Affordable Care Act Update: Pay-or-Play Regulations

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On December 28, 2012, the IRS issued a set of proposed regulations and Q-and-As providing further guidance on the Affordable Care Act’s pay-or-play rules. This is the first of three updates discussing the proposed regulations; today we focus on the determination of whether an employer is an “applicable large employer,” and thus required to participate in pay-or-play. 

Under the ACA, an applicable large employer is defined as an employer that has at least 50 full-time employees. For these purposes, full-time is defined as 30 hours per week; part-time employees are counted proportionally. In counting full-time employees, certain seasonal employees may be excluded if they are part of the employer’s workforce 120 days or fewer in a calendar year.

The new regulations clarify or provide relief regarding several aspects of these rules:

  • To be subject to the pay-or-play rules, an employer must employ at least 50 full-time employees or a combination of full-time and part-time employees that equals at least 50
  • Employers that are close to hitting the 50-employee threshold may qualify for special transition relief to help them count employees in 2013
  • All employees of a controlled group of companies or an affiliated service group are counted in determining applicable large employer status
  • In determining applicable large employer status, predecessor employers and successor employers are generally taken into account
  • New employers are applicable large employers if they reasonably expect to employ an average of 50 full-time employees (taking into account part-time employees) during the year
  • For the purposes of the seasonal employee exception an employer may apply a period of either 120 days or four months
  • Part-time employees are counted proportionally according to a multi-step FTE formula provided in the regulations 

To help employers with ACA compliance, Bernstein Shur has assembled an ACA Team — a multi-specialty group of attorneys from employment law, litigation, business law and ERISA. The ACA Team is available for flat-fee, full compliance audits, and half-day and full-day workshops.