EMPLOYER PAY OR PLAY MANDATE AND PENALTIES GETTING YOUR CLIENTS (RE)STARTED IN 2014

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1 Fr MassAHU Members Only March 2014 Editin EMPLOYER PAY OR PLAY MANDATE AND PENALTIES GETTING YOUR CLIENTS (RE)STARTED IN 2014 First, there was the prpsed Emplyer Shared Respnsibility (ESR) regulatin in December ESR is als referred t as pay r play, the emplyer mandate r sectin 4980H f the Internal Revenue Cde. By the time yu as a brker finally gt yur clients t be smewhat engaged in this prcess last year, the IRS delayed the ESR penalties fr a year t be effective fr 2015 rather than Sme f yur clients put their ESR file flder at the bttm f the pile, while still ther clients settled in fr a ne year ESR vacatin. On February 10, 2014, final ESR regulatins were issued and they cntain sme imprtant new transitin rules. Starting in 2015, emplyers emplying at least 100 full-time emplyees in 2014 will be subject t the ESR prvisins. Emplyers with 50 t 99 full-time emplyees in 2014 may delay cmpliance until 2016 if they meet certain requirements. Under these prvisins, if such emplyers d nt ffer affrdable health cverage that prvides a minimum level f cverage t substantially all full-time emplyees, they may be subject t an ESR payment/assessment if at least ne f their full-time emplyees receives a federal advance premium tax credit fr purchasing individual cverage in a Health Insurance Exchange/Marketplace. Develping an ESR Cmpliance Strategy Fr many emplyers advance identificatin f full-time emplyees will begin this year This means that emplyers must re-start their ESR cmpliance effrts NOW t develp a strategy t be cmpliant as early as 2015 and beynd, including: Determining Applicable Large Emplyer Status Identifying Full-Time Emplyees Demnstrating Affrdable Health Cverage Dcumenting Eligibility and ther Plan Terms 100 Fxbrugh Blvd., Suite 160 Fxbrugh, MA

2 P a g e 2 March 2014 MassAHU Editin Determining Applicable Large Emplyer Status fr 2015 In this March MassAHU Editin, we will fcus n the first cmpliance element: determining an emplyer s Applicable Large Emplyer (ALE) status, which directly relates t if and when an emplyer will be in the ESR game cme 2015, r pssibly as late as Previusly, an ALE was an emplyer with 50 r mre full-time (FT) emplyees (including equivalents). Under the new final ESR regulatin, there are tw categries f ALEs: thse with 50 t 99 FT emplyees and thse with 100 r mre FT emplyees. Emplyers with fewer than 50 FT emplyees remain nt subject t the ESR prvisins. See Figure 1 t the right. Figure 1. There are nw 2 categries f ALEs. Calculating Applicable Large Emplyer Status fr 2015 Calculating the average number f full-time emplyees fr purpses f 2015 invlves cunting emplyees fr each mnth f the 2014 calendar year and finding the average f the 12 mnthly calculatins as fllws: The mnthly full-time emplyee calculatin invlves adding: the number f actual full-time emplyees with 130 hurs f service fr the mnth PLUS all part-time hurs in the mnth (but nt mre than 120 hurs f service fr any emplyee) cnverted t a full-time equivalent (by dividing the aggregate mnthly part-time hurs by 120). See Figure 2 belw.

3 P a g e 3 March 2014 MassAHU Editin Figure 2. Calculating the number f full-time and full-time equivalent emplyees fr each mnth f All f the mnthly calculatins are then added tgether and the sum divided by 12 t arrive at the mnthly average frm the prir calendar year. See Figure 3 belw. Figure 3. Averaging the mnthly calculatins f full-time and full-time equivalent emplyees fr each mnth f the 2014 calendar year t determine ALE status fr the 2015 year.

4 P a g e 4 March 2014 MassAHU Editin A full-time emplyee is an emplyee wh is emplyed an average f at least 30 hurs f service per week with an emplyer. Fr this purpse, 130 hurs f service in a calendar mnth is treated as the mnthly equivalent f at least 30 hurs f service per week. When lking at hurs f service fr emplyees, leased emplyees, sle prprietrs, partners in a partnership, r 2-percent r greater S crpratin sharehlders are nt cnsidered emplyees. Special 2014 Transitin Rule fr Measuring Full-Time Emplyees in 2014 t Determine ALE Status fr 2015 Rather than being required t use the full twelve mnths f 2014 t measure whether it has 50/100 r mre full-time emplyees fr purpses f 2015, the final ESR regulatin prvides a transitin rule permitting n emplyers t calculate ALE status using any six r mre cnsecutive mnths in This special 2014 transitin methd may be helpful t emplyers with varying numbers f emplyees during the year, such as seasnal businesses. In Cnclusin It s time t get yur clients engaged nce again in the ESR cmpliance prcess. A practive cmpliance strategy begins with determining if and when yur clients are in the ESR game. That means determining whether r nt they are cnsidered Applicable Large Emplyers under the ESR requirements. Nt all emplyers will need t physically perfrm the ALE calculatin. Fr example, Emplyers that clearly average in excess f 100 r mre FT emplyees (including equivalents) during 2014 will be cnsidered ALEs in 2015 and need nt perfrm this calculatin fr the year. Likewise, very small emplyers that clearly average fewer than 50 ttal emplyees during 2014 will nt be cnsidered ALEs fr 2015 and need nt perfrm this calculatin fr the year. The ESR des nt apply t such small emplyers, EXCEPT when an emplyer is a member f a cntrlled grup f crpratins r businesses under IRS rules. All emplyees f the cntrlled grup members are aggregated tgether t determine whether the 50 FT emplyee threshld is reached. If the cmbined ttal meets the 50 FT emplyee threshld, then each separate business in the cntrlled grup will be subject t the ESR prvisins; even thse businesses that individually d nt emply enugh emplyees t meet the threshld. Hwever, thse clients that culd reasnably fall within the 50 t 100 FT emplyee range shuld physically perfrm the ALE calculatin. In additin, thse clients with 50 t 99 FT emplyees may be able t delay cmpliance until 2016, but must certify t the IRS that they fall

5 P a g e 5 March 2014 MassAHU Editin within this range and that they have met certain ther requirements. The physical ALE calculatin shuld be part f the emplyer s retained recrds. See Appendix A fr an Applicable Large Emplyer Calculatin Wrksheet Richard A. Szczebak, Esq rszczebak@parkerbrwn.cm * * * * * The freging has been prepared fr the general infrmatin f MassAHU members. It is nt meant t prvide legal advice with respect t any specific matter and shuld nt be acted upn withut prfessinal cunsel. This material may be cnsidered advertising under certain rules f prfessinal cnduct.