Late last week the IRS released proposed regulations implementing the employer “play or pay” provisions in the Affordable Care Act. The rules are applicable to employers with 50 or more full-time equivalents and outline the requirements for employers to provide affordable, minimum value health insurance to full-time employees to avoid penalties. Much of the proposed rule adopts guidance previously released by the IRS over the past year; however, it does contain the following new information:

• To avoid penalties, employer-provided coverage must be offered to employees and their dependents. “Dependents” is defined as an employee’s children under age 26.   Coverage does not need to be offered to spouses.
• To avoid penalties, the employer must offer affordable, minimum value health insurance to 95% of its full-time employees. An employer can exclude the greater of (i) 5% of its full-time employees or (ii) 5 full-time employees from being eligible for coverage and not be penalized.
• When determining whether an employee is a full time employee who must be offered coverage, all periods of paid leave must be taken into account.
• The rules adopt a special averaging method for educational organizations to utilize when determining full-time employees which generally results in an employee who works full-time during the active portion of an academic year  being treated as a full-time employee.
• Outlines additional safe harbors for employers to utilize in determining whether coverage is affordable, including safe harbors based on the employee’s rate of pay and the Federal Poverty Level for a single individual.
• Allows employers who wish to utilize 12 month measurement and stability periods to use a shortened measurement period for 2014 only provided that it is at least 6 months.
• Provides transitional relief for employers with fiscal year plans delaying the penalty for not providing affordable, minimum value coverage to full-time employees until the first day of their 2014 plan year. For example, an employer with a July through June plan year would first face penalties on July 1, 2014. To take advantage of this transitional relief, the employer’s fiscal year plan must have been in effect on December 27, 2012.
• Provides transitional relief for the 2014 calendar year only allowing an employer the option to determine its status as an applicable large employer by using any six consecutive month period in 2013.  For subsequent years, the employer’s status will be determined based on the average number of full-time employees employed by the employer on business days during the preceding calendar year.
• Provides guidance on the treatment of rehired employees and allocation of penalties among commonly controlled companies.

The rule adopts the common law definitions of “employee” and “employer”. Employers who utilize staffing or employee leasing companies will need to carefully review their specific situations to determine who their common law employees are. A copy of the proposed rule is available at http://www.irs.gov/pub/newsroom/reg-138006-12.pdf. Comments are due by March 18, 2013.