Child coverage. Employers must offer coverage to full-time employees and their children under age 26, but not their spouses or domestic partners.

GRIST Report: IRS proposes rules for employers shared responsibility under health care reform By Kelly Traw, Barbara McGeoch and Kaye Pestaina of Mercer s WRG Jan. 9, 2013 In This Article Summary IRS proposes employer shared-responsibility rules Who must be offered coverage? What coverage must be offered? How are shared-responsibility penalties calculated? Which employers are subject to shared-responsibility rules? Considerations for certain types of employers, employees and plans Questions remain on employer strategies to avoid penalties Summary IRS has issued guidance on employers shared responsibility under the Affordable Care Act. Beginning in 2014, employers must offer affordable group health coverage with a minimum value to full-time employees or face a penalty. The proposed rules address new items, such as the obligation to offer coverage to employees children (but not spouses) and the flexibility for controlled-group members to adopt different health benefit approaches. Along with making some changes to earlier shared-responsibility guidance, IRS has clarified or confirmed other points. Unknowns persist, however, including the types of arrangements and coverage that will meet various standards. Employers may rely on the proposed rules until further guidance is issued. IRS proposes employer shared-responsibility rules Proposed IRS regulations and frequently asked questions (FAQs) address employers sharedresponsibility obligations that will apply in 2014 under the Affordable Care Act (ACA). Although the ACA doesn t require employers to offer or provide group health coverage, doing so will minimize the risk of shared-responsibility penalties. The new IRS guidance explains who must be offered health coverage, what type of coverage must be offered, how employer penalties will be calculated, and which employers will face these assessments. Besides clarifying or confirming points in earlier guidance, the proposed rules offer new insights and some notable changes. Public comments are due by March 18, and a public hearing will be held April 23. Employers may rely on the proposed regulations until IRS issues final rules or other guidance. Highlights of guidance. Key points in the proposed rules include: Child coverage. Employers must offer coverage to full-time employees and their children under age 26, but not their spouses or domestic partners. Controlled-group members. Employers in the same controlled group may choose different health benefit strategies. Group members will be disaggregated when calculating shared-

Page 2 responsibility penalties but not when determining an employer s size or an employee s fulltime status. Instead, the entire group s combined number of employees and their hours of service will determine whether the employer is small enough to escape shared-responsibility penalties or whether an employee lacks full-time status. Paid leave. Employers must count unlimited paid leave when determining whether an employee has full-time status. Measurement/stability periods for ongoing and new employees. Separate service-counting rules may apply for determining the full-time status of new versus ongoing employees, including those returning from unpaid absences. Employers may use a 12-month stability period in 2014, even if they use only a six-month measurement period in 2013 in certain cases. Self-insured coverage. Employers may offer insured or self-insured coverage to avoid sharedresponsibility penalties. Affordability safe harbors. Employers may choose from three safe harbors to determine whether coverage is affordable. Affordability will be based on the employee s cost for self-only (not dependent) coverage. 95% standard. To avoid penalties, employers must offer coverage to at least 95% of full-time employees. Penalty notice and payment. Employers won t pay shared-responsibility penalties on tax returns. Instead, IRS will send assessment notices and give employers an opportunity to respond before requiring payment. Payment processes have not yet been announced. Considerations for certain employers, employees or plans. Special IRS rules would apply to certain types of employers, employees or plans, including: Multiemployer plans Noncalendar-year plans Educational employers Commission-based and other employees not paid on hourly basis Temporary staffing agencies Employees working outside the US

Page 3 Scope of this article. This article highlights key points in the proposed rules that explain who must be offered coverage; what coverage must be offered; which employers are subject to shared responsibility; and what special rules apply to certain employers, employees and plans. This article is written assuming employers goal is to avoid shared-responsibility penalties. (For details about earlier shared-responsibility guidance, see GRISTs #20120200, Oct. 11, 2012; #20110190, Sept. 19, 2011; and #20110089, May 6, 2011.) Who must be offered coverage? Coverage for full-time employees and their children To avoid shared-responsibility penalties, covered employers must offer group health coverage to full-time employees and their dependents. Dependents include biological, step-, adopted and eligible foster children under age 26 but not a full-time employee s spouse or domestic partner. Employers may rely on employees representations as to the ages and identities of their children. Failing to offer dependent coverage in 2014 will not trigger penalties, as long as an employer is taking steps to add this benefit by 2015. Counting hours of service to determine full-time status The health care reform law treats anyone employed by a given employer for an average of 30 or more hours per week as a full-time employee. The proposed rules confirm that employers may determine an employee s full-time status using the lookback and stability periods under safe harbors set out in earlier guidance. This approach generally involves a lookback period during which an employer measures an employee s hours of service; an administrative period during which the employer identifies which employees qualify as full-time; and a subsequent stability period during which those employees must be offered coverage. Monthly equivalence standard. Consistent with prior guidance, the proposed rules treat 130 hours of service in a calendar month as equivalent to 30 hours of service per week. Hours of service include paid leave. Employers must count all of the hours of service for which an employee is paid or is entitled to payment, including paid leaves of absence such as: Vacations Holidays Leave for illness, disability or other incapacity Layoffs Jury or military duty leave

