Part I Decisions That Need To Be Made Now Mark Boxer Partner, DLA - - PowerPoint PPT Presentation

The Affordable Care Act Part I Decisions That Need To Be Made Now

Mark Boxer Partner, DLA Piper LLP (US)

Employer Mandate

• Employer mandate – tax penalty for “large employers” that don’t offer minimum essential coverage to full-

time employees (and their dependents) – applies to employers with more than 99 employees in 2015

• Employers with 50-99 employees have until 2016 to comply – conditions for relief

A large employer is subject to penalty if at least one full-time employee receives a subsidy for exchange coverage and:

The employer fails to offer coverage to “substantially all” full-time employees (and their dependents) (the “no coverage penalty”); or Coverage is unaffordable (employee contribution must be less than 9.5% of income) or does not provide minimum value (the “inadequate coverage penalty”)

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No Coverage Penalty

• A large employer is subject to a penalty if

at least one full-time employee receives a subsidy for exchange coverage and the employer fails to offer coverage to “substantially all” full-time employees (and their dependents)

• Effective dates
• Substantial compliance
• Dependent coverage

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Inadequate Coverage Penalty

A large employer is subject to a penalty if at least one full-time employee receives a subsidy for exchange coverage and coverage is unaffordable or does not provide minimum value

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Employer Penalties

• Penalty amounts
• No coverage penalty: $2,000 per year, per

full-time employee in excess of 30 full-time employees (80 in 2015)

• Inadequate coverage penalty: $3,000 per

year, per full-time employee for whom coverage is unaffordable or does not provide minimum value and who receives a subsidy to purchase coverage through an exchange

• Penalty amounts are indexed: $2,000 penalty

is estimated to be $2,120 in 2015 and $3,000 penalty is estimated to be $3,180 in 2015

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Fiscal Year Plans

• Calendar year plans – employer mandate

is effective 1/1/15

If employer has 100 or more full-time employees

• Non-calendar year plans (relief from

1/1/15) to beginning of the plan year)

• Standard transition relief: beginning of the

plan year within 2015 if:

• Non-calendar year plan was maintained prior to 12/27/2012
• Plan year not modified after 12/27/12 to begin at a calendar date
• Applies to all employees who would be eligible for coverage under

the terms of the plan in effect on 2/9/2014

• Plan offers affordable care that provides minimum value as of first

day of the 2015 plan year

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Fiscal Year Plans

• Example

Employer Z has 600 employees, all of whom are full-time employees (average 30 or more hours a week) Employer Z maintained a plan with an April 1 plan year as of December 27, 2012 (Plan P). Plan P’s year was not modified after December 27, 2012, and all of Employer Z’s employees are eligible for coverage under Plan P under the eligibility terms as in effect on February 9, 2014. Coverage offered prior to the 2015 plan year is not affordable. As of April 1, 2015, Plan P’s coverage is both affordable and provides minimum value.

Conclusion No section 4980H assessable payment will be due with respect to any employee of Employer Z for the period before April 1, 2015. The same transition relief would apply to those 600 employees even if Employer Z also had a calendar year plan (Plan Q) and had a total of 1,000 full-time employees, 600 of whom were described above (and were not eligible for coverage under Plan Q) and 400 of whom were eligible for coverage under Plan Q as of January 1, 2015.

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Fiscal Year Plans

• Additional transition guidance
• Significant percentage transition guidance (all

employees) relief: beginning of the plan year within 2015 if:

• Plan maintained prior to 12/27/12
• Plan year was not modified after 12/27/12 to begin at a later

calendar date and that either had:

(1) as of any date in the 12 months ending on 2/9/14, at least ¼ of its employees covered under the non-calendar year plan(s), or (2)

• ffered coverage under the plan(s) to 1/3 or more of its employees

during the open enrollment period that ended most recently before 2/1/14

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Fiscal Year Plans

• Additional transition guidance
• Significant percentage transition guidance

(full-time employees) relief: beginning of the plan year within 2015 if:

• Plan maintained prior to 12/27/12
• Plan year was not modified after 12/27/12 to begin at a later

calendar date and that either had:

(1) as of any date in the 12 months ending on 2/9/14, at least 1/3 of its full- time employees covered under the non-calendar year plan(s), or (2)

• ffered coverage under the plan(s) to 1/2 or more of its full-time

employees during the open enrollment period that ended most recently before 2/1/14

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Employers Subject to the Mandate

Businesses subject to the mandate

• How to calculate whether you

have 50 (or 100, for 2015) full- time equivalent employees

• Controlled group rules

Total number of Full-Time Employees

+

Total Hours Worked By Part-time Employees 120

= Total Number of Full-time

Equivalent Employees

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Determining Full-Time Employees

Who must be offered coverage – determining full-time employees

• Penalty amount turns on who is considered a full-time

employee

• How to make the calculation of full-time employee
• Hours of service rules

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Methods of Counting Hours

• Methods of counting hours
• Employees paid on an hourly basis – actual

hours

• Employees paid on a non-hourly basis – actual

hours or equivalency method

• One day = 8 hours
• One week = 40 hours
• One month = 130 hours
• Method can be changed once per year
• Can use different methods for different categories of employees
• No use of equivalencies if use would result in substantial

understatement of hours

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Special Rules for Counting Hours

• Exclusions from definition of hour of service
• Volunteer employees – hours worked by volunteers

who do not receive compensation in exchange for the performance of services.

