-time.” Employers will now feel much more comfortable moving forward with implementing these provisions.
Many Tweaks. The new regulations are notable for the numerous relief provisions and industry-specific items they include. Most significantly, there is a 1-year delay for certain mid-sized employers (those with 51 – 100 full-time (and full-time equivalent) employees). There is also a “grab bag” of industry-specific guidance that is generally helpful to educational organizations, tax-exempt and governmental entities, staffing companies, agricultural and recreational organizations that use seasonal employees, companies that employ home care workers, companies with employees working internationally, and companies that contribute to multiemployer health plans.
Transition Rules. The final regulations contain numerous “transition rules” that will help employers ease into compliance with the Pay or Play Rule. We describe the most important transition rules in a chart following this alert.
Effective Date. The final regulations are effective February 12, 2014 and become applicable for periods beginning January 1, 2015. However, employers may rely on the final regulations for periods before January 1, 2015.
Action Steps. Many employers were waiting to receive additional IRS guidance before continuing (or beginning) to actively prepare for the Pay or Play Rule. With the release of the final regulations, we anticipate that employers will move forward with those preparations. Employers should not wait until 2015 (or 2016 as the case may be) to develop strategies for the Pay or Play Rule. There is no “one size fits all” Pay or Play Rule strategy. Each employer’s Pay or Play Rule strategy will be unique to that employer’s existing health plan coverage, workforce numbers and demographics, and industry standards.
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