United States

Affordable Care Act employer mandate delayed for many employers


The employer mandate provisions of the Affordable Care Act (ACA) apply to any employer that employs at least 50 full-time (or full-time equivalent) employees. Under the mandate, an employer that does not offer health insurance coverage to substantially all (95 percent) of its full-time employees (and their dependents) potentially could be subject to a penalty tax (the so-called "play-or-pay"; provision). The mandate was scheduled to go into effect on Jan. 1, 2014, but the IRS previously delayed the effective date for all employers until Jan. 1, 2015. On Feb. 10, 2014, the Treasury and the IRS issued final regulations implementing the employer mandate, including providing additional time for many businesses.

While similar to the initially proposed regulations, these final regulations provide certain favorable clarifications and add favorable implementation delays and transitional relief that apply even to the largest employers. This provides welcome extra time for employers to determine how they will approach ACA compliance.

Delay for medium-sized employers

Employers that have more than 49, but less than 100, full-time employees will not be subject to the ACA play-or-pay provision until plan years starting in 2016.

In order to qualify for this transitional relief, an employer will have to certify to the IRS that:

  • It did not reduce (other than for bona fide business reasons) the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition.
  • If it offered health coverage during the period beginning on Feb. 9, 2014, and ending on the last day of its 2015 plan year (i.e., the "coverage maintenance period";), the employer did not eliminate or materially reduce the health coverage it offered.

An employer cannot extend this relief period by changing the plan year of its plan after Feb. 9, 2014, to begin on a later calendar date (for example, by changing the start date of the plan year from Jan. 1 to Dec. 1).

Determining large employer status

In most instances, a company is required to determine whether it is a large employer by looking back to the prior calendar year. However, for 2015, the IRS is allowing employers to use any consecutive six-month period in 2014 (rather than the full calendar year).

Dependent coverage

For those plans that offer employee-only coverage (no dependent coverage currently offered), the final regulations extend until 2016 the deadline for the employer to begin offering coverage.

Coverage relief for larger employers

The employer mandate will apply to firms with 100 or more full-time employees starting in 2015. However, in 2015, such employers only need to offer health coverage to 70 percent of their full-time employees. For 2016 and future years, a 95-percent standard will apply.

Similar to the rule for medium-sized employers, the transition relief for large employers applies to all months of 2015 plus any calendar months of 2016 that fall within the employer’s 2015 plan year, provided the employer did not modify the plan year after Feb. 9, 2014, to begin on a later calendar date.

Penalty relief

The maximum penalty for an employer with 100 or more full-time employees or full-time equivalent employees for its 2015 plan year will be based on the number of full-time employees minus 80. For 2016 and future plan years, the number will be 30.

For example: If an employer that does not offer health insurance to its full-time employees (and their dependents) has 150 full-time employees and at least one full-time employee buys tax-subsidized health insurance, the employer’s penalty in 2015 will be $140,000 (150-80 × $2,000). In 2016, that same employer’s penalty will be $240,000 (150-30 × $2,000).

Full-time employee determinations

Even with the IRS having issued final regulations, it appears that this area will continually evolve. The preamble to the regulations indicates that the IRS is continuing to consider additional rules for the determination of hours of service with respect to certain categories of employees (including adjunct faculty, commissioned salespeople and airline employees), as well as certain categories of hours, including layover hours (for airline employees, for example) and on-call hours.

The final regulations do provide guidance with respect to:

  • Volunteers—hours contributed by bona fide volunteers for a government or tax-exempt entity, such as volunteer firefighters and emergency responders, will not cause them to be considered full-time employees.
  • Educational employees—teachers and other educational employees are not to be considered part-time employees simply because their school is closed or operating on a limited schedule during the summer.
  • Seasonal employees—an employee whose position customarily involves annual employment of six months or less generally will not be considered full-time employees.
  • Student employees—hours of service performed by students under federally or state-sponsored work-study programs are not to be counted in determining whether they are full-time employees.
  • Adjunct faculty—as a general rule (until further guidance is issued), employers of adjunct faculty are to use a method of crediting hours of service for those employees that is reasonable in the circumstances and consistent with the employer mandate provisions. In this regard, the regulations provide a "bright-line"; approach that allows the employer to credit an adjunct faculty member with 2 ¼ hours of service per week for each hour of teaching or classroom time.

Non-calendar year plans

Provided certain conditions are met, those employers that as of Feb. 9, 2014, sponsored plan years that do not start on Jan. 1 are not subject to the employer mandate rules until the first day of their 2015 plan year as opposed to Jan. 1, 2015.


The final regulations give employers the necessary guidance and the time needed to formulate a final ACA strategy. The guidance and the implementation delay are particularly valuable to employers with a large number of part-time, variable and seasonal employees.      

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