Page 4 This new provision mirrors long-standing Department of Labor (DOL) regulations on the hours of service categories used to determine pension eligibility, vesting and benefit accrual. Adopting this standard would eliminate IRS s earlier proposal to count no more than 160 hours of paid leave. Hourly employees. To determine the full-time status of employees paid on an hourly basis, employers must use actual hours of service (including leave) for which payment is made or due. Nonhourly employees. Employers may choose from three methods to determine the full-time status of nonhourly employees: Actual hours of service. Count actual hours of service worked for which payment is made or due. Days-worked equivalency. Credit an employee working at least one hour of service in a day with eight hours of service for that day. Weeks-worked equivalency. Credit an employee working at least one hour of service in a week with 40 hours of service for that week. IRS will allow employers to change methods each year. In addition, employers may use different methods for different classifications of nonhourly employees, as long as the classifications are reasonable and consistently applied. However, IRS hasn t provided examples of what it considers to be reasonable classifications. Anti-abuse rule. Use of the days-worked or weeks-worked equivalency methods must generally reflect the hours an employee actually worked for which payment is made or due. IRS won t let an employer use either equivalency method if the result would substantially understate an employee s hours of service and cause the employee to be treated as part-time. Example. Karen works three 10-hour days for Hocus Handbags. Hocus cannot use the daysworked equivalency method because it would substantially understate Karen s 30 hours of service each week and give her part-time status for shared-responsibility purposes. Using measurement and stability periods Standard measurement periods apply when determining the full-time status of ongoing employees. For new hires, employers may use initial measurement periods, which are tied to a new employee s start date (that is, the first date on which the employee has at least one hour of service under the hours-of-service rule). Ongoing employees. To determine the full-time status of ongoing employees, an employer may measure an employee s hours of service by looking back over a period of three to 12 months, called the standard measurement period. Anyone employed by an employer for at least one standard measurement period is treated as an ongoing employee.

Page 5 Any ongoing employee qualifying as full-time during the standard measurement period must be offered coverage during a subsequent stability period lasting at least six months or, if longer, the length of the employer s standard measurement period. An employer may choose to impose an administrative period of up to 90 days between the end of the standard measurement period and the beginning of the stability period. However, this administrative period cannot serve to lengthen the standard measurement period or shorten the stability period. Transition rule. Acknowledging the short timeframe to establish measurement periods for 2014 purposes, IRS will allow employers to use a transition measurement period of six to 12 months. This period must begin by July 1, 2013, and end no earlier than 90 days before the first day of the 2014 plan year. Employers opting for a shorter transition measurement period can still use a 12- month stability period for 2014. Different strategies for certain employee groups. The standard measurement and stability periods generally must be the same length for all employees. However, IRS has confirmed that employers may use different strategies and apply different periods for certain categories of employees: Employees with primary places of business in different states Salaried versus hourly employees Union versus nonunion employees Employees covered under separate collective bargaining agreements Limited accommodation for payroll periods. Employers had sought the ability to count hours of service on a payroll-period basis using successive payroll periods to approximate a calendar month. IRS declined this request, noting that payroll periods aren t evenly divisible by 12 calendar months. Under the measurement-period safe harbor, however, the proposed rules would let an employer adjust the start and end dates of its measurement period to avoid splitting employees regular payroll periods. For example, an employer using a calendar-year measurement period could exclude the entire payroll period that contains Jan. 1 at the start of the year, as long as the measurement period includes the entire payroll period that contains Dec. 31 at the end of that same calendar year. This accommodation is available to employers using weekly, biweekly or semimonthly payroll periods. New full-time employees. An employee (other than a seasonal employee) must be offered coverage within the initial three months of employment if that employee is reasonably expected at his or her start date to perform, on average, 30 or more hours of service per week. The proposed rules don t provide additional guidance on this standard, but IRS has requested comments on considerations that could help employers make this determination.

