Yesterday, the Internal Revenue Service published 277 pages of final regulations on the “employer mandate” of the Affordable Care Act. It is the first of two ACA “big shoes” — the second being the long-awaited regulations on discrimination. Here are some of the most important provisions that affect the staffing industry.
Under the original law, employers with 50 or more full-time employees faced the choice of offering affordable minimum value coverage to all full-timers or paying heavy nondeductible penalties, starting Jan. 1, 2014. In July 2013, that starting date was moved to Jan. 1, 2015. That starting date still generally applies, but a special exception is now conditionally offered to employers of 50-99 full-timers. If they certify to IRS that they have not (without good reason) reduced headcount or employee work hours in order to fit into the 50-99 category and have not reduced the value of their health coverage below 95 percent, they escape penalties for plan years starting in 2015. That amounts to at least a year of relief from ACA-generated insurance costs and penalties.
Apart from the conditional waiver, for plan years starting in 2015, all large employers will be deemed to be offering coverage to substantially all of their full-timers if they are actually offering coverage to at least 70 percent of them — instead of the 95 percent previously required.
Large employers with 100 or more full-timers also receive a break on the penalty for not offering coverage to all full-timers. Formerly, that penalty was $2,000 for every full-time employee (even employees who are offered coverage), but no penalty was payable for the first 30 full-timers. That “coupon” has now been raised from 30 to 80 employees.
Penalties for waiting and look-back periods
Ever since the IRS proposed the look-back system for measuring the full-time status of employees in 2011, it has been assumed — but never clearly stated — that a person who eventually qualifies as a full-time employee after a look-back period (usually 12 months) would not generate penalties during the measurement period itself. Similarly, it was assumed that a full-time person eligible for coverage after a waiting period of up to 90 days would also not generate penalties during that waiting period. That assumption is still partially true, but IRS now waives penalties for waiting and look-back periods only if the employee eventually qualifies for “minimum value” coverage. This emphasis on minimum value coverage will raise the penalty exposure of employers who do not offer coverage to full-timers at all or who offer only the non-minimum-value coverage that has been called “skinny,” “bare bones,” or “MEC” coverage.
Variable-hour decisions and other service measures
The staffing industry enthusiastically welcomed the look-back concept, but the 2012 proposed regulations that attempted to implement it cast a shadow on it with vague rules that would make the look-back system unavailable for newly hired employees (even temporaries) who could not be shown to be “variable-hour” employees. Without the look-back system, new hires would have to be offered coverage effective within 90 days of hire. The final regulations just released attempt to clarify the meaning of “variable-hour employee,” but, regrettably, they have not significantly improved the workability of the rule. The final regulations listed factors to be considered and expanded the number of staffing firm examples from one to three, but the additional clarity confirms that many newly hired temporary employees will become instant full-timers.
In some ways, IRS seems determined to make it harder for staffing. It expressly refused to give the industry its requested presumption that newly hired temporary employees are variable-hour employees subject to look-back periods. It would not set a special rule for “high turnover” jobs or clearly define termination of employment in the staffing context. It would not create a specially short break in service rule for staffing firms. And it also refused to relax the post-2014 rule that forbids employers to rely on the known or expected short duration of a person’s employment to put them into the variable-hour category.
These final regulations remove some uncertainty from the challenge of adapting to the current incarnation of the ACA. But other large uncertainties remain, including the availability of insurance products, the actuarial performance of staffing firms covering all employees, the effect of the anti-discrimination regulations, and the ultimate fate of ACA itself.