Affordable Care Act Update: Pay-or-Play Regulations


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.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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