On February 10, 2014, final regulations on the Affordable Care Act’s (“ACA”) employer mandate were released by the IRS.  These regulations revise the proposed “pay or play” rules released on January 2, 2013.  The final rules contain many differences from the proposed rules, some of which are noted below.


The employer mandate requires applicable large employers (employers with 50 or more full-time equivalent employees) to offer health coverage to full-time employees and dependents, that is affordable and provides minimum value, or face one of two tax penalties.  In July of 2013, the IRS delayed the employer mandate for one year (to begin in 2015).

What are the changes to the employer mandate?

The final rules specify that the employer mandate will still apply in 2015, but only to employers with 100 or more full-time equivalent employees (“FTEs”).  Employers with 50-99 FTEs will now get another year – i.e., the employer mandate will not apply to these employers until 2016 – if they certify eligibility for transition relief by meeting certain requirements, such as not reducing their workforce to qualify for the transition relief and not eliminating or materially reducing current health coverage.

In addition, for employers with 100 or more FTEs, during 2015 plan years only, ACA-compliant coverage only has to be offered to at least 70% of full-time employees, instead of the 95% which was previously applicable (and which is still applicable for 2016 plan years and thereafter).

However, even if coverage is offered to at least 70% of full-time employees, employers could still face a tax penalty of $3,000 per employee for employees who are not offered coverage, or whose coverage is not affordable or does not provide minimum value, if such employees get subsidized coverage on an Exchange.

In determining whether an employer is above or below the FTE thresholds for the 2015 plan year, employers may use any 6-month period in 2014 to count FTEs, rather than being required to use the full 12 months of 2014.

Employers with non-calendar year plans are subject to the employer mandate at the start of their 2015 plan year, not January 1, 2015.  Also, the transition relief for multiemployer plans which was included in the proposed rules has been extended indefinitely.  This transition relief states that employers will not be subject to penalties for failing to offer ACA-compliant coverage with respect to employees for whom the employer is required by a collective bargaining agreement to make contributions to a multiemployer plan that offers affordable coverage that provides minimum value.

Is there anything else I should be aware of?

Additional transition relief includes:

  • a delay in the requirement to provide coverage to dependent children until 2016 – as long as the employer takes steps to arrange for the coverage to begin in 2016, and
  • the permitted use of any 6-month measurement period in 2014 to determine who are full-time employees for 2015 coverage and penalty purposes.

There were also clarifications on certain employee categories for purposes of counting hours to determine full-time status.  Most importantly, (i) volunteer hours for a government or tax-exempt entity (such as firefighters and emergency responders) will not cause an individual to be considered a full-time employee, (ii) educational employees will not be considered part-time because school is closed during the summer, and (iii) “seasonal employees,” who are not required to be considered full-time, have now been defined as employees in a position where annual employment is customarily six months or less. 

The proposed rules provided that when determining whether a new employee is a full-time employee, the employer’s reasonable expectations with respect to the employee’s status at his or her start date can be used.  The final rules give factors to consider when making this determination: whether the employee is replacing an employee who was or was not a full-time employee, the extent to which employees in the same or comparable positions are or are not full-time employees, and whether the job was advertised or otherwise communicated to the new hire as requiring hours of service that would average 30 or more hours per week.

The final rules did not provide any relief for employers who hire workers and misclassify them as independent contractors – employers must determine who their employees are based on the common law standard.  However, for employers that hire individuals through a staffing firm, the final rules do clarify that an offer of coverage made by the staffing firm on behalf of the client/employer under a plan established by the staffing firm, is treated as an offer of coverage made by the client/employer if the fee the client/employer would pay to the staffing firm for that employee is higher than the normal fee for an employee without health insurance.

What should I do now?

If you are an employer with 50-99 employees, you have an extra year to comply with the employer mandate.  Even employers with 100 or more employees have a relaxed standard for 2015 for avoiding the tax penalty for not offering coverage to a sufficient number of employees.  However, employers should still continue full steam ahead with preparation for compliance with the mandate, including tracking employee hours to determine full-time status and ensuring plans will be affordable and provide minimum value in order to avoid penalties.