Federal Register, Proposed Rulemaking, 26 CFR Parts 1, 54 and 301
In a proposed rulemaking, the Department of the Treasury and the Internal Revenue Service (IRS) recognized a “margin of error” in proposing a 95 percent mandate for large employers in providing medical benefits to employees. The intention is to create leeway for oversights, inadvertent errors, and unique circumstances allowing the employer protection from financial penalties in these instances. In order to extend this flexibility to the smaller “large employers” (those with 50 or more full time employees) the proposed rule provides an allowance of up to 5 uncovered employees even if that number is higher than the 5 percent threshold.
The proposed rule provides solace for those situations where an employer may incorrectly determine an employee’s status as full-time and/or their entitlement to benefits. The proposed rulemaking announces how a company may determine whether it is a “large employer” subject to Affordable Care Act penalties if at least 95 percent of its full-time employees are not offered affordable health care coverage beginning January 1, 2014.
For the purpose of determining whether a person is an employee, the proposed rulemaking states that an employee is one who is subject to the will and control of the employer not only as to what shall be done but how it shall be done. It is not necessary that the employer actually direct or control the manner in which the services are performed; it is sufficient if the employer has the right to do so.
An employee that works at least 30 hours per week is a full-time employee. A full-time equivalent employee is calculated by adding part –time employees together with full-time employees as follows: 40 full-time employees employed 30 or more hours per week on average plus 20 half- time employees employed 15 hours per week on average are equivalent to 50 full-time employees. The proposed regulations also give guidance on how to determine the average number of employees for a year, such as salaried employees or seasonal workers. The IRS has also issued a frequently asked questions publication to explain how the penalties will be calculated and collected.
Comments on the proposed rulemaking are due to the IRS by March 18, 2013. The IRS has also scheduled a public hearing on April 23, 2013 to receive feedback on these issues. The employer mandate requirements under the proposed rulemaking take effect on January 1, 2014.