Recently issued final rules provide important guidance on the ‘play or pay‘ provisions under Health Care Reform. These provisions require large employers–generally those with at least 50 full-time employees, including full-time equivalents–to offer affordable health insurance that provides a minimum level of coverage to full-time employees (and their dependents), or pay a penalty tax if any full-time employee receives a premium tax credit for purchasing individual coverage on a Health Insurance Marketplace.

Below are five things employers should know about the ‘play or pay’ rules:

1. The requirements are delayed for certain large employers.
Employers with 100 or more full-time employees (including full-time equivalents) are subject to the ‘play or pay’ requirements starting in 2015. However, the rules will not apply until 2016 for employers with 50 to 99 full-time employees (including full-time equivalents) who certify that they meet certain eligibility criteria related to workforce size and maintenance of workforce, hours of service, and previously offered health coverage.

2. Affiliated employers are generally combined to determine their workforce size.
Companies that have a common owner or are otherwise related generally are combined and treated as a single employer, and so would be combined for purposes of determining whether or not they collectively employ at least 50 full-time employees (including full-time equivalents). If the combined total meets the threshold, then each separate company is subject to the ‘play or pay’ provisions, even those companies that individually do not employ enough employees to meet the threshold.

3. There are two methods employers may use to determine whether an employee is full-time.
An employee is considered full-time for a calendar month if he or she averages at least 30 hours of service per week (or 130 hours of service in a calendar month). The final rules provide two methods for determining whether an employee has sufficient hours of service to be a full-time employee:

• One method is the monthly measurement method under which an employer determines each employee’s status by counting the employee’s hours of service for each month.
• The second method is the look-back measurement method, under which an employer may determine the status of an employee during a future ‘stability period’ based upon the hours of service of the employee in a prior ‘measurement period.’ (This method may be used only for purposes of determining and computing liability, and not for determining whether the employer is subject to the ‘play or pay’ requirements.)

The final rules describe approaches that can be used for various circumstances, such as for employees who work variable hour schedules, seasonal employees, and employees of educational organizations.

4. An employer may be liable for a penalty for 2015 under two circumstances.
For 2015 (and for employers with non-calendar-year plans, any calendar months during the 2015 plan year that fall in 2016), an employer that is subject to the ‘play or pay’ requirements may be liable for a penalty if:

• The employer does not offer health coverage or offers coverage to fewer than 70% of its full-time employees (and their dependents, unless transition relief applies), and at least one of the full-time employees receives a premium tax credit; or
• The employer offers health coverage to at least 70% of its full-time employees (and their dependents, unless transition relief applies), but at least one full-time employee receives a      premium tax credit, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value.

5. Transition relief may be available to certain employers subject to the rules for 2015.
The final rules extend to 2015 a package of limited transition rules that applied to 2014 under the proposed regulations, including:

• Employers First Subject to Requirements: Employers can determine whether they      had at least 100 full-time or full-time equivalent employees in the previous year by reference to a period of at least six consecutive months, instead of a full year.
• Non-Calendar Year Plans:  Employers with plan years that do not start on January 1 will be able to begin compliance at the start of their plan years in 2015 rather than on January 1, 2015, and the conditions for this relief are expanded to include more plan sponsors.
• Dependent Coverage:  The policy that employers offer coverage to their full-time employees’ dependents will generally not apply in 2015 to employers that are taking steps to arrange for such coverage to begin in 2016.
• Look-Back Measurement Method: On a one-time basis, in 2014 preparing for 2015, plans may use a measurement period of six months even with respect to a stability period of up to 12 months.

Our Employer Shared Responsibility section in the HR & Benefits Library on the Client Resource Center features additional information regarding ‘play or pay.’ Questions and Answers are also available from the Internal Revenue Service.