Department of the Treasury - GPO

Vol. 79 Wednesday,
No. 29 February 12, 2014

Part II

Department of the Treasury

Internal Revenue Service
26 CFR Parts 1, 54, and 301
Shared Responsibility for Employers Regarding Health Coverage; Final
Rule

mstockstill on DSK4VPTVN1PROD with RULES2 VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00001 Fmt 4717 Sfmt 4717 E:\FR\FM\12FER2.SGM 12FER2

8544 Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations

mstockstill on DSK4VPTVN1PROD with RULES2 DEPARTMENT OF THE TREASURY I. Shared Responsibility for Employers time employees is certified to the
(Section 4980H) employer as having received an
Internal Revenue Service applicable premium tax credit or cost-
A. In general sharing reduction (section 4980H(b)
26 CFR Parts 1, 54, and 301 liability). Section 4980H(c)(4) provides
Section 4980H was added to the Code that a full-time employee with respect to
[TD 9655] by section 1513 of the Patient Protection any month is an employee who is
and Affordable Care Act, Public Law employed on average at least 30 hours
RIN 1545–BL33 111–148 (124 Stat. 119 (2010)), was of service per week.
amended by section 10106(e) and (f) of
Shared Responsibility for Employers the Patient Protection and Affordable An employer may be liable for an
Regarding Health Coverage Care Act, was further amended by assessable payment under section
section 1003 of the Health Care and 4980H(a) or (b) only if one or more full-
AGENCY: Internal Revenue Service (IRS), Education Reconciliation Act of 2010, time employees are certified to the
Treasury. Public Law 111–152 (124 Stat. 1029 employer as having received an
ACTION: Final regulations. (2010)), and was further amended by the applicable premium tax credit or cost-
Department of Defense and Full-Year sharing reduction. The assessable
SUMMARY: This document contains final Continuing Appropriations Act, 2011, payment under section 4980H(a) is
regulations providing guidance to Public Law 112–10 (125 Stat. 38 (2011)) equal to the number of all full-time
employers that are subject to the shared (collectively, the Affordable Care Act). employees (excluding 30 full-time
responsibility provisions regarding Section 1513(d) of the Affordable Care employees) multiplied by one-twelfth of
employee health coverage under section Act provides that section 4980H applies $2,000 for each calendar month, while
4980H of the Internal Revenue Code to months beginning after December 31, the assessable payment under section
(Code), enacted by the Affordable Care 2013; however, Notice 2013–45 (2013– 4980H(b) is based on the number of full-
Act. These regulations affect employers 31 IRB 116), issued on July 9, 2013, time employees who are certified to the
referred to as applicable large employers provides transition relief for 2014 with employer as having received an
(generally meaning, for each year, respect to section 4980H. applicable premium tax credit or cost-
employers that had 50 or more full-time sharing reduction with respect to that
employees, including full-time Section 4980H applies only to employee’s purchase of health
equivalent employees, during the prior applicable large employers. An insurance for the employee on an
year). Generally, under section 4980H applicable large employer with respect Affordable Insurance Exchange
an applicable large employer that, for a to a calendar year is defined in section (Exchange) 1 multiplied by one-twelfth
calendar month, fails to offer to its full- 4980H(c)(2) as an employer that of $3,000 for each calendar month. In no
time employees health coverage that is employed an average of at least 50 full- case, however, may the liability under
affordable and provides minimum value time employees on business days during section 4980H(b) exceed the maximum
