On February 10, 2014, the Treasury Department released final regulations on the employer mandate provisions under the Affordable Care Act (a.k.a. Obamacare). While the final rules retain much of what was outlined in the proposed regulations issued in December 2012, the most significant news is the additional one-year delay for certain covered employers with respect to the potential penalties (the “no offer penalty” and/or the “unaffordability / lack of minimum value penalty”).

Here are some of the major takeaways:

  • Applicable large employers that have fewer than 100 full-time employees (including full-time equivalents) in 2014 will not be subject to either employer penalty in 2015 if they meet certain conditions. One such condition is that the employer is prohibited from reducing the size of its workforce, or the overall hours of service of its employees, in 2014 to qualify for this transition relief. There are also limitations on changes the company can make to its previously offered group health coverage for the rest of 2014.
  • All covered employers can avoid the “no offer” penalty in 2015 if they offer employer-sponsored coverage to at least 70% of their full-time employees in each calendar month in 2015 (and any calendar month during the 2015 plan year that extends into 2016 for non-calendar year plans). Beginning in 2016, the employer must offer such coverage to at least 95% of its full-time employees to avoid the “no offer” penalty. Notwithstanding the limited transition relief under this paragraph, the company still would be subject to the individual unaffordability / lack of minimum value penalty in 2015 if it has one or more full-time employees receive premium assistance on the exchange because either they were one of the ones not eligible for coverage, or such coverage was not affordable to them due to their household income, or the coverage did not provide minimum value.
  • The final rules contain additional transitional relief for non-calendar year plans. Most employers with non-calendar year plans now have until the start of their 2015 plan year, rather than January 1, 2015, to bring their plans into compliance to avoid assessment of the employer penalties, and the conditions for this relief are expanded to include more employers.
  • For employers who have not previously offered dependent coverage, there is also a delay in the requirement to offer coverage for dependent children to 2016 as long as the employer is taking steps to arrange for such coverage to begin in 2016.

Applicable large employers with 100 or more full-time employees or FTEs who are assessed a “no offer” penalty in 2015 will get the benefit of a reduction in the monthly penalty for 2015 and any applicable transition relief period into 2016, in that the payment is calculated by reducing the total number full-time employees by 80 (instead of just 30) multiplied by 1/12 of $2,000. If the employer is a member of a controlled group, the company will not get the entire additional 50 full-time employee deductible but rather the member’s allocable share of 80.

The final rules also contain exceptions for various categories of employees such as volunteers, adjunct faculty and seasonal employees, provide further details and guidance on the affordability safe harbors and the safe harbor for determining full-time employee status, and significantly shorten the length of the break-in-service required before a returning employee may be treated as a new hire for purposes of group health coverage.

In the coming months the IRS is expected to issue additional guidance about the employer reporting requirements, among other issues.

To read the full version of the IRS’ final rules, click here.