Affordable Care Act Pay or Play Compliance

Affordable Care Act Pay or Play ComplianceOn July 2, 2013 the Treasury announced that the employer mandate penalties, often referred to as the “shared responsibility” or “Pay or Play” mandate, would be delayed for one year, until 2015.  On July 9, 2013 the Internal Revenue Service (IRS) issued Notice 2013-45 which provided more guidance on the delay.

The Pay or Play mandate applies to large employers – those with at least 50 full-time employees, including full-time equivalent (FTE) employees in the preceding calendar year.  A large employer may be subject to a penalty if it does not offer minimum essential health coverage, or if the coverage offered is considered unaffordable or does not meet minimum value.

The penalty for not offering minimum essential health coverage to essentially all full-time employees (and their dependents) is $2,000 for each full-time employee (less the first 30), if at least one full-time employee obtains federally subsidized coverage through the exchange.

Large employers who offer health coverage, but whose employees receive tax credits because the coverage is considered unaffordable or does not provide minimum value, will be subject to a fine of up to $3,000 annually for each full-time employee receiving a tax credit.

The IRS has offered safe harbor guidance for employers on determining who is a full-time employee, along with how to measure a plan’s affordability as well as ways to determine a plan’s minimum value.

Reporting of the coverage provided will also be required for employers under the employer mandate provisions.  These reporting requirements were also delayed for one year, until 2015.

Action Items:

Determine if You Are a Large Employer  – Include common law employees and count all related companies according to the IRS controlled group and affiliated service group rules in Code section 414.


  1. Calculate the number of full-time employees (including seasonal employees) for each calendar month in the preceding year.
  2. Calculate the number of full-time equivalent employees (including seasonal employees) for each calendar month in the preceding year by calculating the aggregate number of hours of service (but not more than 120 for any employee) for all employees who were not full-time employees for that month and divide the total hours of service by 120.
  3. Add the number of full-time employees and full-time equivalents employees (including fractions) calculated in Step 1 & 2 for each of the 12 months in the preceding calendar year.
  4. Add the 12 monthly numbers to reach a yearly total and the divide by 12.  Disregard any fractions.  If the result is 50 or more, you are subject to the Pay or Play rules.

Ensure You Offer Coverage to Substantially All of Your Full-Time Employees (and Dependents) – all common law employees that work an average of 30 hours per week or more must be considered full-time.

  • If you have variable or seasonal employees, establish a measurement period of 3-12 months to determine the average hours worked, in accordance with the rules for ongoing and new employees.
  • If measurement periods are established for an employee, establish a stability period that is at least six months long and as long as the measurement period for treating employees as full-time (offering coverage) or not, depending on the results of the measurement period.
  • An administrative period of 90 days may be established as well.

Determine the Affordability of Your Health Coverage – assess affordability by using one of the IRS’s affordability safe harbors (Form W-2, Rate of Pay or Federal Poverty Line)

Determine Whether the Coverage Offered Provides Minimum Value – covers at least 60 percent of the cost of benefits.  Use one of the three available methods (minimum value calculator, safe harbor checklist, actuarial certification)

Report Required Information – when the reporting requirements become effective, provided required information regarding plan coverage and participation in accordance with information return requirements.

Employers should work closely with their legal counsel in conjunction with their benefit team on strategies, decisions and issues involved with the “Pay or Play” mandate. If you have questions about the Affordable Care Act, the AssuredPartners NL employee benefit team can help. To learn more or contact an agent, visit: AssuredPartners NL Employee Benefits.

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