may be subject to an assessable payment the preceding calendar year. For potential liability under section
if a full-time employee enrolls for that purposes of determining whether an 4980H(a). Generally, liability under
month in a qualified health plan for employer is an applicable large section 4980H(b) may arise because,
which the employee receives a premium employer, full-time equivalent with respect to a full-time employee
tax credit. employees (FTEs), as well as full-time who has been certified to the employer
DATES: Effective date: These regulations employees, are taken into account. As as having received an applicable
are effective February 12, 2014. set forth in section 4980H(c)(2)(E), the premium tax credit or cost-sharing
number of an employer’s FTEs is reduction,2 the coverage 3 offered by the
Applicability Dates: For dates of determined based on the hours of employer is not affordable within the
applicability, see section XVI of this service of employees who are not full- meaning of section 36B(c)(2)(C)(i) or
preamble, §§ 54.4980H–1(b), 54.4980H– time employees. Under section does not provide minimum value (MV)
2(f), 54.4980H–3(i), 54.4980H–4(h), 4980H(c)(2)(C), the determination of within the meaning of section
54.4980H–5(g), and 54.4980H–6(b). whether an employer that was not in 36B(c)(2)(C)(ii). An employee’s receipt
existence in the preceding calendar year of a premium tax credit under section
FOR FURTHER INFORMATION CONTACT: is an applicable large employer is based 36B (premium tax credit) with respect to
Kathryn Johnson or Shad Fagerland, on the average number of employees coverage for a dependent only will not
(202) 317–6846 (not a toll-free number). that it is reasonably expected the result in liability for the employer under
employer will employ on business days section 4980H.
SUPPLEMENTARY INFORMATION: in the current calendar year.
B. Previously issued guidance
Background Section 4980H generally provides that
an applicable large employer is subject During 2011 and 2012, the Treasury
Sections I through IV of the preamble to an assessable payment if either (1) the Department and the IRS published four
(‘‘Background’’) describe section 4980H, employer fails to offer to its full-time notices, each of which outlined
including previously issued guidance employees (and their dependents) the potential approaches to future guidance
under section 4980H, as well as related opportunity to enroll in minimum
statutory provisions. Sections V through essential coverage (MEC) under an 1 An Exchange is also referred to in other
XIV of the preamble (‘‘Explanation and eligible employer-sponsored plan and published guidance as a Marketplace.
Summary of Comments’’) describe the any full-time employee is certified to
comments received on the proposed the employer as having received an 2 For simplicity, references in this preamble to
regulations and explain amendments to applicable premium tax credit or cost- full-time employees certified as having received a
the proposed regulations. Section XV of sharing reduction (section 4980H(a) premium tax credit include full-time employees
the preamble (‘‘Transition Relief and liability), or (2) the employer offers its receiving the premium tax credit or the cost-sharing
Interim Guidance’’) provides certain full-time employees (and their reduction because, in connection with Exchange
transition relief and interim guidance dependents) the opportunity to enroll in coverage, only individuals who qualify for the
under section 4980H, and section XVI of MEC under an eligible employer- premium tax credit can qualify for a cost-sharing
the preamble provides information on sponsored plan and one or more full- reduction.
the effective date for and reliance on
these final regulations. 3 For purposes of this preamble, the term
‘‘coverage’’ means MEC.

