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Pay or Play Penalty: When to Begin Tracking Employee Hours

From the health care reform experts at Accelerated Benefits

The Affordable Care Act (ACA) imposes a

penalty on applicable large employers (ALEs) that do not offer health

insurance coverage to substantially all full-time employees and

dependents. Penalties also may be imposed if coverage is offered but is

unaffordable or does not provide minimum value. The ACA’s employer

penalty rules are often referred to as “employer shared responsibility”

or “pay or play” rules.

On February 12, 2014, the IRS published final regulations on the

employer shared responsibility rules. These regulations finalize

provisions in proposed regulations released January 2, 2013. The final

regulations state:

* ALEs that have fewer than 100 full-time employees (including

full-time equivalents, or FTEs) generally will have an additional year,

until 2016, to comply with the pay or play rules.

* ALEs with 100 or more full-time employees (including FTEs) must

comply with the pay or play rules starting in 2015.

The pay or play rules will take effect for most ALEs beginning January

1, 2015. To prepare for compliance, employers that intend to use the

look-back measurement method for determining full-time status for 2015

will need to begin tracking their employees’ hours of service in 2014

to have corresponding stability periods for 2015.

Identifying full-time employees

A full-time employee is an employee who was employed on average at

least 30 hours of service per week. The final rules treat 130 hours of

service in a calendar month as the monthly equivalent of 30 hours of

service per week.

The final regulations provide two methods for determining full-time

employee status—the monthly measurement method and the look-back

measurement method. These methods provide minimum standards for

identifying employees as full-time. Employers may decide to treat

additional employees as eligible for coverage, or otherwise offer

coverage more expansively than would be required to avoid a pay or play

penalty.

Monthly measurement method

The monthly measurement method involves a month-to-month analysis in

which full-time employees are identified based on their hours of service

for each calendar month. This method is not based on averaging hours of

service over a prior measurement period. This month-to-month measuring

may cause practical difficulties for employers, particularly if there

are employees with varying hours or employment schedules, and could

result in employees moving in and out of employer coverage on a monthly

basis.

Look-back measurement method

The look-back measurement method is an optional safe harbor method for

determining full-time status that is intended to give employers

flexible and workable options and greater predictability for determining

full-time employee status. The look-back measurement method

involves:

* A measurement period for counting hours of service

* A stability period when coverage may need to be provided,

depending on an employee’s average hours of service during the

measurement period

* An administrative period that allows time for enrollment and

disenrollment

Employers that intend to use the look-back measurement method for

determining full-time status for 2015 will need to begin their

measurement periods in 2014 to have corresponding stability periods for

2015. However, employers intending to adopt a 12-month measurement

period (and, in turn, a 12-month stability period) will face time

constraints in doing so.

Consequently, as transition relief, the final regulations allow

employers to use shorter measurement periods for stability periods

starting in 2015 under the look-back measurement method. For 2015,

employers can determine full-time status by reference to a transition

measurement period in 2014 that meets the following requirements:

* Is shorter than 12 consecutive months, but not less than six

consecutive months long

* Begins no later than July 1, 2014, and ends no earlier than 90 days

before the first day of the first plan year beginning on or after

January 1, 2015

When to begin tracking employee hours

Calendar year plans

An ALE that wants to use the look-back measurement method may need to

start measuring hours of service as early as April 3, 2014. This date

would apply if the employer wants to use a 12-month stability period

beginning on January 1, 2015, and take advantage of the maximum 90-day

administrative period. It can be helpful to work backward to determine

the applicable dates.

In this scenario…

* The stability period would run for the entire 2015 calendar year to

coincide with the plan year

* A full 90-day administrative period would run from October 3, 2014,

through December 31, 2014

* The minimum permissible transition measurement period of six

consecutive months would begin on April 3, 2014

Employers may want to set up the measurement, administrative and

stability periods to begin on the first day of the month for

administrative ease. This can be accomplished by using a shorter

administrative period. Employers would then not have to begin measuring

hours of service so early. For example, an employer with a calendar

year plan may use the following timelines:

* A transition measurement period from May 1 through October 31, 2014

(six months)

* A 61-day administrative period (the months of November and December)

ending on December 31, 2014

* A full 12-month stability period from January 1 through December 31,

2015

However, all ALEs that want to take advantage of the shorter transition

measurement period in 2014 must begin tracking employee hours no later

than July 1, 2014. For a calendar year plan, this would allow for a

six-month transition measurement period (running from July 1, 2014,

through December 31, 2014), but no administrative period.

Non-calendar year plans

In general, the ACA’s pay or play penalty goes into effect on January 1,

2015, for both ALEs with calendar year plans and ALEs with non-calendar

year plans. However, the final regulations include transition relief

that provides ALEs that have non-calendar year plans with additional

time to comply, if certain conditions are met.

Thus, employers that have non-calendar year plans may have some

additional time before they need to begin tracking employees’ hours of

service. For example, an employer with a plan year beginning April 1

that is using a 90-day administrative period may use a measurement

period from July 1, 2014, through December 31, 2014 (six months),

followed by an administrative period ending March 31, 2015.

However, an employer with a plan year beginning July 1 may not use a

six-month transition measurement period. Instead, the employer must

use a measurement period that is longer than six months to comply with

the requirement that the measurement period begin no later than July 1,

2014, and end no earlier than 90 days before the stability period. For

example, the employer may have a 10-month measurement period from June

15, 2014, through April 14, 2015, followed by an administrative period

from April 15, 2015, through June 30, 2015.

Want to learn more about how the ACA could affect your organization?

Join Tom Wagoner of Accelerated Benefits for a free

webinar.

Please contact Accelerated Benefits for more

information, as well as additional resources to help track your

employees’ hours of service. Get in touch with

Paycor to learn how our solutions

simplify ACA time tracking.


Source: ZyWave, Inc.

This content is intended for educational purposes only and should not

be considered legal advice.


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