Determining full-time status and affordability
IRS offers guidance on hours of service, wellness incentives
By Edwin Zalewski, PHR, SHRM-CP
In December, the Internal Revenue Service (IRS) published regulations along with guidance (Notice 2015-87) to address an employer’s potential liability for a shared responsibility payment (the play or pay penalty).
An employer may be liable for a shared responsibility payment if a full-time employee does not receive an offer of coverage that is both affordable and provides minimum value. The regulations and guidance clarify how to determine full-time status as well as how to evaluate affordability.
Hours of service
Under the Affordable Care Act (ACA), a full-time employee is defined as one employed on average for at least 30 hours of service per week. However, the term “hours of service” includes more than just hours worked.
An hour of service also includes paid periods of time when no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence. For this purpose, the employee would have to be paid by the employer or, in the case of disability, through an insurance program for which the employer paid the premiums.
For example, if an employee received eight hours of holiday pay, it counts toward hours of service. Similarly, if an employer had a two-week shutdown (a short layoff) and required employees to use vacation during that period, the vacation time would count as hours of service. Or, if an employer continues paying wages to an employee who is on jury duty, that time also counts as hours of service.
In addition, if an employee is receiving short-term or long-term disability benefits for which the employer paid the premiums, that time counts as hours of service. However, the IRS clarified that periods of layoff during which employees collect unemployment do not count as hours of service, even though the employer pays for unemployment. The IRS also clarified that workers’ compensation absences do not count as hours of service, even if the employee is collecting workers’ comp benefits (and even though the employer pays for workers’ compensation insurance).
To determine whether coverage is affordable, employers must assume that employees did not
receive incentives for participation in a wellness program (whether participatory or health-contingent).
Affordability does not, however, need to consider wellness program incentives related to tobacco use. Employers may assume that all employees earned any available incentives for not using tobacco, even if some employees did not actually earn those incentives.
Essentially, to determine if an offer of coverage was affordable, the cost to the employee must be based on the premium charged to a non-tobacco user who failed to obtain any other incentives.
An offer of coverage may be deemed affordable under one of several possible safe harbors that involve comparing the employee’s share of the premium to a percentage of the employee’s W-2 wages, household income, or the federal poverty level.
The IRS set safe the harbor at 9.56 percent for 2015 and 9.66 percent for 2016. However, the announcements of these percentages indicated they would apply to the state and federal exchanges, without clarifying that employers could also use them.
The new guidance clarified that employers may use the 9.56 percent for plan years beginning in 2015 and 9.66 percent for plan years beginning in 2016. The IRS intends to revise the regulation to reflect this.