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00002 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2

Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations 8545

mstockstill on DSK4VPTVN1PROD with RULES2 under section 4980H and requested elections for accident and health plans MEC does not include coverage
public comments: (1) Notice 2011–36 provided through section 125 cafeteria consisting solely of excepted benefits
(2011–21 IRB 792) (addressed the plans for non-calendar cafeteria plan described in section 2791(c)(1), (c)(2),
definition of the terms employer, years beginning in 2013. The scope of (c)(3), or (c)(4) of the PHS Act or
employee, and hour of service and this transition relief was clarified in regulations issued under these
requested comments on an approach to section VI of Notice 2013–71 (2013–47 provisions. See § 1.5000A–2(g).
use an optional look-back measurement IRB 532), issued on October 31, 2013.
method for determining full-time B. Minimum Value (MV)
employee status); (2) Notice 2011–73 II. Minimum Essential Coverage,
(2011–40 IRB 474) (requested comments Minimum Value and Affordability If the coverage offered by an employer
on a health coverage affordability safe (Sections 5000A and 36B) fails to provide MV, an employee may
harbor for employers under section be eligible to receive coverage in a
4980H using Form W–2 wages); (3) MEC, MV and affordability are qualified health plan supported by the
Notice 2012–17 (2012–9 IRB 430) defined under Code provisions other premium tax credit. Under section
(provided that the look-back than section 4980H, but all relate to the 36B(c)(2)(C)(ii), a plan fails to provide
measurement method and the Form W– determination of liability under section MV if the plan’s share of the total
2 affordability safe harbor will be 4980H, and accordingly are summarized allowed costs of benefits provided
incorporated into upcoming proposed briefly in this section of the preamble under the plan is less than 60 percent
regulations and requested comments on (but are more fully described in other of those costs.
a potential approach for determining the cited guidance). Specifically, for
full-time employee status of new purposes of section 4980H, an employer Section 1302(d)(2)(C) of the
employees under section 4980H); and is not treated as having offered coverage Affordable Care Act provides that, in
(4) Notice 2012–58 (2012–41 IRB 436) to an employee unless the coverage is determining the percentage of the total
(provided guidance and reliance on MEC. Moreover, under section 36B, an allowed costs of benefits provided
approaches for ongoing employees and individual who is offered employer under a group health plan, the
new employees who are reasonably coverage but instead purchases coverage regulations promulgated by the
expected to be full-time employees and under a qualified health plan within the Secretary of Health and Human Services
requested comments on a revised meaning of section 1301(a) of the (HHS) under section 1302(d)(2) of the
optional method for determining the Affordable Care Act on an Exchange Affordable Care Act apply. HHS
full-time employee status for new may be eligible for a premium tax credit published final regulations under
employees with variable hours and new if the household income of the section 1302(d)(2) of the Affordable Care
seasonal employees). Public comments individual’s family falls within certain Act on February 25, 2013 (78 FR 12834).
were submitted in response to each of thresholds and the coverage offered by On May 3, 2013, the Treasury
the four notices. the employer either does not provide Department and the IRS published a
MV or is not affordable. While an notice of proposed rulemaking (REG–
