01.28.13 |
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Affordable Care Act (ACA) Update: Employer Shared Responsibility Rules

This article was originally featured in our ADP Eye on Washington update.

The “Shared Responsibility” requirements included in the ACA collectively establish new administrative and recordkeeping requirements that will apply to large employers, and potential IRS assessments that will apply if such employers do not offer qualifying health coverage to all full-time employees, beginning in 2014, and their dependents, beginning in 2015.

On December 28, 2012, the IRS released proposed rules regarding the ACA Shared Responsibility provisions which affect large employers (generally those with more than 50 full-time equivalent employees). 

These proposed rules address a broad array of issues that employers will need to understand in order to prepare for implementation of the ACA Shared Responsibility provisions in 2014. Many previously unknown details are provided or clarified; each of which deserves a thorough explanation. A dedicated Eye on Washington series, over the coming weeks, will explore these critical rules and their impact on employers.

How the ACA Shared Responsibility Provisions Will Apply to “Controlled Groups” and Related Organizations
The proposed regulations clarify that related employers may be required to be considered a single employer in determining whether an employer meets the 50-FTE employee threshold and is therefore subject to Shared Responsibility requirements; and, if so, how the Shared Responsibility penalty is calculated.

Full-time Employee Determination
Employers may be liable for new Shared Responsibility penalties based on the number of workers who qualify as full-time employees under the ACA. The proposed regulations modify prior rules and provide new alternatives for determining which employees qualify as full-time for Shared Responsibility purposes, such as:
• How employers may use payroll periods rather than months as “measurement periods”
• The types of unpaid leave that will require special calculations in this determination
• Special rules for teachers and other employees of educational organizations
• Special rules for certain other industries and employment circumstances
• How to treat employees that terminate employment and are rehired, or resume service after an absence

Changes to Affordability Safe Harbor Tests
Employers may remain liable for penalties even if they offer health coverage to all full-time workers; for example, if employer-sponsored coverage does not meet affordability, minimum value and other requirements. The proposed regulations modify a prior safe harbor threshold for determining affordability, and add new alternative tests that employers should understand:
• Changes to the Form W-2 Affordability Safe Harbor Tests
• Rate of Pay Safe Harbor 
• Federal Poverty Line (FPL) Safe Harbor

Other Key Elements Covered
• Clarification of the meaning of “dependents” who must be offered coverage in order to avoid a Shared Responsibility penalty
• Key thresholds to meet the requirement of offering coverage to “substantially all” full-time employees
• Transition relief for non-calendar year plans

Impact on Employers
As these and related regulations emerge, it is increasingly clear that employers will have significant new calculation, recordkeeping and reporting challenges with the Affordable Care Act.  Look for subsequent Eye on Washington Shared Responsibility editions for details on these and other critical components of the Affordable Care Act that employers will need to understand over the coming months. For a link to the proposed rules, see:

For IRS Questions and Answers on Employer Shared Responsibility Provisions Under the Affordable Care Act, see:

Comments were requested on the regulations by March 18, and a public hearing has been scheduled for April 23, 2013.  Final regulations are expected; however, employers can rely on the proposed regulations.  Final regulations will be effective no earlier than the date they are published and, to the extent they are more restrictive than the proposed regulations, the final regulations will not be effective retroactively. Employers will be allowed time to comply with the final regulations.

Learn more about employment tax solutions from ADP that work with your existing payroll system.


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