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The IRS to the Rescue: New Regulations for the ACA’s Employer Mandate

In less than 10 months, the Patient Protection and Affordable Care Act (ACA) will go into full effect. With that in mind, club leaders should be thinking about how this law will impact their bottom lines and their employees. Most importantly, club general managers should be in the process of deciding how to deal with the law’s “Employer Mandate.”

The Employer Mandate states that each club with an average of 50 full-time employees during the last calendar year must offer affordable health insurance to its full-time employees and their dependents. Failure to offer insurance to a full-time employee may result in a fine. The fines range from $3,000 per individual full-timer to $2,000 multiplied by all of a club’s full-time employees (less the first 30). Any fine will be paid to the Internal Revenue Service (IRS).

Over the last few years, NCA and our partners on the Small Business Coalition for Affordable Healthcare have been working with the IRS to craft regulations that clarify the Employer Mandate. These new rules help clubs determine who is a “full-time employee.” With a potential fine awaiting any club that fails to accurately identify its full-time employees in a given month, these IRS regulations will help every club limit the financial impact of this law.

Full-Time Employee

A full-time employee is defined as one who provides on average at least 30 hours of service per week during a month. Under these IRS rules, a club may now treat 130 hours of service in a calendar month as the monthly equivalent of 30 hours of service per week.

For an hourly wage employee, “hours of service” is determined by adding up the actual hours worked and the hours for which pay was provided due to vacation, illness, holiday, layoff, jury duty, military duty or leave of absence. For a salaried employee, “hours of service” is determined by: 1) adding up the actual number of hours worked or 2) providing eight hours of service for each day worked or 3) providing 40 hours of service for each week worked.

Throughout each month, most clubs will have a number of salaried and hourly employees who always meet the full-time definition. However, not all employees will work a standard amount of hours per month. These “variable hour employees” could work 130 hours one month but not the next.

To avoid the government fine, a club might have to offer insurance to some employees one month but not the following month. This kind of uncertainty for employers and fluctuation in insurance coverage for employees is something the IRS wanted to avoid.

To that end, these new regulations provide a safe harbor for clubs that allows them to first determine whether they must offer insurance to their ongoing variable hour employees before actually offering it. The safe harbor is a look back period during which a club will determine who is full-time. The look back period, or Standard Measurement Period (SMP), will last from three to 12 consecutive months. The club may choose the length of the SMP and its start date.

During the SMP, the club will track the hours of service of these variable hour employees. At its end, the club will determine which employees met the definition of providing 30 hours of service per week during the SMP.

Those who did are full-time and must be offered insurance during a subsequent Stability Period, which lasts as long as the SMP. Those who did not reach the 30-hour threshold will not have to be offered insurance. As long as a club follows these rules, it will not be fined for failing to offer insurance to its variable hour employees while they are in the SMP.

Though the ACA does not go into full effect until January 1, the IRS has said that clubs must use a SMP for their ongoing employees now so they can determine who falls under the law at the start of the year. Clubs may either aver- age their employees’ hours over the 12 months of 2013, or they may pick a consecutive six-month period to use. Either way, clubs need to begin tracking their variable hour employees now to ensure they comply with the ACA in 2014.

New Employees

Naturally, many clubs hire employees throughout the year, and additional assistance was needed to help club leaders determine how these new employees fit into the Employer Mandate. Once again, we worked with the IRS to develop needed clarity.

If, at his start date, a new hire is reasonably expected to provide on average 30 hours of service work per week (and he is not a seasonal employee), then that new employee is full-time. As such, the club must offer him insurance or risk being fined. Most clubs will be entitled to institute a 90-day probationary period before offering insurance.

If, however, based on the facts and circumstances at his start date, it cannot be determined that the employee is reasonably expected to work on average 30 hours per week, then he is a “new variable hour employee,” and the club may use another safe harbor rather than immediately offering insurance.

This safe harbor allows a club to select an Initial Measurement Period (IMP) of between three and 12 months. The club is required to start the IMP between the employee’s start date and the first day of the first month following his start date. At the conclusion of this IMP, the club will determine if the new employee worked an average of 30 hours per week during that time.

If the new employee did, then the club will offer insurance during the subsequent Stability Period, which must be at least as long as the Stability Period for ongoing variable hour employees. If the employee did not average 30 hours of service per week, then the club does not have to offer insurance to that employee.

However, if the new variable hour employee did not meet the full-time definition, the club must immediately test the worker again as an ongoing variable hour employee. Thus, the employee will be placed into the current SMP with the other ongoing variable hour employees. At the end of that SMP, the club will determine if that employee has averaged 30 hours of service during that time.

Managing this ongoing measurement process will require accurate record

keeping and a constant review of employee hours and start dates, but it must be done to ensure the safe harbor requirements are met. In the end, if a club follows this procedure, it will not be fined for failing to offer insurance to its new variable hour employees during this process.

New Seasonal Employees

For new seasonal employees, the private club industry received some very good news from the IRS. New seasonal employees, by virtue of the fact that they only work during a seasonal period, do not have to be offered insurance immediately. Instead, clubs are permitted to use the same safe harbor that they use for their new variable hour employees.

Though new seasonal employees may be expected to work more than 30 hours per week while at the club, they are not reasonably expected to work 30 hours per week during the entire Initial Measurement Period (especially if that IMP is between nine and 12 months). Indeed, they will likely stop working at the club well before the IMP ends.

As such, it is unlikely they will meet the requirement of working 30 hours of service per week during the IMP. Thus, they will not have to be offered insurance. Clubs that use this safe harbor will not be fined for failing to offer insurance to their seasonal employees.

To ensure seasonal employees are labeled correctly, these regulations state that clubs may use a reasonable, good faith interpretation of the term “seasonal employee” through 2014. However, it is expected that the term will soon be defined as an employee who works no more than six months at a club per year.

Though this definition is not yet finalized, clubs should begin planning for the inclusion of such a time limit for their seasonal employees beginning in 2015. Those seasonal employees who work longer than the standards outlined in the definition may have to be offered insurance in the years to come.

An Unexpected Ally

Very rarely can it be said that regulations coming from any federal agency are a good thing. Indeed, NCA and our small business partners have spent more time trying to fix ACA regulations than supporting them. However, that was not the case here.

The IRS has taken a careful look at one of the most unfortunate provisions of the ACA—the Employer Mandate—and listened to our concerns. In some cases, its hands were tied by specific statutory language. In other cases, these regulations made the law much better. There is no doubt that the IRS has been an unexpected ally in this matter, and we can all be glad that it came to the rescue as it did.

With more regulations coming soon, let’s hope this becomes a positive (and reoccurring) trend.

 

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