News Flash: February 12, 2014 - Final Regulations on Employer Pay or Play Provisions
On February 10, 2014, the Department of Treasury issued final regulations implementing the employer
shared responsibility provisions (also known as the employer pay or play mandate) under the Patient
Protection and Affordable Care Act (PPACA), the portion of the health care reform law that requires large
employers to provide health coverage for their full-time employees or pay a penalty. These regulations
adopt many of the rules addressed in the proposed regulations that the Treasury Department released on
December 28, 2012, as well as implement many new changes. The following briefly highlights that new
Employer Mandate Further Delayed for Some Employers
Those employers with 50 to 99 full-time employees and employee equivalents are not required to comply
with the pay or play requirements until 2016. Employers with 100 or more full-time employees and
employee equivalents continue to be subject to shared responsibility beginning in 2015. An employer can
determine if it has between 50 to 99 full-time employees and employee equivalents by reference to any
period of at least 6 consecutive months during 2014 that the employer chooses. If the employer has the
requisite number of full-time employees, the employer must also certify that it meets the following
During the period beginning February 9, 2014 and ending on December 31, 2014, the employer has
not reduced the size of its workforce or the overall hours of service of its employees in order to qualify
for the transition relief;
The employer does not eliminate or materially reduce employee health coverage, if any, that the
employer offered as of February 9, 2014, during the period beginning February 9, 2014 and ending on
December 31, 2014 (or, for employers with non-calendar year plans, ending on the last day of the
employer’s 2015 plan year); and
The employer certifies on a prescribed form that it meets the above conditions.
In evaluating whether a large employer has 100 or more full-time employees and employee equivalents or
less than that, the rules for determining large employer status, including the controlled group aggregation
New Transition Rules Introduced
Change in Percentage of Covered Employees Requirement
For 2015, those employers who are subject to the pay or play mandate are required to provide
minimum essential coverage for at least 70% of their full-time employees (i.e., employees working at
least 30 hours per week), rather than the 95% coverage rate that was described in the proposed
regulations. In 2016 and beyond, employers will be required to provide coverage for 95% of their fulltime employees.
Coverage of Dependents
In 2015 employers who are obligated to comply with the pay or play mandate are not required to
cover dependents, as previously stated in the proposed regulations. The obligation under shared
responsibility to cover all dependent children up to age 26 will not begin until 2016.
Please note that this transition rule applies to employers who do not offer dependent coverage, offer
dependent coverage that does not constitute minimum essential coverage, or offer dependent
coverage to some but not all dependents. Transition relief is not available to the extent the employer
offered dependent coverage during either the 2013 or the 2014 plan year and subsequently dropped
that coverage. This relief applies only for dependents who were without an offer of coverage from the
employer in both the 2013 and 2014 plan years and if the employer takes steps during the 2014 and
2015 plan year (or both) to extend coverage under the plan to dependents not offered coverage
during the 2013 or 2014 plan year (or both).
In addition, when the obligation to cover dependents becomes effective, employers are only required
to cover an employee’s birth or adopted children in connection with the pay or play mandate. The
proposed regulations required that an employer cover stepchildren and foster children as well, but the
final regulations limit the employer’s obligation to providing coverage only for birth and adopted
There has been no change in the law regarding coverage of spouses, and there continues to be no
obligation under shared responsibility for employers to provide coverage for spouses.
Prior Transition Rules Retained
Effective Date for Non-Calendar Year Plans
Employers with non-calendar year health plans and 100 or more full-time employees and employee
equivalents become subject to the pay or play rules as of the first day of their 2015 plan year, rather
than the January 1, 2015 effective date that applies to calendar year plans. The final regulations
continue the transition rule that was identified in the proposed regulations, including certain
requirements that must be met in order for an employer to apply this transition rule, plus some
additional requirements that have been imposed. These requirements are summarized in the box
Look-Back Measurement Period
An employer who is subject to the pay or play mandate in 2015 and has variable hour employees may
determine those employees’ full-time employee status based on a look-back measurement period of 6
months, even though the employer’s applicable stability period (i.e., the period during which the
employee’s status quo, coverage or non-coverage, is maintained prior to the next measurement
period) is up to 12 months. While the ongoing shared responsibility rules will require that the stability
period be the longer of 6 months or the length of the measurement period, for the first year that pay
or play originally was to go into effect the proposed regulations allowed an employer to use a
measurement period of at least 6 months but less than 12 months even if the employer’s stability
period was 12 months. That optional transition rule is continued in the final regulations for 2015.
Determination of Full-Time Status for Certain Employee Categories
The final regulations provide guidance for the following occupations and employee categories in
determining whether an individual is considered a full-time employee:
Volunteers—bona fide volunteers for a government or tax-exempt entity (e.g., volunteer firefighters
and emergency responders) are not considered full-time employees.
