Recent guidance on employer penalties under the Affordable Care Act gives
some large employers an unusual degree of leeway to avoid incurring the
penalties, practitioners told BNA.
“The worry, I think, is that employers will try to cap employee hours at 30
so as to avoid full-time status, but this concern predated Notice 2012-58,”
Alden J. Bianchi, employee benefits and executive compensation practice group
leader at Mintz Levin Cohn Ferris Glovsky & Popeo in Boston, told BNA Sept.
The Internal Revenue Service in late August issued two notices, one on
whether certain workers are full-time employees who must be offered coverage
under ACA and the other on permissible eligibility waiting periods for
employer-sponsored health care benefits under ACA.
IRS Notice 2012-58 provided guidance for employers on counting full-time
employees under the health care law's tax code Section 4980H penalty provisions.
IRS Notice 2012-59 addressed the 90-day limit on waiting periods under the
Public Health Service Act, as amended by ACA (63 BTM 292, 9/11/12).
Under ACA, large employers, defined as having 50 or more full-time employees
and/or full-time equivalents in the previous business year, are potentially
liable for one of two separate penalties, one if they do not offer any health
benefits to full-time employees or one if they do not offer them benefits that
are affordable and meet certain minimum standards. The penalties are triggered
only if at least one of the full-time employees received federal tax credits or
other federal subsidies to buy health insurance through an ACA exchange.
The guidance in Notice 2012-58 has a level of complexity that, “at first
glance, may be incredibly stress-provoking for employers,” Kathryn L. Bakich,
senior vice president and national health care compliance practice leader at the
Segal Co., told BNA Sept. 11. However, concern that the rules be flexible enough
to accommodate employers' workforce needs is very much evident in the guidance,
“It's not really addressing the needs of the employees. It's really more
focused on the employers,” Bakich said.
For example, the notice describes certain work rules that may provide
“perverse incentives” for employers to force employees to work less than 30
hours a week, so that employers can “avoid having to go through all the
processes that the rule requires,” Bakich said. The definition of a full-time
employee under ACA is someone who works an average of 30 or more hours a
Other practitioners said the employer penalty rules give employers
extraordinary flexibility for defining how many of their workers are full time
and part time and thereby avoiding penalties.
If an employer knows that an employee will be working more that 30 hours a
week during the Christmas season, for example, the employer can limit that
employee to 15 hours a week in other months to keep the average below 30 work
hours a week, Roberta Casper Watson, a senior attorney at the firm Trenam Kemker
in Tampa, Fla., told BNA Sept. 11.
It has never been illegal “for an employer to insist that an employee stay
below a certain hours threshold,” Watson said.
Employers that have a simple corporate structure, a workforce in which almost
everyone is a full-time worker, and benefits that are adequate and affordable
may not find the requirements in Notice 2012-58 particularly burdensome, Bakich
However, employers with complex corporate structures and complicated
workforce arrangements may have difficulty implementing the policies and
procedures described in the notice, she said.
In the near term, employers probably should step back, analyze their
workforce and their likelihood of incurring penalties, and not move too quickly
to change the eligibility rules in their health plan documents, Bakich said.
“This is an initial set of guidance,” she said. “It seems likely that we'll
have more guidance, so employers might not want to rush into changing their
policies and procedures until they have to,” she said.
On the other hand, 2014 deadlines are approaching, which puts employers “in a
bit of a bind,” Bakich said. “If you're changing your eligibility rules for
2014, you need to start working on it now,” she said.
All employers must do an analysis, whether or not they provide employee
health benefits, Watson said. Employee benefit consultants might eventually
develop industry-specific formulas to answer the question of whether it would be
more expensive for a particular employer to offer employee health coverage or to
pay a penalty, she said.
“I would expect that eventually, the consultants will get pretty good at
helping employers figure out how to minimize their costs, and a part of it may
well be keeping people at half time,” Watson said
Following their analysis, employers may have to change their rules regarding
part-time workers and waiting periods and implement procedures for determining
the work hours of variable-hour and seasonal employees, Bakich said. “It's just
going to be a very complicated thing that employers are going to have to
address,” she said.
For large controlled-group employers with substantial numbers of part-time
workers, the guidance may require the employers to spend quite a bit of time “to
figure out how it works for their business,” Bakich said.
Generally, however, the employer penalties, which are nondeductible excise
taxes, will be more expensive than offering coverage in most cases, Bianchi
said. “Plan designs will change, but only at the margins,” he said.
The guidance offered in the notices permits employers to restructure their
workforces if that is what they want to do, Watson said.
“I have found that employers do what they need to do for business purposes
and then they figure out how to comply with the rules, whatever they are,” she
The IRS guidance will be most useful for employers that offer coverage and
only want to offer the minimum required coverage, Watson said. “It will also be
important for employers who have decided not to offer coverage and who have to
self-report their penalties,” she said.
Commenting on the complexity of the IRS guidance, Bianchi said there might be
a less burdensome way to approach the rules, “but I am not sure what that
The guidance, released in late August, contained significant omissions,
practitioners said. Questions about the application of the guidance in the
context of temporary staffing and multiemployer plans are unanswered, for
Questions about how to determine eligibility for coverage for variable-hour
employees in industries, such as entertainment, in which eligibility is
determined on the basis of earnings rather than hours worked also must be
addressed in future guidance, they said.
The 90-day limit on eligibility periods applies to plan years that begin on
or after Jan. 1, 2014. The Section 4980H employer penalty rule applies as of
Jan. 1, 2014.
Bakich said there are some unknowns about how the penalty will be collected.
“It might be annually or retroactively, but it would be assessed as of that date
if an employer has employees getting subsidized exchange coverage and the other
criteria apply,” Bakich said.
By Florence Olsen