The Internal Revenue Service has released the long-awaited final rule implementing the employer shared responsibility (the “pay-or-play” employer mandate) provisions of the Affordable Care Act (ACA).  Generally, this mandate will require employers with 50 or more full-time and full-time equivalent employees to either offer employees and their dependents health coverage that meets affordability and “minimum value” requirements, or pay a penalty. The final rule includes some notable changes from the initial proposal.  In particular, the final rule offers a compliance phase-in for employers.

According to a fact sheet on the new rule, this phase-in will work as follows:

  • The employer mandate will generally apply to larger firms with 100 or more full-time employees starting in 2015 and employers with 50 or more full-time employees starting in 2016.
  • The mandate will not apply until 2016 to employers with at least 50 but fewer than 100 full-time employees, providing the employer completes certain certification requirements.
  • To avoid a payment for failing to offer health coverage, employers need to offer coverage to 70 percent of their full-time employees in 2015 and 95 percent in 2016 and beyond, helping employers that, for example, may offer coverage to employees with 35 or more hours, but not yet to that fraction of their employees who work 30 to 34 hours.

With respect to full-time status determination, the final rule, like the proposal, will allow employers to use an optional look-back measurement method.  The final rule also includes certain affordability safe harbors allowing employers to use the wages they pay, their employees’ hourly rates, or the federal poverty level to make the affordability assessment.

As a result of comments filed in response to the proposed rule, the final rule clarifies whether certain types of employees – including volunteers, educational employees, seasonal employees, student workers in work-study programs, adjunct faculty – are considered “full time” for purposes of the mandate. 

Finally, as outlined in the fact sheet, the rule will extend through 2015 certain transition rules:

  • Employers can refer to the prior 6-month period instead of 12 in determining whether they had at least 100 full-time or full-time equivalent employees in the prior year.
  • Employers with healthcare plan years that do not start on January 1 will be able to begin compliance with employer responsibility at the start of their plan years in 2015 rather than on January 1, 2015, and the conditions for this relief are expanded to include more plan sponsors.
  • The requirement to offer coverage to full-time employees’ dependents will not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.
  • On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months even with respect to a stability period of up to 12 months.