Employer “Pay or Play” Mandate Final Regulations Issued—Major Impact on Educational Institutions

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.

Like all other employers across the country, educational institutions have been awaiting final rules to determine their compliance strategy for the Affordable Care Act’s Employer Shared Responsibility provisions (better known as the employer “pay or play” mandate). Under the employer pay or play mandate, employers with 50 or more full-time employees are required to offer qualifying health coverage to all of their full-time employees and their dependents or risk incurring penalties under the Affordable Care Act (ACA).

On February 10, 2014, the Internal Revenue Service (IRS) released final regulations regarding the mandate. The final regulations provide much anticipated guidance, including items addressing the unique needs of educational institutions. Those items are listed below with practical implications for your organization.

  • Volunteers. In determining whether an employee has worked enough hours to be considered full-time under the mandate, hours worked as a “bona fide volunteer” will not be counted. A bona fide volunteer is defined as an employee of a government entity or nonprofit organized under section 501(c) of the tax code whose only compensation from the employer is in the form of reimbursements or allowances for reasonable expenses incurred while performing volunteer work or reasonable benefits and nominal fees customarily paid to volunteers by organizations similar to the employer. For many educational institutions this may include any number of volunteers, including coaches and athletic trainers. A question remains regarding the extent to which this exclusion applies to individuals who may receive compensation from the school as regular employees and who work as volunteers.

  • Student Workers. The final regulations clarify that hours worked by students in a federal work-study program or other similar program subsidized by the government, are not included in determining whether the student is a full-time employee. For all other positions, hours worked by students are included for purposes of determining full-time employee status under the mandate. This includes any paid internships or externships. This clarification has significant implications for schools with their own student workers like graduate assistants and for schools with students that participate in cooperative (co-op) programs. Some employers may want to limit the number of hours that  co-op students are working under the program.

  • Adjunct Faculty. Final regulations provide a safe harbor for calculating adjunct faculty hours of service. Under the safe harbor method, adjuncts are credited with 2.25 hours of service for every hour of teaching and one hour of service for each non-teaching hour worked (spent, for example, attending required faculty meetings, mentoring students, etc.). Educational institutions may also use other reasonable methods for determining the number of hours of service for adjunct faculty. This safe harbor is available until the end of 2015.

  • Educational Employees. Teachers and other educational employees will not be treated as part-time employees for the year simply because their school is closed or operating on a limited schedule during the summer.

  • Rehired Employees. One significant change included in the final regulations that does not apply to educational institutions concerns whether a rehired employee may be treated as a new hire for purposes of the mandate. For all employers other than educational institutions a returning employee may be treated as a new hire as long as there is a break in service of at least 13 weeks. For educational institutions, the prior guidance still applies. This means that for a rehired employee to be considered a new hire the break in his or her service must be at least 26 weeks.

The requirements of the  employer pay or play mandate generally will become effective in 2015 for employers with 100 or more full-time employees and in 2016 for employers with 50-99 full-time employees. This summary focuses only on the changes in the final regulations applicable specifically to educational institutions. Please note that the final regulations include additional guidance applicable to all employers. A summary of such guidance, including transition relief for large and small employers, can be found on Ogletree Deakins’ Employee Benefits blog.

Educational institutions should evaluate these and all other requirements under the Affordable Care Act as part of their compliance strategy.

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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