Page 6 New variable-hour and seasonal employees. The proposed rules confirm that employers adopting the lookback/stability-period safe harbor for ongoing employees may use a similar method to determine the full-time status of new variable-hour and seasonal employees. The initial measurement period can run three to 12 months, and an administrative period can last up to 90 days. However, those two periods combined must not extend beyond the last day of the first calendar month that begins on or after the one-year anniversary of the employee s start date. Full-time stability period. For variable-hour and seasonal employees qualifying as full-time, the stability period must be at least six consecutive months and no shorter than the initial measurement period. Part-time stability period. For variable-hour and seasonal employees determined to be part-time, the stability period cannot be more than one month longer than the initial measurement period. In addition, the stability period must not exceed the remainder of the standard measurement period (and any associated administrative period) in which the initial period ends. Variable-hour employee definition. Under the proposed rules, a new hire is a variable-hour employee if, given the facts and circumstances on the start date, the employer cannot determine that this person is reasonably expected to be employed an average of at least 30 hours per week. For 2014 only, a variable-hour employee may include someone initially employed full time for what s expected to be a brief span too short for the employee to average at least 30 hours per week over the initial measurement period. This rule applies only if objective facts and circumstances specific to that employee demonstrate that on the start date, the employer reasonably expected the new hire s employment to be of limited duration within the initial measurement period. Starting Jan. 1, 2015, employers must assume that such variable-hour (but not seasonal) employees will be employed for the entire initial measurement period. Seasonal employee definition. IRS has requested comments on how to define a seasonal employee, including whether to specify a time limit. For example, the definition could treat any employee whose customary annual employment is less than seven months as a seasonal employee. Employers may use a reasonable, good-faith interpretation through 2014; however, IRS cautions that treating an educational employee who works during the active portions of the academic year as a seasonal employee would not be reasonable. Change in employment status. Special rules may come into play if a variable-hour or seasonal employee has a change in employment position or status during the initial measurement period. These rules apply only when the new position or status, if held from the first day of employment, would have created a reasonable expectation that the employee would be employed on average at least 30 hours of service per week. In such cases, the employee must be treated as full-time starting on the earlier of: The first day of the fourth month after the employment status change

Page 7 The first day of the first month after the initial measurement period ends, provided the employee averages more than 30 hours of service per week during that period Employees returning after unpaid absences. IRS has proposed new rules to prevent certain unpaid absences from inappropriately restarting an employee s initial measurement period or triggering a new 90-day waiting period for coverage. Absences of 26 or more weeks. If the period with no hours of service is at least 26 consecutive weeks, the employer may treat the employee as having been terminated and then rehired as a new employee. Rule of parity for absences shorter than 26 weeks. An employer may choose to apply a rule of parity for periods of no service lasting less than 26 weeks. An employee rehired after terminating employment may be treated as a new employee if the break in service is at least four weeks long and exceeds the employee s period of employment immediately preceding the absence. Example. Mel works three weeks for Lemon Inc., then has 10 weeks with no hours of service before returning to work. Under the rule of parity, Mel could be treated as a new employee because his 10-week break in service is longer than his three-week period of employment immediately before the absence. Measurement, stability periods for continuing employees. For a returning employee treated as a continuing (rather than a new) employee, the measurement and stability periods that would have applied without the absence would continue to apply on the employee s return. So to avoid shared-responsibility penalties, an employer must offer a continuing, full-time employee coverage as of the first day the employee is credited with an hour of service or, if later, as soon as administratively practicable. Example. Sandy works one year for Lemon Inc., terminates employment and is rehired 10 weeks later. Sandy returns to work during a stability period in which she would have been offered coverage as a full-time employee had she not terminated employment. Under the rule of parity, Sandy is treated as a continuing employee and must be offered coverage as a fulltime employee through the end of the stability period. Averaging rule for special unpaid leave. IRS has proposed two methods for averaging hours when lookback measurement periods include certain types of unpaid leave that is, unpaid Family and Medical Leave Act (FMLA) leave, jury duty leave, or military leave under the Uniformed Services Employment and Reemployment Rights Act (USERRA). Under the proposal, employers may choose to apply one of these methods: Exclude leave. Exclude the period of special unpaid leave to determine the average hours of service per week during the entire measurement period.

