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Transition Relief for Mid-Sized Employers Regarding the Final Employer Mandate

March 18, 2014


Andrew S. Lattimer, CPA

Mid-sized employers may be eligible for recently announced transition relief from the Patient Protection and Affordable Care Act's employer-shared responsibility requirements. Final regulations issued by the IRS in late January include transition relief for mid-sized employers for 2015. Mid-sized employers for this relief are defined generally as businesses employing at least 50 but fewer than 100 full-time employees. Exceptions and complicated measurement rules continue to apply. The final regulations also describe the treatment of seasonal employees, volunteer workers, student employees, the calculation of the employer shared responsibility payment and much more.

Delayed Implementation

As enacted in 2010, the Affordable Care Act required applicable large employers (ALEs) to make an assessable payment if any full-time employee is certified to receive a health insurance premium tax credit or cost-sharing reduction, and either:

  • The employer does not offer to its full-time employees and their dependents the opportunity to enroll in minimum essential coverage (MEC) under an eligible employer-sponsored plan; or
  • The employer offers its full-time employees and their dependents the opportunity to enroll in MEC under an employer-sponsored plan, but the coverage is either unaffordable or does not provide minimum value.

The employer-shared responsibility requirement was scheduled to apply January 1, 2014, the same effective date for the individual mandate and the health insurance premium assistance tax credit. In July 2013, the Obama administration announced that employer-shared responsibility requirements would not apply for 2014.

The final regulations make further changes. Under the final regulations, the employer mandate will generally apply to large employers (employers with 100 or more employees) starting in 2015 and to qualified mid-sized employers (employers with 50 to 99 employees) starting in 2016. Employers that employ fewer than 50 full-time employees (including full-time equivalents (FTEs)) are not subject to the employer mandate.

Caution. Determining the number of employees for purposes of the employer shared responsibility requirement is a complex calculation for many employers that is beyond the scope of this article. The Affordable Care Act and the final regulations describe how to calculate full-time employees (including FTEs) and also which employees are excluded from that calculation. Please contact our office for details about the Affordable Care Act and your business.

Transition Relief for Mid-Sized Employers

Qualified employers are not subject to the employer mandate until 2016 if they satisfy certain conditions. Among other requirements, the employer must employ on average at least 50 full-time employees (including FTEs) but fewer than 100 full-time employees (including FTEs) on business days during 2014. Additionally, the final regulations impose a broad maintenance of previously offered health coverage requirement.

The final regulations do not allow an employer to reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition and thus be eligible for the transition relief. A reduction in workforce size or overall hours of service for bona fide business reasons, however, will not be considered to have been made in order to satisfy the workforce size condition. This provision is certainly one that is expected to generate many questions. The IRS may provide additional guidance and/or clarification in 2014 and we will continue to keep you posted of developments.

Additionally, the final regulations also modify the extent of required coverage. Proposed regulations required that the employer provide coverage to 95% of its full-time employees. The final regulations delay the 95% requirement until 2016 for larger employers. For 2015, larger employers need only provide coverage to 70% of their full-time employees.

Special Types of Employees

Since passage of the Affordable Care Act, questions have arisen about the treatment of certain types of employees. These include seasonal employees, short-term employees, volunteer workers and student employees. The final regulations clarify some of the issues surrounding these employees.

Seasonal Workers:
Many industries employ seasonal workers. The final regulations describe who may qualify as a seasonal worker. The retail industry, which employs many workers for the holiday season, asked the IRS to specify which events or periods of time that would be treated as holiday seasons. The final regulations, however, do not indicate specific holidays or the length of any holiday season as these will differ for different employers, the IRS explained.

Volunteer Workers:
For volunteer workers, such as volunteer fire fighters and first responders, the final regulations provide that an individual's hours of service do not include hours worked as a "bona fide volunteer". This definition, the IRS explained, encompasses any volunteer who is an employee of a government entity or a Code Sec. 501(c)(3) organization whose compensation is limited to reimbursement of certain expenses or other forms of compensation.

Student Employees:
Many college, university and vocational students are engaged in federal and state work-study programs. The final regulations provide that hours of service for purposes of the employer mandate do not include hours of service performed by students in federal or other government work-study programs. The IRS noted the potential for abuse by labeling individuals who receive compensation as "interns" to avoid the employer mandate. Therefore, the IRS did not adopt a special rule for student employees working as interns for an outside employer, and the general rules apply.

Other Workers:
The final regulations also describe how the employer mandate may or may not apply to adjunct faculty, members of religious orders, airline industry employees, employees who must work “on-call” hours, short-term employees and others. Special rules may apply to these employees in some cases.

Waiting Period Limitation

The Affordable Care Act generally requires that an employee (or dependent) cannot wait more than 90 days before employer-provided coverage becomes effective. The IRS issued final regulations in February on the 90-day waiting period limitation. The IRS also issued proposed regulations generally allowing employers to require new employees to complete a reasonable orientation period. The proposed regulations set forth one month as the maximum length of any orientation period.

If you have any questions about the final regulations for the employer mandate, the transition relief, the 90-day waiting period or any aspects of the Affordable Care Act, please contact Andrew Lattimer at or 860.570.6327.


Disclaimer: Under U.S. Treasury Department guidelines, we hereby inform you that (1) any tax advice contained in this communication is not intended or written to be used, and cannot be used by you, for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service (or state and local or other tax authorities), and (2) no part of any tax advice contained in this communication is intended to be used, and cannot be used, by any party to promote, market or recommend any transaction or tax-related matter(s) addressed herein without the express and written consent of Blum, Shapiro & Company, P.C.


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