Under the employer shared responsibility rules (the "pay-or-play rules") of the Affordable Care Act (ACA), "large" employers may face sizable penalties if they fail to offer substantially all full-time employees and their dependents affordable health-care coverage that meets minimum value standards. This is generally referred to as the "employer mandate".

At the end of 2012, the IRS issued proposed regulations, with subsequent additional guidance since then.

Now, the IRS has issued final rules under ACA which include a number of transitional rules. Two are highlighted below. The first exempts certain employers from "large employer" status for a year. The second allows large employers to comply if as little at 70% of the full-time employees are covered through 2015.

First, the final regulations give an additional year to employers with 50 to 99 full-time workers to comply with the shared responsibility rules provided that the employer:

  1. has not laid off workers or reduced hours in 2014 for the purpose of dropping below the 100 employee threshold; and
  2. does not eliminate or materially reduce the health coverage, if any, offered as of February 9, 2014.

Employers with more than 50 employees but fewer than 100, who meet and certify their compliance with the required conditions will have until January 1, 2016 to provide the required "employer mandate" level of health care coverage to avoid penalties. These employers must still report on their workers coverage in 2015 (click here for the September 26, 2013 Comp and Benefits Brief on "ACA Reporting – a Peek into the Future"), but have until 2016 before the pay-or-play penalty could apply.

Second, employers with at least 100 full time workers remain subject to the pay-or- play rules with new phase-in rules. The final regulations phase in the percentage of full-time workers considered to be "substantially all" and to whom these large employers need to offer coverage from 70% in 2015 to 95% in 2016 and beyond. So, instead of being required in 2015 to offer coverage to at least 95% of full-time workers, employers who employed an average of at least 100 full time workers during 2014 can avoid a fine by offering insurance to at least 70% of full-time employers in 2015.

For employers with fewer than 50 full-time and full-time equivalent employees, nothing changes because they were already exempt from the employer shared responsibility requirements.

There are additional transition rules and modifications in the final regulations for employer shared responsibility. Coverage of these will be reflected in subsequent Comp and Benefits Briefs.

Employers should use the additional time wisely - to determine how the employee determination rules will identify full-time employees, to document the methods adopted by the employer to educate employees about ACA and its consequences and to confirm policies, practices and systems to record working time, and to test outcomes.