Most of the Affordable Care Act is being implemented this year, although the large employer penalty has been postponed until 2015. Also known as the pay-or-play mandate, this provision of the law requires large employers (generally those with 50 or more full-time employees, including full-time equivalent employees) to either play by offering affordable health coverage to their full-time employees and their dependents, or pay a penalty if the employer fails to provide affordable health coverage and at least one full-time employee receives a premium tax credit to help purchase coverage through an insurance exchange.

But, when calculating the number of employees for jurisdictional purposes, the hours worked by part-time, temporary and seasonal employees are combined to make full-time equivalents. Also, employees of small facilities with common ownership are aggregated.

When this sinks in, employers may want to layoff employees to get under the 50-employee threshold or reduce the hours of full-time employees.

Employers can always layoff or cut a workers’ hours if business conditions warrant such a move. But, under an often-overlooked federal law, if a court determines that an employer did so primarily to avoid responsibility for providing health benefits, they may be found in violation of ERISA. ERISA is the likeliest legal claim to challenge layoffs and reduction of hours to avoid health care costs.

However, I not believe that federal agencies, such as the IRS, will aggressively audit employer practices because of the 2014 Congressional elections and the likelihood that the ACA will remain a heated wedge issue.

The last thing we will see, in my view, is the IRS enforcing the ACA any time soon. Tax audits will be politicized beyond belief. Rather, I expect some civil litigation brought by employees, perhaps in a big group known as a “class action” against some big corporate brand. For example, major restaurant chains such as Papa John’s and Applebee’s have threatened to fire workers or reduce hours rather than provide health care coverage. In part, these threats forced the delay of the penalty into 2015. But by then, there may be the critical mass to postpone the penalty indefinitely. In the meantime, small employers will continue to fly below the radar.

Sarno is president & general counsel of the Employers Association of New Jersey. Reach him at (973) 758-6800 and hear his opening Keynote session, “Employers and the ACA,” at 3:15 on Monday, Feb. 24 at the Workplace Benefits Renaissance.

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