Page 8 Credit hours. Credit an employee s special unpaid leave with hours of service at a rate equal to the employee s average weekly rate during weeks when no special unpaid leave is taken. What coverage must be offered? Employers will face shared-responsibility penalties unless full-time employees have access to eligible employer-sponsored plans with minimum essential coverage that is affordable and has at least a minimum 60% value. The proposed rules give some insights on what coverage may be offered and how to determine its affordability but do not address many significant issues, including how an employer plan s minimum value will be determined. Self-insured or insured coverage Employers may offer self-insured or insured coverage to satisfy the shared-responsibility rules. Affordability Under the ACA, coverage is considered affordable as long as an employee s required contribution does not exceed 9.5% of the employee s household income. Based on self-only coverage contribution. The proposed rules confirm that an employee s required contribution for self-only (not family) coverage under an employer plan s lowest-cost option will determine whether the employer offers affordable coverage. Affordability safe harbors. Employers using one of three safe harbors will be treated as offering affordable coverage: W-2 safe harbor. Employer coverage will be treated as affordable if the employee s contribution does not exceed 9.5% of the employee s wages reported in Box 1 of Form W-2. The proposed rules include special methods for determining the wages of employees who are not full-time for an entire year. Rate-of-pay safe harbor. An employer would multiply each eligible hourly employee s rate of pay at the start of the plan year by 130 hours per month to determine total monthly wages. Employer coverage will be treated as affordable if an employee s monthly contribution is equal to or lower than 9.5% of his or her monthly wages. For salaried employees, monthly salary would be used, not an hourly wage rate times 130. Employers can t use this safe harbor for employees whose hourly rates or salaries were reduced during the year. Federal poverty line safe harbor. Employer coverage will be treated as affordable if an employee s contribution for self-only coverage does not exceed 9.5% of the federal poverty level (FPL) for a single individual in the state where the employee is employed. Employers may rely on the most recently published FPL as of the first day of the plan year.

Page 9 Minimum value and other unanswered questions The proposed regulations don t provide additional guidance on which health care arrangements (for example, health reimbursement arrangements) will be treated as eligible employer-sponsored plans, what constitutes minimum essential coverage, or how to determine the value of an employer-sponsored plan. Regulators intend to address these matters in later guidance. How are shared-responsibility penalties calculated? Penalty amounts will depend on whether an employer offers affordable coverage with a minimum 60% value to full-time employees and their children under age 26. An employer will be subject to penalties only if at least one full-time employee is certified as eligible to receive a premium tax credit for coverage obtained through a public health insurance exchange. Penalties will be determined on a monthly basis and will not be deductible on an employer s federal tax return. Penalties for employers not offering coverage An employer that doesn t offer coverage to substantially all full-time employees faces sharedresponsibility penalties if at least one full-time employee buys exchange coverage and is eligible for income-based assistance. The 2014 monthly penalty will be 1/12th of $2,000 times total fulltime employees, excluding the first 30 full-time employees. 95% standard. An employer will be treated as offering coverage to substantially all employees if at least 95% of its full-time employees can elect coverage. Penalties for employers offering coverage Employers offering coverage to at least 95% of full-time employees still face penalties if the coverage fails the minimum value or affordability tests. In 2014, this monthly penalty will be 1/12th of $3,000 for each full-time employee certified as receiving a premium tax credit for exchange coverage. The maximum annual penalty is subject to a cap, calculated by multiplying $2,000 by the total full-time employees regardless of exchange coverage or eligibility for assistance after subtracting 30 full-time employees. This cap ensures an employer s annual liability for this sharedresponsibility penalty does not exceed the maximum penalty for not offering coverage. Meaningful offer. Employees must have an effective opportunity to accept or decline an offer of coverage and cannot be required to enroll unless the coverage has a minimum 60% value. Late payments. Penalties won t apply solely because employers discontinue the coverage of employees who fail to make timely or sufficient premium or contribution payments. To determine whether employee payments are late or deficient, employers generally will rely on COBRA rules, which include a 30-day grace period for an employee to submit payment (GRIST #19910131, March 30, 1999). An employer that cancels an employee s coverage for late or deficient payment will not incur penalties for failing to offer that employee coverage through the end of the coverage period (typically, the plan year).

