As part of the process of planning for implementation of health reform pursuant to the Affordable Care Act, the Department of Treasury, the Department of Labor and the Department of Health and Human Services are working together to develop a series of regulations and administrative guidance. One aspect of the Affordable Care Act provides that employers with 50 or more full-time employees will be considered “applicable large employers” subject to an employer mandate tax effective in 2014.  Under these rules, such large employers will be liable for excise taxes if they have any full-time employees that are certified to receive a premium tax credit or cost-sharing reduction in connection with enrollment in health insurance through a State Exchange and either the employer fails to offer to its full-time employees (and their dependents) the opportunity to enroll in an employer sponsored plan that provides “minimum essential coverage” or offers such a plan that is unaffordable.  These taxes will be assessed monthly and may be 1/12th of $2000 per full time employee (not counting the first 30 full time employees) in the case where no employer plan is offered.  Where a plan is offered but it is unaffordable (as determined under the rules), the tax scheme will be lesser of 1/12 of $3,000 times the number of employees receiving a premium tax credit or 1/12 of $2,000 times the number of full time employees (not counting the first 30 employees in the calculation).   The definition of full-time employee is critical in determining whether and, if so, to what extent an employer may incur these free-rider liabilities. 

With respect to the employer mandate, the IRS has recently published Notice 2011-36, and seeks comments by June 17, 2011 with respect to potential approaches that may be set forth in future proposed regulations concerning various issues such as who is a full-time employee and possible exceptions for offering coverage to certain categories of workers.    For example, the Affordable Care Act provides that a full-time employee in any month is an employee who is employed on average at least 30 hours of service per week (and equivalencies are used to determine hours of service of employees who are not full-time). However, a number of approaches and definitions will be proposed to address these rules.  Notice 2011-36 includes possible methods for determining whether an employer is an applicable large employer (and application of controlled group rules), rules to determine an employee’s full time status and hours of service (including for hourly and non-hourly employees).  Treasury and IRS are also considering proposing alternatives to a month-by-month determination of full-time employee status such as a look-back/stability period safe harbor to determine whether the employee averaged at least 30 hours of service per week or at least 130 hours of service per month.  The Notice also seeks comments on the interpretation of the 90 day limitation on waiting periods for health plans and how it should be calculated, as well as the interplay of those rules with the employer mandate.

As today’s technology companies grow and compete for top talent, employer-provided benefits such as health coverage will require increased attention.  Proper planning and compliance efforts will be required, and growing companies will want to be mindful of how their workforce is structured as they approach large employer thresholds.  Now is the time to submit comments to the IRS in order to help shape the regulations that will impact these employer excise taxes related to health plans.