Taking into account all the comments individual may purchase coverage 125398–12, 78 FR 25909) that adopts
received in response to this series of under a qualified health plan on an the HHS rules and provides additional
notices, on December 28, 2012, the Exchange without regard to whether the guidance on MV. The HHS regulations
Treasury Department and the IRS individual is eligible for a premium tax at 45 CFR 156.20 define the percentage
released a notice of proposed credit, an employer’s potential liability of the total allowed costs of benefits
rulemaking (REG–138006–12, 78 FR under section 4980H is affected by the provided under a group health plan as
218). Written and electronic comments individual’s purchase of coverage on an (1) the anticipated covered medical
responding to the notice of proposed Exchange only if the individual receives spending for essential health benefits
rulemaking were received. The a premium tax credit. (EHB) coverage (as defined in 45 CFR
comments are available for public 156.110(a)) paid by a health plan for a
inspection at www.regulations.gov or A. Minimum Essential Coverage (MEC) standard population, (2) computed in
upon request. A public hearing was accordance with the plan’s cost sharing,
conducted on April 23, 2013. After MEC is defined in section 5000A(f) and (3) divided by the total anticipated
consideration of all of the comments and the regulations under that section. allowed charges for EHB coverage
and testimony, the proposed regulations Section 5000A(f)(1)(B) provides that provided to the standard population. In
are adopted as amended by this MEC includes coverage under an addition, 45 CFR 156.145(c) provides
Treasury decision. The amendments are eligible employer-sponsored plan. that the standard population used to
discussed in this preamble. Under section 5000A(f)(2) and compute this percentage for MV (as
§ 1.5000A–2(c)(1), an eligible employer- developed by HHS for this purpose)
After the issuance of the proposed sponsored plan is, with respect to any reflects the population covered by
regulations, on July 9, 2013, the employee, (1) group health insurance typical self-insured group health plans.
Treasury Department and the IRS issued coverage offered by, or on behalf of, an The HHS regulations describe several
Notice 2013–45, which provides as employer to the employee that is either options for determining MV, including
transition relief that no assessable (a) a governmental plan within the the MV Calculator (available at http://
payments under section 4980H will meaning of section 2791(d)(8) of the cciio.cms.gov/resources/regulations/
apply for 2014. Notice 2013–45 also Public Health Service Act (PHS Act) (42 index.html). Alternatively, a plan may
provides transition relief for 2014 for U.S.C. 300gg–91(d)(8)), (b) any other determine MV through one of the safe
the section 6056 information reporting plan or coverage offered in the small or harbors being established by HHS and
requirements for applicable large large group market within a State, or (c) the IRS. For plans with nonstandard
employers and the section 6055 a grandfathered health plan, as defined features that are incompatible with the
information reporting requirements for in section 5000A(f)(1)(D), offered in a MV Calculator or a safe harbor, 45 CFR
providers of MEC. group market, or (2) a self-insured group 156.145(a)(3) provides that the plan may
health plan under which coverage is determine MV through an actuarial
The preamble to the proposed offered by, or on behalf of, an employer certification from a member of the
regulations provides transition relief to the employee. Section 5000A(f)(3) American Academy of Actuaries after
that allows flexibility for individuals to and regulations thereunder provide that the member performed an analysis in
make changes in salary reduction