Page 10 Penalty notice and payment IRS will notify an employer of potential penalties and provide an opportunity to respond. If the employer is liable for penalties, IRS will send a notice and demand for payment. This notice will provide instructions on how to make payment; penalty payments will not be included on any tax return filed by the employer. Which employers are subject to shared-responsibility rules? Starting Jan. 1, 2014, any employer (whether for-profit, nonprofit or governmental) that employed an average of at least 50 full-time equivalent (FTE) employees (including certain seasonal workers) during the preceding calendar year generally will be subject to the shared-responsibility rules in a given calendar year. The FTE determination is based on employees actual hours of service in the prior year (GRIST #20100309, April 19, 2011). A special transition rule for 2014 allows employers to make this determination using a period of at least six consecutive calendar months in 2013 rather than the full calendar year. Seasonal workers An employer must take certain seasonal workers into account when determining whether it is subject to the shared-responsibility rules. The rules do not apply if (i) the sum of the employer s full-time and FTE employees exceeds 50 for only 120 or fewer days during the prior calendar year, and (ii) the employees in excess of 50 during those 120 days are seasonal workers. Four calendar months may be treated as the equivalent of 120 days for this purpose. Neither the 120- day or four-month period has to be consecutive. In defining seasonal workers, IRS cites DOL rules for retail and agricultural workers and instructs employers to apply a good-faith interpretation of those rules to other seasonal workers and employment positions. Partnerships, S-corporations and sole proprietorships Partners in a partnership, sole proprietors and 2% shareholders in an S corporation are not employees for this purpose, unless they provide services as employees. Predecessor, successor employers IRS invites comments on how to identify predecessor and successor employers and determine their shared-responsibility liabilities, including whether employment tax rules could serve this purpose. Until further guidance is issued, employers may use a reasonable, good-faith interpretation of the health care reform law to determine predecessor and successor liabilities. Considerations for certain employers, employees or plans The proposed regulations give insights and special rules for certain types of employers, employees and plans.

Page 11 Controlled groups Whether members of a controlled group are subject to shared-responsibility requirements will be determined by the group s total FTE employees, but other shared-responsibility rules will apply separately to each member. Aggregation rule for determining employer size. To determine whether the 50-employee threshold for shared responsibility is met, IRS will treat all employers within a controlled group (or affiliated service group) as a single employer. This aggregation rule means that the employees of every subsidiary or other member of the controlled group will be counted, and small divisions may be subject to shared-responsibility requirements as a result. Counting an employee s hours of service. Each controlled-group member may use different methods for determining employees full-time status for penalty purposes. Regardless of the method used, the calculation must take into account all hours an employee works for each member of a controlled group. Disaggregation rule for penalty liability. Shared-responsibility penalties will be calculated separately for each controlled-group member, not on a controlled-group basis. This means each member s shared-responsibility liabilities and penalties will depend on its offer (or lack) of coverage and number of full-time employees. Each member has liability only for paying its separate shared-responsibility penalties. This rule will give employers the flexibility to pursue different health benefit strategies within a controlled group. Penalties for not offering coverage. In calculating penalties for failure to offer coverage, the 30 fulltime employee exclusion must be ratably allocated within a controlled group on the basis of each member s total full-time employees. Fractions less than one are rounded up under this allocation rule. So if a controlled group has more than 30 members, each member will be able to exclude at least one full-time employee from its liability calculation. Multiemployer plans IRS seeks comments on multiemployer plan issues and has proposed a transition rule for employer contributions made to a multiemployer plan in 2014. Under the proposal, an employer participating in a multiemployer plan will not be subject to shared-responsibility penalties if three conditions are met: A collective bargaining agreement requires the employer to contribute toward full-time employees coverage under the multiemployer plan. Full-time employees (and dependents) are offered coverage under the multiemployer plan. The coverage is affordable and has a minimum 60% value.

