On December 28, 2012, the IRS and the U.S. Treasury Department issued a Notice of Proposed Rulemaking (“Notice”) to announce 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 Notice 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.
A full-time employee is one that works at least 30 hours per week. Full-time equivalents are calculated by adding part –time and 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 address how to determine the average number of employees for a year, such as how to count salaried employees or seasonal workers. A frequently asked questions publication issued by the IRS on the same day explains how the penalties will be calculated and collected.
Employers will determine each year, based on their current number of employees, whether they will be considered a large employer for the next year. The IRS informed the public that for 2013, an employer may measure using any six-consecutive-month period in 2013, and it suggested that a company could use the period from January 1, 2013, through June 30, 2013 for measurement, so that it has time to analyze the results and make changes before 2014.
Employers will not be able to avoid the penalties by assigning employees to separate companies with related ownership. The IRS notes that companies that have a common owner or are otherwise related generally are combined together for purposes of determining whether or not the aggregate group constitutes a large employer. The IRS also intends to issue regulations to prevent employers from using leasing companies or other entities to skirt the requirements.
Although the rule is not final, the Notice states that employers may rely on the proposed regulations for purposes of compliance with the Employer Shared Responsibility provisions. If the final rules are more restrictive, employers will be given additional time to come into compliance. Comments on the proposed regulations are due by March 18, 2013.
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