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Looking Ahead: The Pay or Play Mandate for Large
Employers
This is part of our series of alerts intended to help guide plan
sponsors through their new obligations under the health care reform laws
and related guidance.
A major emphasis of health care reform is
reducing the number of uninsured individuals, and the employer “pay or
play” mandate is one of several new laws aimed at expanding
coverage. Although this new law does not require you, as an employer,
to provide health coverage to your employees, beginning in January, 2014,
if you are a large employer you must choose to:
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“PLAY”
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“PAY”
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offer minimum essential coverage to all of your full-time
employees |
OR |
pay an excise tax if you do not offer minimum essential coverage
(or any coverage) and at least one of your full-time employees is
certified as having enrolled in coverage through a state health
exchange for which he or she received a premium tax credit or cost
sharing reduction |
AM I SUBJECT TO THE “PAY OR PLAY” MANDATE IN
2014?
The “pay or play” mandate
applies to you for a calendar month if you employed an average of at least
50 full-time equivalent employees (FTEs) on business days in the prior
calendar year (or if you are a new employer, are reasonably expected to
employ an average of 50 full-time employees on business days in the
current calendar year). Your total FTEs is determined by counting all
full-time employees working at least 30 hours a week PLUS the number
created by dividing the total hours worked by all of your part-time
employees by 120. In certain cases, you can exclude seasonal
employees if you exceeded 50 employees on 120 days or fewer in the
calendar year due to seasonal employees.
In determining FTEs, it is currently unclear whether you will be
allowed to consider only employees who are U.S. citizens or nationals or
aliens lawfully in the U.S., or whether you must count a larger portion
(or all) of your worldwide employees (for example, temporary visas and
expatriate employees). Until guidance is issued, you should not assume
that you can ignore non-U.S. citizen employees working in the U.S. or
those working outside the U.S.
The same aggregation rules that apply to qualified retirement plans
(namely, Section 414 of the Internal Revenue Code) apply to the “pay or
play” mandate. So, in determining FTEs, you need to include:
1. any other company that is part of the same controlled group or
affiliated service group. This is different than the normal health and
welfare aggregation rules, which are generally believed not to count
affiliated service groups (this has been an area of some uncertainty for
years). Affiliated service groups can be created when the primary business
of the first entity is managing the second entity or when the primary
business of first entity is performing services for the second entity and
the first entity or its officers own a certain portion of the second
entity.
2. certain workers who are “leased employees.” If you are a
party to an employee leasing arrangement, you may need to count a leased
employee once he or she has worked for you on a substantially full-time
basis for 12 months. A leased employee may exist under a variety of
different arrangements, including professional employer organizations
(PEOs), employee leasing companies, management services agreements and
shared services agreements.
In certain situations, you may
also need to include employees of predecessor employers.
Many open
issues remain in determining whether you are an applicable large employer,
and the IRS has issued a request for comments on questions such as whether
to count hours of paid or unpaid time off, how to treat new employees, how
to calculate hours of service for non-hourly employees, and how to address
fluctuations in hours worked, including use of a look-back
measurement/stability period safe harbor (see IRS Notice 2011-36 here). While this
IRS document is interesting reading and provides some insight into
possible interpretations the IRS may adopt, the IRS has clearly stated
that it is not guidance and that it will issue official guidance only
after it considers all comments.
To learn more about the
"pay or play" mandate and what you need to do to comply, read the full
advisory here.
With
a team of attorneys who are highly experienced in the employee benefits
field, MLA can provide answers to questions and assistance in complying
with these requirements.
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