Page 12 Each participating employer is responsible for identifying its full-time employees (based on hours of service for that employer) and paying any penalties related to multiemployer plan coverage. In determining whether a multiemployer plan s coverage is affordable, the proposed regulations give participating employers a fourth safe harbor in addition to the three described above: Coverage will be affordable if the employee s required contribution for self-only coverage does not exceed 9.5% of the wages either actual wages or the hourly wage rate under the applicable collective bargaining agreement reported to the plan. Noncalendar-year plans The proposed regulations include special rules for employers maintaining noncalendar-year plans as of Dec. 27, 2012. Transition rules. IRS has provided three transition rules for noncalendar-year plans: Relief for employees eligible on Dec. 27. 2012. An employer will not face penalties for full-time employees who were eligible for coverage as of Dec. 27, 2012, as long as the employer offers them affordable coverage with a minimum 60% value by the first day of the plan year that starts in 2014. Relief if coverage offered to at least one-third of employees. For employees not eligible for the above plan as of Dec. 27, 2012, the same penalty relief applies if the employer offered at least one-third or more of its employees coverage during the most recent open enrollment period before Dec. 27, 2012. Relief if at least one-quarter of employees covered. The penalty relief also would apply if at least one-quarter of employees were covered under one or more noncalendar-year plans that had the same plan year on Dec. 27, 2012. The last two safe harbors would be available for employees who are offered affordable coverage with a minimum 60% value by the first day of the plan year that starts in 2014 and were not or would not have been eligible for coverage under any calendar-year plan operating on Dec. 27, 2012. In all cases, an employer could determine the percentage of covered employees as of the end of the most recent enrollment period or any date between Oct. 31, 2012, and Dec. 27, 2012. Cafeteria plans. An employer may choose to amend its noncalendar-year cafeteria plan to: Provide an one-time opportunity during the 2013 plan year when employees can prospectively revoke or change their elections of health plan coverage, regardless of any change-in-status event Permit employees to make prospective salary-reduction elections for the plan on or after the first day of the 2013 plan year

Page 13 Employers may retroactively amend cafeteria plan documents, as long as amendments are made by Dec. 31, 2014. Educational employers IRS has proposed special rules to help educational employers including governmental, for-profit and nonprofit employers determine employees full-time status. 501-hour limit. For most periods of absence with zero hours of service, educational employers would need to take into account no more than 501 hours in a calendar year. Employees returning from breaks. Educational employers could use one of two averaging methods for employees treated as continuously employed (rather than terminated and rehired) after an employment break period. An employment break period is a period of at least four consecutive weeks (disregarding unpaid FMLA, military service or jury duty leave) during which an employee has no hours of service. Under the proposal, an educational employer may either: Determine the employee s average hours of service per week during the measurement period after excluding the employment break period, and use that average for the entire measurement period Credit employees with hours of service for the employment break period at a rate equal to the employee s average weekly rate during the weeks that weren t part of an employment break period IRS has invited comments on whether to extend these rules to all employers. Government entities and churches IRS intends to issue future guidance on aggregation rules for determining whether sharedresponsibility rules apply to government entities, churches, and conventions or associations of churches. Until then, these entities may use a reasonable, good-faith interpretation of the tax code s aggregation rules to determine whether an entity is subject to shared responsibility. Employees not paid primarily on hourly basis Regulators are seeking input on issues involving employees whose compensation isn t primarily based on hours worked, such as commission-based salespeople, adjunct faculty, pilots and certain transportation employees. Until further guidance is issued, employers must use a reasonable method for crediting hours of service that is consistent with the shared-responsibility rules. However, the method used should not cause an employee whose position traditionally involves more than 30 hours of service per week to be recharacterized as part-time. For example, an employer cannot disregard travel time for a commission-based travelling salesperson or limit the hours of service of an adjunct professor to time spent in the classroom.

Page 14 Temporary staffing agencies IRS has invited comments on whether to create a safe harbor allowing temporary staffing agencies to treat their common-law employees as variable-hour employees. Regulators also are seeking input on agencies need for guidance on other issues, such as how to handle employees who never inform the agency when they decide not to take any more assignments from it. IRS plans to publish anti-abuse rules setting out these guidelines: When an employer receives the same or similar services from an individual working as employee and through a staffing agency, the employer would include the temp work when counting that employee s hours of service. When an individual performs the same or similar services for the same client of two or more staffing agencies, that person s hours of service would be attributed to the client, rather than the staffing agency, to determine if the client is the common-law employer. Employees working outside the US Employers may disregard hours of service worked outside of the US, regardless of an employee s US residency or citizenship. IRS says this means most employees working outside the US generally will not qualify as full-time employees, although hours for which the employee receives US source income (determined under federal tax rules) must be taken into account. Questions remain on employer strategies to avoid penalties The proposed regulations offer important new information for employers exploring health care strategies for 2014. For example, IRS has clarified that an employer doesn t need to offer spouses of full-time employees coverage to avoid shared-responsibility penalties and may adopt a different approach than other members of the same controlled group. But questions remain, including what types of arrangements will qualify as employer-sponsored plans offering minimum essential coverage and how to assess whether they meet the 60% minimum value threshold. Regulators intend to publish additional guidance on these and other issues related to the ACA s sharedresponsibility provisions. WRG only: 20130013