Regulations implementing the Affordable Care Acts employer shared responsibility rules including the substantive pay-or-play rules and the accompanying reporting rules were adopted in February. Regulations implementing the reporting rules in newly added Internal Revenue Code Sections 6055 and 6056 came along in March. And draft reporting forms (IRS Forms 1094-B, 1094-C, 1095-B and 1095-C) and accompanying instructions followed in August.
With these regulations and forms, and a handful of other, related guidance items (e.g., a final rule governing waiting periods), the government has assembled a basic but by no means complete compliance infrastructure for employer shared responsibility. But challenges nevertheless remain. Set out below is a partial list of items that are unresolved, would benefit from additional guidance, or simply invite trouble.
1. Variable hour status
The ability to determine an employees status as full-time is a key regulatory innovation. It represents a frank recognition that the statutes month-by-month determination of full-time employee status does not work well in instances where an employees work schedule is by its nature erratic or unpredictable. We examined issues relating to variable hour status in previous posts dated April 14, July 20, and Aug. 10.
An employee is a variable hour employee if
Based on the facts and circumstances at the employees start date, the employer cannot determine whether the employee is reasonably expected to be employed on average at least 30 hours of service per week during the initial measurement period because the employees hours are variable or otherwise uncertain.
The final regulations prescribe a series of factors to be applied in making this call. But employers are having a good deal of difficulty applying these factors, particularly to short-tenure, high turnover positions. While there are no safe, general rules that can be applied in these cases, it is pretty easy to identify what will not work: classification based on employee-type (as opposed to position) does not satisfy the rule. Thus, it is unlikely that a restaurant that classifies all of its hourly employees, or a staffing firm that classifies all of its contract and temporary workers, as variable hour without any further analysis would be deemed to comply. But if a business applies the factors to, and applies the factors by, positions, it stands a far greater chance of getting it right.
2. Common law employees
We addressed this issue in our post of Sept. 3, and since then, the confusion seems to have gotten worse. Clients of staffing firms have generally sought to take advantage of a special rule governing offers of group health plan coverage by unrelated employers without first analyzing whether the rule is required.
While staffing firms and clients have generally been able to reach accommodation on contractual language, there have been a series of instances where clients have sought to hire only contract and temporary workers who decline coverage in an effort to contain costs. One suspects that, should this gel into a trend, it will take the plaintiffs class action bar little time to respond, most likely attempting to base their claims in the Employee Retirement Income Security Act.
3. Penalties for legacy HRA and health FSA violations
A handful of promoters have, since the ACAs enactment, offered arrangements under which employers simply provided lump sum amounts to employees for the purpose of enabling the purchase of individual market coverage. These schemes ranged from the odd to the truly bizarre. (For example, one variant claimed that the employer could offer pre-tax amounts to employees to enroll in subsidized public exchange coverage.) In a 2013 notice, the Internal Revenue Service made clear that these arrangements, which it referred to as employer payment plans, ran afoul of certain ACA insurance market requirements. (The issues and penalties are explained in our June 2 post.) Despite what seemed to us as a clear, unambiguous message, many of these schemes continued into 2014.
Employers that offered non-compliant employer-payment arrangements in 2014 are subject to penalties, which must be self-reported. For an explanation of how penalties might be abated, see our post of April 21.
4. Mergers and acquisitions
While the final employer shared responsibility regulations are comprehensive, they fail to address mergers, acquisitions, and other corporate transactions. There are some questions, such as the determination of an employers status as an applicable large employer, that dont require separate rules. Here, one simply looks at the previous calendar year. But there are other questions, the answers to which are more difficult to discern. For example, in an asset deal where both the buyer and seller elect the look-back measurement method, are employees hired by the buyer new employees or must their prior service be tacked? The IRS invited comments on the issue in its Notice 2014-49 (discussed in our post of Sept. 29).
Taking a page from the COBRA rules, the IRS could require employers to treat sales of substantial assets in a manner similar to stock sales, in which case buyers would need to carry over or reconstruct prior service. While such a result might be defensible, it would also impose costly administrative burdens. Currently, this question is being handled deal-by-deal, with the answers varying in direct proportion to the buyers appetite for risk.
See also: Investment in HR technology on the rise
That the ACA employer reporting rules are in place, and that the final forms and instructions are imminent should give employers little comfort. These rules are ghastly in their complexity. They require the collection, processing and integration of data from multiple sources payroll, benefits admiration, and HR, among others. What is needed are expert systems to track compliance with the ACA employer shared responsibility rules, populate and deliver employee reports, and ensure proper and timely delivery of employee notices and compliance with the employers transmittal obligations.
These systems are under development from three principal sources: commercial payroll providers, national and regional consulting firms, and venture-based and other start-ups that see a business opportunity. Despite the credentials of the product sponsors, however many of which are truly impressive it is not yet clear in the absence of actual experience that any of their products will work. It is not too early for employers to contact their vendors and seek assurances about product delivery, reliability, and performance.
Alden J. Bianchi is the practice group leader of the Mintz Levin's employee benefits & executive compensation practice. He may be reached at 617.348.3057 or by email at email@example.com.
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