As we get closer to the Jan. 1, 2015 compliance deadline for large employers under the Affordable Care Act, I have been inundated with several last-minute compliance items that continue to puzzle employers and professionals alike. Here are a few of the most common:

Employer mandate transition relief

If you are between 50 and 99 full-time employees, you might be eligible for transition relief, but it is not automatic. An employer with fewer than 100 FTEs may be exempt from penalties if three conditions are met, including:

  1. That during 2014, the employer can show that for any consecutive six-month period, it had fewer than 100 FTEs.
  2. That between Feb. 9, 2014 and Dec. 31, 2014, the employer can show that any reduction in hours or reduction in workforce was based on a legitimate business reason and not simply to avoid the compliance mandate.
  3. That from Feb. 9, 2014 through the last day of the plan year that begins in 2015, the employer must keep the same coverage and employer contribution toward the cost of self-only coverage that was in place on Feb. 9, 2014.

If you are between 50 and 99 FTEs, and meet these conditions, then you would avoid the pay-or-play penalties.
Applicable large employer status

To determine whether or not you are an applicable large employer, you have to look at the controlled group, not the individual company — §414(c) of the Internal Revenue Code provides the rules for determining when a controlled group exists, but a key consideration is commonality of ownership. Employers with fewer than 100 FTEs may still be subject to the “pay or play” penalties if they are part of a controlled group that has more than 100 FTEs (for 2015). The ACA looks at the entire controlled group for size so if there is any commonality of ownership between two companies, they should be carefully reviewed to see if there is a controlled group.

Seasonal workers that work 120 days or fewer during all of 2014 are not counted for purposes of determining whether the company is a large employer. But if they exceed 120 days in the calendar year, they cannot be ignored for the count and should be added to your FTE calculation.

Paying for employee premiums on the exchange

Employers cannot satisfy the obligation to offer coverage to employees by reimbursing them for premiums paid through the exchange. This applies whether the reimbursement is pre-tax, post-tax or through a Section 105 plan. While an employer can still offer cash in lieu of participation under Section 125, the offer cannot be made exclusively to high risk individuals. It has to be made available to all employees to avoid discrimination concerns.

Affordability measurement

The measurement of affordability for coverage is based on the employee-only coverage of the lowest compliant plan. It is not based on family coverage, although coverage must be made available to dependents (excluding spouse). It is not a requirement that every option offered under the plan is affordable, but rather that all full time employees are eligible for at least one affordable plan offering that provides compliant coverage.

The 95% rule

To avoid a payment for failing to offer health coverage, large employers (that’s more than 100 in 2015) need to offer coverage to 70% of their full-time employees in 2015. The 95% rule goes into effect in 2016. But satisfying the 70% rules only goes to the $2,000 per employee penalty, not the $3,000 penalty. This means that an employer with 100 or more full-time employees that offers coverage to at least 70% of its full-time employees in 2015 can still face a penalty if it has one or more full-time employees who go to the exchange and receive a premium tax credit for participation in the exchange.

I am sure there will be more as we get ever closer to the first day of the 2015 calendar year. However, consider the following: if the objective of the ACA is to make sure that employers provide affordable coverage to full-time employees, any steps an employer takes to avoid that offer of coverage probably has something fishy about it. Not to say it can’t be done, but when in doubt, the safest way to avoid penalties is to offer compliant coverage. If you are thinking of ways to avoid making an offer of coverage, chances are that there is something you are missing. Err on the side of making coverage available and reduce your risk of penalties. I have said numerous times that good plan sponsors want to avoid being the test case when it comes to compliance. Don’t be the first bad example for ACA compliance.

Keith R. McMurdy is a partner with Fox Rothschild focusing on labor and employment issues; he can be reached at or (212) 878-7919.

The information in this legal alert is for educational purposes only and should not be taken as specific legal advice.

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