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By Debra J. Linder and Lisa S. Robinson

The final regulations implementing the employer mandate under the Affordable Care Act (ACA), commonly referred to as the employer “pay or play” provisions, were published this week. In many respects, the final regulations do not significantly deviate from the proposed regulations issued in December 2012; however, certain issues were clarified and a new transition period for certain employers was included.


Extended Compliance Period

  • For businesses with 50 to 99 full-time employees. These employers have an extra year to plan for compliance with the ACA and will not be subject to penalties until 2016 if they fail to offer their employees affordable health care coverage that provides minimum value.

  • For businesses with 100 or more employees. While these employers must comply with the ACA in 2015, final guidance provides that they will not be subject to a penalty if at least 70 percent of their full-time employees are offered affordable health care coverage that provides minimum value. In 2016, these employers must offer such coverage to 95 percent of their full-time employees in order to avoid paying a penalty.

  • Transition Rules Extended. The limited transition rules from the proposed regulations that applied in 2014 were extended to 2015. These rules addressed the period employers may use to determine if they are an “applicable large employer,” transition rules for non-calendar year plans, dependent coverage and the measurement period used for determining full-time employee status.

How to Count Hours

Counting hours is critical both to the determination of whether the business is an “applicable large employer” and to whether the employee is a full-time employee who must be offered affordable coverage. The final regulations addressed certain issues raised by commentators with respect to certain occupations and businesses. Some of these issues are highlighted below.

  • On-Call Employees. Until further guidance is issued, employers can use a reasonable method for crediting hours of service. However, the method will not be “reasonable” if the employer does not credit the employee with an hour of service for which (i) any on-call hour for which payment is made or due, (ii) the employee is required to remain on-call on the employer’s premises, or (iii) the employee’s activities are substantially restricted.

  • Other Employee Categories. The final regulations also addressed the impact of service provided by volunteers, student work-study programs, airline employees with layovers and adjunct faculty. For temporary staffing firms, the regulations set forth various factors that may apply for determining whether the employee is a full-time or variable-hour employee. The final regulations do not create any special rules for short-term employees or employees in high turnover positions.

Seasonal Employees

The final regulations confirm that the look-back measurement period used for other variable-hour employees may be applied to part-time and seasonal employees. For this purpose, an employee will be considered a “seasonal employee” if the employee’s position is customarily less than six months and occurs at the same time each year (e.g., ski instructors).

The final regulations continue to provide that employers will not be subject to the shared responsibility provisions of the ACA: (i) if the employer workforce exceeds 50 full-time employees for 120 days or less, and (ii) the employees in excess of 50 during such 120-day period are seasonal workers. As before, employers may apply a reasonable, good faith interpretation of the term “seasonal worker.”

Full-Time Employees

With respect to new hires, employers must determine whether the employer “reasonably expects” the new hire to be a full-time employee. The final regulations list several factors that employers may use to make this determination, including whether the employee is replacing a full-time employee, whether other employees in comparable positions are full-time, and how the position was advertised or communicated.

Affordability Safe Harbor

As provided in the proposed regulations, safe harbors exist to help employers determine that the health plan offered is affordable. Three different optional safe harbors include the W-2 wages safe harbor, the rate of pay safe harbor and the federal poverty line safe harbor.


The IRS and Treasury indicated that final regulations related to employers’ information reporting will be issued shortly. With respect to these requirements, the final regulations issued this week did not provide any phase-in period or relief for employers. In addition, guidance is still pending for several other aspects of the ACA, including the nondiscrimination rules for fully-insured group health plans and automatic enrollment for large employers.


As with the proposed regulations, applying the final regulations and the various transition rules can be complicated. Please contact a member of Fredrikson & Byron’s Compensation Planning & Employee Benefits Group should you have any questions on the application of this guidance to your business or group health plans.


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