Authors, Samuel Choy, Atlanta, +1 404-572-4633, schoy@kslaw.com and Ryan Gorman, Atlanta, +1 404 572 4609, rgorman@kslaw.com.

The employer shared responsibility provisions (commonly referred to as the "pay-or-play" mandate) of the Affordable Care Act ("ACA") impose penalties on applicable large employers that fail to offer qualifying health coverage to full-time employees ("FTEs") if a full-time employee purchases subsidized coverage on an exchange. Generally, ACA defines a FTE for a month as an employee who works an average of 30 or more hours per week during that month. The Internal Revenue Service ("IRS") recently released Notice 2014-49, which provides additional guidance for determining full-time status when an employee changes positions by virtue of a job transfer or a corporate transaction, or if the employer changes the measurement period for determining FTE status.

The rules for determining whether an employer must offer healthcare coverage to an employee are complex. Additional information regarding these rules can be accessed in a previous King & Spalding publication.

Determining Full-Time Employee Status

Employers have two alternative methods for determining whether an employee is a full-time employee for purposes of the pay-or-play mandate: (1) the monthly measurement method and (2) the look-back measurement method. Generally, the monthly measurement method treats an employee as a full-time employee for any calendar month in which the employee averages 30 or more hours of work per week. Under the look-back measurement method, an employee is generally treated as a full-time employee for any month in a "stability period" if the employee averages 30 or more hours of work per week during the applicable "measurement period" preceding the stability period.

IRS Notice 2014-49

IRS Notice 2014-49 (the "Notice") describes an approach for applying the look-back measurement period to situations in which the measurement period changes because (1) an employee transfers from a position to which one measurement period applies to a position in which a different measurement period applies within the same employer, (2) the employer changes the measurement period applicable to a permissible employee category, including changes to the measure method (i.e., from the look-back measurement method to the monthly measurement method) or (3) the measurement period changes because of a corporate transaction.

Employee Transfers

Under the proposed approach, the employer includes the hours of service earned in the first position following the transfer either by (1) counting the hours of work using the method applied to the employee in the first position, or (2) recalculating the hours of work earned in the first position using the method applied to the employee in the second position. All similarly situated employees must be treated consistently by the employer.

Beginning on the employee's transfer date, the look-back measurement method is applied as follows:

• If the employee is in a stability period applicable to the first position on the transfer date, the employee's status as a full-time or non-full-time employee for the first position remains in effect until the end of that stability period. At the end of this stability period, the employee assumes the full-time or non-full-time employee status that the employee would have under the look-back measurement method applicable to the second position, but including the hours of work in the first position when applying that measurement method.

• If the employee is not in a stability period on the transfer date, the employee's status as a full-time or non-full-time employee is determined solely under the look-back measurement method applicable to second position on the transfer date, including all hours of work in the first position.

Employer Changes Measurement Method

The Notice provides that an employer is permitted to change the measurement method applicable to a permissible category of employees (i.e,. change from the look-back measurement method to the monthly measurement method, or a change in the duration or start date of any applicable measurement period under the look-back measurement method), provided that the status of each employee in that category is determined in accordance with the applicable transition rules (§54.4980H-3(f)(2)) for employees who change between the monthly and look-back measurement methods due to such a change apply to all employees impacted by the change for a transition period after the effective date of the change in method. For a change from the look-back measurement method to the monthly measurement method (or vice versa), the status of each impacted employee as of the date of the change is determined in accordance with §54.4980H-3(f)(2) as if on the date of the change each of those employees had transferred from a position to which the original measurement method applied, to a position to which the revised measurement method applied.

The status of any employee whose applicable measurement period under the look-back measurement method is changed by the employer is determined as if the employee had transferred from a position to which the original measurement method applies to a position to which the revised measurement method applies as of the effective date of the change. Accordingly, if an employer changes the duration or start date of the measurement period under the look-back measurement method for a category of employees, the status of each employee in that category after the date of the change is determined in accordance with Notice as if, on the date of the change, each employee in the category had transferred from a position to which the original measurement method applied to a position to which the revised measurement method applied.

Corporate Transactions

Taxpayers involved in a corporate transaction in which employers use different measurement methods are permitted to rely on the approach provided in the Notice in determining an employee's status as a full-time employee for purposes of the pay-or-play mandate. The Notice also provides guidance for corporate transactions in which the individuals not employed by an applicable large employer immediately prior to the transaction become employed by an applicable large employer. The IRS specifically acknowledges that the approach described in the Notice is not necessarily the only permissible approach and may present practical issues in some cases and encourages comments to the proposed approach and other possible approaches.

The IRS has requested comments on the proposed approach as it applies to corporate transactions. However, employers may rely on the Notice until further guidance is issued, and in any event through the end of the 2016 calendar year.