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00003 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2











Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations 8551

mstockstill on DSK4VPTVN1PROD with RULES2 interns or externs for an outside employers of employees with on-call suggestions. Some suggested that any
employer, and, therefore, the general hours, as described in sections VI.C.1 assumption be set sufficiently high and
rules apply, including the option to use through VI.C.3 of this preamble, be subject to robust periodic review so
the look-back measurement method, as respectively, are required to use a as not to fail to attribute adequate hours
appropriate, or the monthly reasonable method of crediting hours of of service for the work performed.
measurement method. service that is consistent with section Others suggested that the assumption be
4980H. Further, employers of other set at a relatively moderate level that
3. Members of Religious Orders employees whose hours of service are would avoid giving undue incentives for
particularly challenging to identify or institutions to reduce adjunct faculty
A commenter requested clarification track or for whom the final regulations’ members’ teaching assignments to avoid
about whether members of religious general rules for determining hours of full-time employee status.
orders must be treated as full-time service may present special difficulties,
employees of their orders for purposes such as commissioned salespeople, are In addition, comments from adjunct
of section 4980H. As noted in section required to use a reasonable method of faculty members and educational
VI.C of this preamble, the Treasury crediting hours of service that is organizations requested the adoption of
Department and the IRS continue to consistent with section 4980H. a method whereby an adjunct faculty
consider additional rules for the member would be treated as a full-time
determination of hours of service for A method of crediting hours is not employee for purposes of section 4980H
purposes of section 4980H with respect reasonable if it takes into account only only if the faculty member were
to certain categories of employees a portion of an employee’s hours of assigned a course load that was
whose hours of service are particularly service with the effect of characterizing, equivalent to (or, as requested in some
challenging to identify or track or for as a non-full-time employee, an comments, at least 75 percent of) the
whom the final regulations’ general employee in a position that traditionally average course load assigned to faculty
rules for determining hours of service involves at least 30 hours of service per members who are treated as full-time
may present special difficulties, week. For example, it is not a reasonable employees by the particular educational
including hours worked by members of method of crediting hours to fail to take organization or academic department.
religious orders for the orders to which into account travel time for a travelling The course loads assigned to other
they belong. Until further guidance is salesperson compensated on a faculty members may be a relevant
issued, a religious order is permitted, for commission basis. Paragraphs C.1 factor in an employer’s determination of
purposes of determining whether an through C.3 of this section VI of the the number of hours of service to be
employee is a full-time employee under preamble describe methods of crediting credited to an adjunct faculty member.
section 4980H, to not count as an hour hours of service that are (or are not) However, the course loads of faculty
of service any work performed by an reasonable to use with respect to treated as full-time employees may vary
individual who is subject to a vow of adjunct faculty, layover hours, considerably, making implementation of
poverty as a member of that order when including for airline industry the proposed approach very difficult to
the work is in the performance of tasks employees, and on-call hours. The administer.
usually required (and to the extent examples of reasonable methods
usually required) of an active member of provided are not intended to constitute Until further guidance is issued,
the order. the only reasonable methods of employers of adjunct faculty (and of
crediting hours of service. Whether employees in other positions that raise
C. Application of Hours of Service to another method of crediting hours of analogous issues with respect to the
Certain Employees service in these situations is reasonable crediting of hours of service) are
is based on the relevant facts and required to use a reasonable method for
Commenters requested guidance on circumstances. crediting hours of service with respect
the application of the hours of service to those employees that is consistent
definition to certain categories of 1. Adjunct Faculty with section 4980H. With respect to
employees whose hours of service are adjunct faculty members of an
particularly challenging to identify or Commenters raised issues relating to educational organization who are
track or for whom the final regulations’ adjunct faculty who receive compensated on the basis of the number
general rules for determining hours of compensation for teaching a certain of courses or credit hours assigned, the
service may present special difficulties. number of classes (or credits) and whose commenters noted that a wide variation
compensation is not based on the actual of work patterns, duties, and
The Treasury Department and the IRS time spent on non-classroom activities circumstances apply in different
continue to consider additional rules for such as class preparation, grading institutions, academic disciplines, and
the determination of hours of service for papers and exams, and counseling departments, and apply to different
purposes of section 4980H with respect students. Comments from employers courses and individuals, and that this
to certain categories of employees generally suggested that the hours of might factor into the reasonableness of
(including adjunct faculty, service equivalencies for non-hourly a particular method of crediting hours of
commissioned salespeople, and airline employees (eight hours per day or 40 service in particular circumstances.
employees), and certain categories of hours per week) were too high for this
hours associated with work by purpose, but that counting actual hours Various commenters also suggested,
employees (including layover hours (for would be administratively burdensome. however, that, in the interest of
example, for airline employees) and on- These commenters suggested various predictability and ease of administration
call hours). The regulation authorizes methods for permitting assumptions for in crediting hours of service for
the promulgation of such rules through hours of service that would be applied purposes of section 4980H, regulations
additional guidance, published in the for each task completed, for example, a specify a multiple that might be applied
Internal Revenue Bulletin (see set number of hours of service per week to credit additional hours of service for
§ 601.601(d)(2)(ii)(b)). per class or credit taught by an adjunct each credit hour or hour of classroom
faculty member. Comments from time assigned to the adjunct faculty
Until further guidance is issued, employees and their representatives member. Commenters suggested a
employers of adjunct faculty, employers included two very different types of number of possible multiples that might
of employees with layover hours, be used for this purpose. After
including the airline industry, and