Educational Employees—teachers and other educational employees are not treated as part-time for
the year based solely on the school being closed or operating on a limited schedule during the
Seasonal Employees—positions for which the customary annual employment is 6 months or less are
generally not considered to be full-time.
Student Work-Study Programs—service performed by students under federal or state-sponsored
work-study programs is not counted towards determining whether the students are full-time
Adjunct Faculty—employers can credit an adjunct faculty member with 2¼ hours of service per week
for each hour of teaching or classroom time as a reasonable method for determining whether the
adjunct faculty member is a full-time employee, as well as any other method of crediting hours of
service for those employees that is reasonable under the circumstances and consistent with the
employer shared responsibility provisions.
Please note that even though these regulations are final, they continue to be a work in progress. Some of
the transition rules and other guidance incorporate provisions that promise additional guidance and leave
numerous terms undefined. Willis’ National Legal & Research Group will continue to review and provide
timely updates on these and other related changes in Health Care Reform that affect employers.
The information in this publication is not intended as legal or tax advice and has been prepared
solely for informational purposes. You may wish to consult your attorney or tax adviser
regarding issues raised in this publication.
Effective Date for Plans with Non-Calendar Year Plan Years
The final pay or play regulations expand on the rules under the proposed regulations that allow a large
employer (50 or more full-time or full-time equivalent employees) with a non-calendar year plan year to begin
meeting its shared responsibility obligations as of the first day of the plan’s 2015 calendar year rather than
January 1, 2015. Rather than simply provide large employers with non-calendar year plan years a post-January
1, 2015 delayed effective date until the start of their 2015 plan year (like the other PPACA requirements), these
revised rules are based on the premise that the employer must prove it is entitled to the delayed effective date
by meeting certain criteria for delayed implementation of the pay or play mandate or the employer is subject to
the pay or play penalty for each full-time employee with no coverage or limited coverage as of January 1, 2015.
In order for a large employer to delay compliance with the pay or play mandate until the start of the employer’s
non-calendar year plan year in 2015 and avoid paying a penalty for each full-time employee who either has no
coverage or limited coverage as of January 1, 2015, the employer must meet three sets of requirements, as set
Maintenance of Unmodified Non-Calendar Year Plan
The employer must have maintained a non-calendar year plan as of December 27, 2012; and
The plan year must not be modified after December 27, 2012, to begin at a later calendar date.
Transition Rules—the employer must comply with one of the following three transition rules:
Pre-2015 Eligibility Transition Rule—employees, regardless of when they are hired, are eligible for
coverage effective beginning on the first day of the 2015 plan year under the eligibility terms of the
employer’s plan in effect on February 9, 2014. This rule also applies to employees who terminated
employment and are not rehired prior to the first day of the plan’s 2015 plan year. Note the
regulations merely state that “employees” must be eligible, and does not limit this rule to full-time
employees, making it unclear whether this rule is intended to apply to all employees or just full-time
Significant Percentage Transition Guidance (All Employees) Rule—as of any date that the employer
chooses in the 12 months ending on February 9, 2014, one of the following applies:
At least 1/4 of all of the employer’s employees are covered (not just offered coverage) under the
At least 1/3 of all of the employer’s employees are offered coverage during the open enrollment
period that ended most recently before February 9, 2014.
Significant Percentage Transition Guidance (Full-Time Employees) Rule—as of any date that the
employer chooses in the 12 months ending on February 9, 2014, one of the following applies:
At least 1/3 of the employer’s full-time employees are covered (not just offered coverage) under
the plan; or
At least 1/2 of the employer’s full-time employees are offered coverage during the open
enrollment period that ended most recently before February 9, 2014.
Each full-time employee is offered affordable coverage that provides minimum value no later than the
first day of the 2015 plan year; and
The full-time employee is not eligible for coverage under any group health plan maintained by the
employer as of February 9, 2014, that has a calendar year plan year.
An employer who complies with these rules still must offer coverage in accordance with the percentage of
covered employees requirement, as modified by the final regulations and discussed in the “Change in
Percentage of Covered Employees Requirement” discussed above. As applied to employers with non-calendar
year plan years who are seeking transition relief, that requirement is modified somewhat as discussed below:
If the employer modified its plan year after February 9, 2014 to begin on a later calendar date, the
employer must offer minimum essential coverage to at least 95% (or, if greater, five) of its full-time
employees as of the first day of its 2015 plan year or be subject to the pay or play penalty.
An employer who does not modify its plan year in the manner described above must offer minimum
essential coverage to at least 70% of its full-time employees as of the first day of its 2015 plan year or
be subject to the pay or play penalty
We recognize that these rules are extremely complex and confusing. For this reason and because of the
penalties involved, we strongly recommend that employers review these rules carefully and consult with legal
counsel before seeking to apply these rules in connection with their non-calendar year plans.