ACA's "Play or Pay" Mandate

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Expertise

ACA's "Play or Pay" Mandate

By Jay Starkman 

Reported in the Business Journals

Known as the Employer Shared Responsibility (ESR), or "Play or Pay" manadate, the Affordable Care Act (ACA) requires "larger employers" (100 or more full-time equivalent (FTE) employees) to make affordable healthcare coverage available, or face penalties. These penalties take effect in 2015 for larger employers and in 2016 for employers with more than 50 but fewer than 100 FTE employees.

To determine whether an employer is subject to the mandate in 2015, the company can use a testing period of at least six consecutive months in 2014 to determine whether or not it had at least 100 full-time equivalent (FTE) employees.

An employer with 51-99 FTEs during 2014 is given until 2016 to comply as long as the employer meets the following conditions:

  • It does not reduce the size of its workforce or the overall hours of its workforce to meet the size condition.
  • It does not eliminate or materially reduce the health coverage it offered as of February 9, 2014.
  • The employer certifies to the IRS that it meets the above two criteria.

Large employers with 100+ FTE employees must provide coverage to 70 percent of their tested FTEs for 2015.

Beginning in 2016, all employers (subject to the mandate) must provide coverage to at least 95 percent of FTEs. The employer remains subject to the affordability penalty.

 Rules regarding other employee classifications:

  • Seasonal employees - working six months or fewer are not considered full time for purposes of eligibility.
  • Certain volunteers are excluded from the definition of FTE.
  • Special rules apply to school teachers to determine full-time status.

Employee-employer relationships

The rules currently define an employee as excluding a leased (temporary) employee, a sole proprietor, a partner in a partnership, a 2-percent S-corporation shareholder, or a worker described in IRC section 3508 (e.g., real estate agents and direct sellers). The final rules did not provide a safe-harbor definition for independent contractors or relief for industries that employ so-called "high turnover" employees.

Validate your employee population - immediately

With provisions taking effect as of January 1, 2015, ESR reporting and IRS certification for most employers should be well underway. The IRS is currently evaluating how to best simplify the employer-reporting requirements (IRC Sections 6056/6055) and is expected to release additional information. 

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