CPA & Business Advisory Blog

Affordable Care Act Mandate: Updates to the 2015 Regulations

Final ACA regulations issued February 10, 2014 delay or reduce the employer mandate for all employers until January 1, 2016.

On February 10, 2014, the IRS issued an 89 page final regulation on one part of the Affordable Care Act (ACA) that has been of particular concern to employers—the shared responsibility provisions. The shared responsibility provisions require employers who employ more than 50 full-time equivalent employees (FTEs) to offer FTEs affordable healthcare that provides a minimum level of coverage; employers who do not offer the coverage could be subject to significant excise taxes.  The effective date for the shared responsibility provisions was originally January 1, 2014; it was postponed (in July of 2013) until January 1, 2015.  The final regulations postpone the effective date for certain employers, and reduce the number of employees who must be offered coverage for all employers; it also makes changes that impact the determination of an FTE.  This blog will be a brief summary of the most important changes imposed by the final regulations.

Major changes in the regulation

If an employer employs, on average, fewer than 100 FTEs during 2014, it does not need to comply with the shared responsibility provisions of the ACA until January 1, 2016.

If an employer employs, on average, 100 or more FTEs during 2014,  then it must offer coverage to 70% of its eligible full time employees for the 2015 year (as opposed to 95%) to satisfy the shared responsibility provisions.

affordable care act mandate 2015 update

To obtain this additional deferral of the shared responsibility mandate, employers:

  • Cannot reduce the size of their workforces from the period of February 9, 2014 through December 31, 2014 solely for the purpose of satisfying the FTE requirement described above. 
  • Must not eliminate or materially reduce the health coverage offered to full time employees that was in effect on February 9, 2014 until December 31, 2015 (for calendar year plans) or until the last day of the plan year that begins in 2015.
  • Will need to certify, on a form to be created by the IRS, that they met the above requirements.

The final regulation clarifies that coverage offered to an employee through a professional employer organization or a Taft-Hartley plan will be treated as offered by the employer to the employee.  The coverage must still be affordable and offer a minimum level of coverage.

The final regulation clarifies whether certain types of employees will be considered full time, including:

  • Educational employees will not be treated as part time employees merely because the school is closed or operating on a limited schedule during the summer.  An ‘adjunct faculty’ member will be treated as working 2.25 hours per week for each hour of teaching or classroom time.
  • Seasonal employees in industries in which the customary annual employment is six months or less will generally not be treated as a full time employee.   

The final regulation also clarifies many of the rules regarding how the number of FTEs are calculated and how new employers must comply with the shared responsibility mandate.

What impact does the postponement of the effective date until January 1, 2016 have on employers who have less than 100 FTEs? 

The accuracy of the calculation of the number of FTEs is now critical for those groups—if an employer is certain that it has less than 100 FTEs, it can be unconcerned with the shared responsibility provisions for 2015.  An employer exceeding 100 FTEs will have to offer coverage to 70% of the workforce or risk excise taxes in 2015—and therefore an accurate understanding of which employees would be included in the workforce is essential. 

Here’s a scary example—assume that the employer thought they had 90 FTEs but really had 110 FTEs (of which 90 would be classified as full time employees), and did not offer health benefits, believing that it was not subject to the shared responsibility mandate; the excise tax (because the employer did not offer coverage to 70% of the workforce, which is necessary because the employer actually had more than 100 FTEs) would equal $120,000 if one person went to an exchange and received a subsidy.

If an employer is close to having 100 FTEs, it must be absolutely sure of the FTE count and have it documented in case the IRS alleges that it is subject to shared responsibility.  An employer who is close to the 50 FTE total can ignore the shared responsibility excise tax issue for another year—but in 2016, the 50 FTE rule will return.

We would be pleased to discuss issues related to the final regulation, methods of calculating and recording the FTE calculation as well as other areas of ACA compliance.  For more information on this topic, read my blogs, post a comment below or contact our Compensation & Benefits Advisory Services Group at 440-449-6800.

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