This week, the IRS issued final regulations concerning the Affordable Care Act’s “play or pay” (also known as the employer shared responsibility) mandate. This advisory describes highlights of these voluminous regulations, including a delay of the play or pay mandate for certain employers.

We will be providing additional advisories on selected issues in the near future.

Here are some key provisions of the new regulations:

  • Employers averaging 50 to 99 full time employees in 2014 will have until the plan year starting in 2016 to comply with the play or pay rules, if they maintain any plan they offer now and the current employer contribution toward the premium. (Employers with fewer than 50 full time employees are exempt from play or pay.)
  • Beginning Jan. 1, 2015, only employers with 100 or more full time employees must comply with the play or pay rules. The proposed regulations would have required these employers to cover at least 95 percent of their full time employees at that time, or face penalties. The final regulations reduce this to 70 percent for 2015 only.
  • Employers subject to the mandate that have non-calendar year plan years must first comply at the start of the first plan year beginning in 2015, provided that they satisfied certain requirements on the day before the final regulations were issued.
  • To avoid the play or pay penalty, an employer must offer coverage to an employee’s children, including adopted children. The proposed regulations previously required coverage to also be offered to stepchildren and foster children. Employers that do not currently offer the required dependent coverage, but take steps during the 2015 plan year to provide such coverage in 2016, will avoid the penalty.
  • The regulations address how to determine whether certain types of workers are full time employees:
    • Volunteers for government or tax exempt entities (such as volunteer fire fighters and emergency medical workers) are not considered full time employees;
    • Workers whose customary annual employment is six months or less (seasonal workers) are generally not considered full time employees;
    • Teachers are not treated as part time simply because schools are closed during the summer;
    • Until further notice, schools employing adjunct faculty may credit each faculty member with 2 ¼ hours of service per week for each hour of teaching or classroom time, plus an hour per week for each additional hour outside the classroom during which the member performs duties, such as office hours; and
    • Students on federal or state-sponsored work study programs are not considered full time employees.
  • The regulations retain some transition relief from the proposed regulations and extend it for 2015, including:
    • The ability to determine whether an employer is “large” and therefore subject to the mandate, by using a six-month look back period (rather than a 12-month period); and
    • A one-time only option to determine full time employees using a six-month measurement period.

The final regulations contain useful guidance for employers who are navigating play or pay strategies. These strategies should be in place as soon as possible to ensure compliance by the deadlines.