SECOND OPINIONS: Employer Shared Responsibility Requirements Proposed Regs – Part I

January 16, 2013 ( - Treasury and the IRS recently published proposed regulations (78 Fed. Reg. 217 (January 2, 2013)) and new question and answer guidance on the employer "shared responsibility" requirements under Code section 4980H.

In this column and future columns, we will address questions we have received from employers on these new requirements.   

What employers are subject to the new employer mandate rules? 

The employer shared responsibility requirements rules apply to “large” employers, which are defined as employers with an average of at least 50 fulltime employees for the prior year.  All employees for all entities in a “controlled group” and full-time equivalent employees (as determined under rules in the proposed regulation) are taken into account for this purpose.   Under the proposed regulations, an employer must count the actual hours of service of employees in the prior year.  The proposed regulations also include special rules for counting seasonal workers and how the rule applies to new employers.    

What employees are treated as full-time employees for purposes of the employer mandate requirements? 

A full-time employee is defined as an employee who was employed on average at least 30 hours of service per week or 130 hours of service per month.  The terms employer and employee are defined under the common law standard.    

The proposed regulations include much guidance on calculating hours of service for purposes of the full-time employee determination, including: (1) all hours of service an employee performs for members of the controlled group are counted; (2) each hour for which an employee is paid, or entitled to payment, for performance of duties for the employer is counted; (3) each hour for which an employee is paid, or entitled to payment, on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence is counted; (4) for hourly employees, employers must use actual hours of service from records of hours worked and hours for which payment is made or due; (5) for non-hourly employees, employers may calculate hours by (i) counting actual hours of service from records of hours worked and hours for which payment is made or due, (ii) using a days-worked equivalency method, or (iii) using a weeks-worked equivalency method.  

Are employers subject to the employer mandate requirements with respect to U.S citizen expatriate employees working outside of the United States?    

The proposed regulations state that hours of service do not include hours of service to the extent the compensation for those hours of service is “foreign source income.”  This means that hours of service generally will not include hours of service worked outside of the U.S., even in the case of U.S. citizens or residents.

May employers use look-back periods to determine whether an employee is a full-time employee instead of the month-to-month approach described in the statute?  

Yes, consistent with prior IRS guidance (IRS Notices 2012-58 and  2011-36), the proposed regulations provide an optional, look-back method for determining fulltime employee status.  Under this "safe harbor" approach, an employer may use a look-back "measurement period" for counting hours of service, a "stability period" during which coverage may have to be provided (depending on whether the employee worked on a full-time basis during the measurement period), and an "administrative period" for enrollment activities.  The employer may choose the length of time for such periods within certain limits, and may generally change the length of the periods from year to year.  


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Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.  

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.  

PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.