IRS Finally Issues Final Regs on Health Care Reform Large Employer Penalties — Employers May Want to Start Compliance Efforts Now

In July 2013, Treasury announced that the large employer shared responsibility penalties would not take effect until 2015.  This one-year delay was welcome news, but it unfortunately resulted in many employers pushing this issue to the back burner.

With the IRS just having published final regulations on February 12, 2014, now is a great time to refocus on this issue.  Here’s why employers should not delay:

  • An employer’s status as a large employer (i.e., whether they are subject to the penalties in 2015) is determined based on their full-time plus full-time equivalent common law employee headcount in 2014.
  • Employers can use a monthly measurement method to track full-time employee hours in 2015 or a look-back measurement method.  Employers who decide to use the look-back method may need to be tracking hours now.  This may require system changes.
  • To avoid the biggest penalty, large employers must offer minimum essential coverage to substantially all of their full-time common law employees and dependents.  “Substantially all” normally means 95%, but under the final regulations, for 2015, it means 70%.  Employers need to get a fix on who their common law employees are because misclassifying common law employees as 1099 independent contractors, and not treating temps as common law employees, can cause an employer to inadvertently fail the substantially all test.  

I am working to revise our Checklist for Employers to reflect the final regulations.  When done (hopefully this week or early next week), I will post again with a link to the revised Checklist and highlight some of the new transition relief that was included in the final regulations, such as the 70% test mentioned above, and the one-year delay for employers with 50-99 employees.  Stay tuned . . .

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