• Student employees – hours of service performed by

students in positions subsidized thru federal work study programs or substantially similar state or political subdivision program

• Special situations
• Members of religious orders – no special rule
• Adjunct faculty, commissioned salespeople and airline

employees and categories of hours (layovers and on- call) – use of reasonable methods of crediting hours

• Example: Adjunct teachers – 2 ¼ hours of credit for each hour of

classroom time

• Impact of summer vacation etc. (educational organizations) – ignore

breaks or credit hours of service during the break

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More Special Rules

• Special situations (continued)
• Layover hours for airline employees and others
• Use of reasonable methods of crediting hours
• Layovers – count hours if employee is getting paid for layover or if

layover hours are counted toward required hours to be paid regular compensation

• 8 hours for each day an employee is required to stay away from

home is deemed reasonable by the IRS unless that amount would understate the employee’s actual hours

• On-call hours
• Not reasonable not to count on-call hours that (i) are paid; (ii) where employee

must remain on employer’s premises; or (iii) where the employees are restricted from using their time for their own purposes

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Full-Time Employees

• Determining full-time

status – two different methods – monthly measurement period or

• ptional safe harbors
• Look-back measurement

period

• Administrative period
• Stability period

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Tracking Eligibility Alternative Measurement Methods

• New Employee – Non-Variable
• Employee who is reasonably expected to work full

time (average annually 30 or more hours per week) as of date of hire.

• No more than a 90 day waiting period
• Recommend 1st of the month after 60 days
• Full-time status reassessed at the end of the First

Standard Measurement Period

• Variable Hourly Employee
• Employee in which ER has not been able to

determine in good faith whether Employee will average 30 or more hours a week per year

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Eligibility – Alternative Measurement Period Methods

• Monthly Measurement Method
• Alternative to the look-back Measurement Period
• Identifies full-time employees based on hours of service for each calendar

month

• For any given month an employee is or is not full-time and entitled to coverage
• Employee can be offered coverage the first day of the fourth calendar month

after becomes eligible for coverage (must still comply with 90 day waiting period rule).

• Can only be used once per period of employment
• Default method if employer does not choose the look-back method
• Difficulties
• Workforce with fluctuating hours
• Fully insured plans
• Can result in gaps of coverage – employer may be subject to penalties
• Special rule if go from full-time to part-time
• Look-Back Measurement Method – A fixed period of 3 months to 12

consecutive months – new variable/seasonal employees

• Employer can elect different look-back measurement period for different

categories of employees

• Employer may use payroll periods as a measurement tool
• Employees hours of service are calculated within the measurement period

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Eligibility – Alternative Measurement Period Methods

• Standard Measurement Period– A fixed period of 3

months to 12 consecutive months – ongoing employees

• Employer can choose the beginning and duration of the period
• Standard Measurement Period must be the same for same category of

employees (e.g., hourly, salaried)

• Employer may use payroll periods as a measurement tool
• Employees hours of service are calculated within the measurement period
• Administrative Period – No more than 90 days.
• Period between the look-back/standard measurement period and coverage

date.

• Administrative Period can not extend the look-back/standard measurement

period beyond 12 months or shorten stability period

• Administrative Period may not cause lapse in coverage – overlap previous

stability periods

• Look-Back Period and Administrative Period can be in the aggregate 13

months (e.g., measurement period April 1, 2015 – March 31, 2016; administrative period April 1 – April 30)

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Eligibility – Alternative Measurement Period Methods

• Stability Period – Period during which employee

is eligible for coverage (credited with service of 30 hours or more) & follows the look- back/standard measurement period and any administrative period

• Length of stability period is equal to or greater than the

look-back /standard measurement period but no shorter than 6 months

• If employee does not satisfy the full-time 30 hour

requirement the stability period may not exceed the standard measurement period

• Administrative Period overlaps with the stability period

after first year in which employee is deemed full-time.

• Reduction of work schedule during the stability period does

not effect full-time status

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Eligibility – Alternative Measurement Period Methods

• Administrative Period – No more than 90

days.

• Period between Standard Measurement Period and

coverage date.

• Administrative Period can not extend Standard

Measurement Period beyond 12 months or shorten Stability Period

• Administrative Period may not cause lapse in

coverage – overlap previous stability periods

• Look-Back Period and Administrative Period can be

in the aggregate 13 months (e.g., SMP April 1, 2015 – March 31, 2016; Administrative Period April 1 – April 30)

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Special Considerations

• Rehires and Break in Service Rules
• Employer may designate an employee who has a

break in service of 13 weeks (not credited with any hours of service) as a new employees (educational

• rganizations- 13 weeks is extended to 26 weeks)
• An employer is allowed to institute a rule of parity –

employee is rehired after at least 4 weeks during which no hours of service were credited and the period exceeded the period of employment prior to the break

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Special Considerations

• Break-in-Service Rules for Continuing

Employees

• FMLA, USERRA & Jury Duty
• Absence due to any of the above during standard measurement

period average weekly hours are calculated by either

• Subtracting the period of the special leave (not to exceed 13 weeks)
• Crediting hours of service for the unpaid leave period
• Employment Break Rules – Educational

Organizations

• Summer vacations and similar breaks – same rule as above (not to

exceed 26 weeks)

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The Affordable Care Act Part I Decisions That Need To Be Made Now

Mark Boxer Partner, DLA Piper LLP (US) T: 415.836.2535 mark.boxer@dlapiper.com and Anne Pachiarek Partner, DLA Piper LLP (US) T: 312.368.3488 anne.pachciarek@dlapiper.com

This webinar is offered for informational purposes only, and the content should not be construed as legal advice on any matter.