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00009 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2

8552 Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations

mstockstill on DSK4VPTVN1PROD with RULES2 reviewing these comments, the Treasury present special difficulties. Until further on-call hours but are required to remain
Department and the IRS have guidance is issued, with respect to on call periodically as a condition of
determined that, until further guidance categories of employees whose hours of employment.
is issued, one (but not the only) method service are particularly challenging to
that is reasonable for this purpose identify or track or for whom the final The Treasury Department and the IRS
would credit an adjunct faculty member regulations’ general rules for continue to consider additional rules for
of an institution of higher education determining hours of service may determining hours of service for
with (a) 21⁄4 hours of service present special difficulties, employers purposes of section 4980H with respect
(representing a combination of teaching are required to use a reasonable method to certain work arrangements, including
or classroom time and time performing for crediting hours of service that is on-call hours, or categories of
related tasks such as class preparation consistent with section 4980H. employees whose hours of service are
and grading of examinations or papers) particularly challenging to identify or
per week for each hour of teaching or With respect to layover hours, it is not track or for whom the final regulations’
classroom time (in other words, in reasonable for an employer to not credit general rules for determining hours of
addition to crediting an hour of service a layover hour as an hour of service if service may present special difficulties.
for each hour teaching in the classroom, the employee receives compensation for Until further guidance is issued,
this method would credit an additional the layover hour beyond any employers of employees who have on-
11⁄4 hours for activities such as class compensation that the employee would call hours are required to use a
preparation and grading) and, have received without regard to the reasonable method for crediting hours of
separately, (b) an hour of service per layover hour or if the layover hour is service that is consistent with section
week for each additional hour outside of counted by the employer towards the 4980H. It is not reasonable for an
the classroom the faculty member required hours of service for the employer to fail to credit an employee
spends performing duties he or she is employee to earn his or her regular with an hour of service for any on-call
required to perform (such as required compensation. For example, if an hour for which payment is made or due
office hours or required attendance at employer requires that an employee by the employer, for which the
faculty meetings). perform services for 40 hours per week employee is required to remain on-call
to earn full salary, and credits ‘‘layover on the employer’s premises, or for
Although further guidance may be hours’’ towards the 40 hours, then it which the employee’s activities while
issued regarding these matters, the would not be reasonable for the remaining on-call are subject to
method described in the preceding employer to fail to credit the layover substantial restrictions that prevent the
paragraph may be relied upon at least hours as hours of service. employee from using the time
through the end of 2015. To the extent effectively for the employee’s own
any future guidance modifies an For layover hours for which an purposes.
employer’s ability to rely on that employee does not receive additional
method, the period of reliance will not compensation and that are not counted VII. Identification of Full-Time
end earlier than January 1 of the by the employer towards required hours Employees
calendar year beginning at least six of service, it would be reasonable for an
months after the date of issuance of the employer to credit an employee in the A. In General
guidance (but in no event earlier than airline industry with 8 hours of service
January 1, 2016). This extended period for each day on which an employee is Section 4980H(c)(4) defines the term
of reliance is provided so that if the required, as a practical matter, to stay full-time employee to mean, with
method described in the preceding away from home overnight for business respect to any month, an employee who
paragraph is modified or replaced, purposes (that is, 8 hours each day (or is employed on average at least 30 hours
employers will have sufficient time to 16 hours total) for the two days of service per week. The final
make necessary adjustments. Of course, encompassing the overnight stay). The regulations provide two methods for
employers may credit more hours of employee must be credited with the determining full-time employee status—
service than would result under the employee’s actual hours of service for a the monthly measurement method
method described in the preceding day if crediting 8 hours of service (described in section VII.B of this
paragraph and also may offer coverage substantially understates the employee’s preamble) and the look-back
to additional employees beyond those actual hours of service for the day measurement method (described in
identified as full-time employees under (including layover hours for which an section VII.C of this preamble).
that method. employee receives compensation or that
are counted by the employer towards The final regulations reiterate that the
2. Layover Hours for Airline Industry required hours of service). Other requirements for use of the look-back
Employees and Others methods of counting hours of service measurement method and the monthly
may also be reasonable, depending on measurement method prescribe
Commenters noted that pilots and the relevant facts and circumstances. minimum standards for the
flight attendants often are required, as a identification of full-time employees.
practical matter, to remain overnight 3. On-Call Hours Employers may always treat additional
between flights at a location other than employees as eligible for coverage, or
their residence. The Treasury Commenters requested that ‘‘on-call’’ otherwise offer coverage more
Department and the IRS continue to hours, for which an employee has been expansively than would be required to
consider additional rules for the directed by the employer to remain avoid an assessable payment under
determination of hours of service, available to work, not be treated as section 4980H, subject to compliance
including layover hours, for purposes of hours of service unless the employee is with any nondiscrimination or other
section 4980H with respect to certain directed to perform services. The applicable requirements.
categories of employees whose hours of commenters noted that a variety of
service are particularly challenging to compensation structures may apply to 1. Thirty-Hour Threshold
identify or track or for whom the final on-call hours. In some cases, employees
regulations’ general rules for are paid a reduced hourly wage for on- Commenters requested that the 30
determining hours of service may call hours. In other cases, employees are hours of service per week threshold be
not paid additional compensation for increased as part of the final regulations,
either generally or as applied with

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00010 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2













Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations 8559

mstockstill on DSK4VPTVN1PROD with RULES2 employee who has been employed by an date and the later of the first day of the hours of service per week during the
applicable large employer member for at first calendar month following the initial measurement period, the
least one complete standard employee’s start date and the first day employer must treat Employee A as a
measurement period. The proposed of the first payroll period that starts after full-time employee for a period of at
regulations provide rules for application the employee’s start date. least 12 months beginning no later than
of the look-back measurement method December 1, 2016 (the first day of the
to new employees who are variable hour The proposed regulations define the 14th calendar month after hire). If that
employees and seasonal employees but initial measurement period, in part, as period begins on December 1, 2016, the
the proposed rules do not fully explain a period of at least three consecutive period for which Employee A must be
how full-time employee status is calendar months but not more than 12 treated as a full-time employee will end
determined for other new employees. consecutive calendar months. The final no earlier than November 30, 2017.
The final regulations clarify how an regulations clarify that the initial
applicable large employer member measurement period need not be based The first standard measurement
determines full-time employee status of on calendar months but instead may be period applicable to Employee A is the
its new employees who are not variable based on months, defined as either a period from October 15, 2016, through
hour employees or seasonal employees, calendar month or as the period that October 14, 2017. If Employee A
for the period before the rules for begins on any date following the first averages 30 hours of service per week
ongoing employees apply (that is, for day of the calendar month and that ends during this standard measurement
the period before the employee has been on the immediately preceding date in period, the employer must treat
employed for a complete standard the immediately following calendar Employee A as a full-time employee for
measurement period). month (for example, from March 15 to the stability period that is co-extensive
April 14). In contrast, a stability period with the 2018 calendar year. However,
In general, before becoming an must be based on calendar months. The this would leave a period of time
ongoing employee, full-time employee final regulations, consistent with the between the end of the stability period
status for a new employee who is proposed regulations, also allow an associated with Employee A’s initial
reasonably expected at the employee’s employer to base measurement periods measurement period (November 30,
start date to be a full-time employee on one week, two week, or semi- 2017) and the beginning of the stability
(and who is not a seasonal employee) is monthly payroll periods. period associated with the first standard
based on that employee’s hours of measurement period applicable to
service each calendar month (but note 13. Periods of Time Between Stability Employee A (January 1, 2018).
that an employer will not be subject to Periods
a section 4980H(a) assessable payment The final regulations clarify that in
for the initial three full months of Commenters noted that, in certain circumstances in which there is a period
employment if the employee is circumstances, there may be a period of of time between the stability period
otherwise eligible for an offer of time between the stability period associated with the initial measurement
coverage during those three months and associated with the initial measurement period and the stability period
is offered coverage by the first day period and the stability period associated with the first full standard
following those three months (and the associated with the first full standard measurement period during which a
employer will not be subject to a section measurement period during which a new employee is employed, the
4980H(b) assessable payment for those variable hour employee or seasonal treatment as a full-time employee or not
months if the coverage offered provides employee has been employed. This full-time employee that applies during
MV). generally may occur in cases in which the stability period associated with the
a new employee begins providing initial measurement period continues to
A definition of part-time employee is services a short period after the apply until the beginning of the stability
added to the final regulations for a new beginning of the standard measurement period associated with the first full
employee who is reasonably expected at period that would apply to the standard measurement period during
the employee’s start date not to be a full- employee if the employee were an which the employee is employed. If the
time employee (and who is not a ongoing employee. employee is being treated as a full-time
variable hour employee or a seasonal employee during the initial stability
employee). The same rules that apply to For example, suppose an employer period, that treatment must be extended
new variable hour employees and new uses 12-month measurement and until the first day of the stability period
seasonal employees apply to new part- stability periods for both its new associated with the first full standard
time employees. In the normal case, an variable hour employees and its ongoing measurement period during which the
employer’s categorization of a new employees, with the standard employee is employed, and if the
employee as a part-time employee or measurement period for ongoing employee is being treated as not a full-
variable hour employee does not affect employees running from October 15 of time employee during the initial
the way the look-back measurement one year to the following October 14, stability period, that treatment may be
method applies (because the initial the administrative period for ongoing extended until the first day of the
measurement period is available to both employees running from October 15 stability period associated with the first
types of employees). through December 31 and with the full standard measurement period
calendar year as the stability period for during which the employee is
12. Clarifications Regarding the Initial ongoing employees. If a new variable employed. Thus, in the example in the
Measurement Period hour employee, Employee A, is hired on preceding paragraphs, Employee A is a
October 25, 2015, and the employer full-time employee for the month of
The final regulations clarify that an chooses to begin the initial December 2017.
applicable large employer member may measurement period for new variable
apply the payroll period rule set forth in hour employees on the first day of the Further, the final regulations also
§ 54.4980H–3(d)(1)(ii) for purposes of first calendar month beginning after the clarify that for a variable hour employee
determining an initial measurement start date, the initial measurement or seasonal employee who does not
period, provided that an initial period for Employee A will run from average at least 30 hours of service per
measurement period must begin on the November 1, 2015, through October 31, week during the initial measurement
start date or any date between the start 2016. If Employee A averages at least 30 period, the maximum length for a

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00017 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2

8560 Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations

mstockstill on DSK4VPTVN1PROD with RULES2 stability period associated with the 4980H(b) the employer must offer weeks immediately preceding the
initial measurement period is the end of coverage that provides MV at the end of resumption of services.
the first full standard measurement the period.
period (plus any associated In addition, the proposed regulations
administrative period) during which the In addition, the final regulations permit an employer to apply a parity
new employee was employed (rather clarify that these rules only apply with rule, under which an employee may be
than at the end of the standard respect to a calendar month if during treated as rehired after a shorter period
measurement period (plus any the calendar month during the relevant of at least four consecutive weeks
associated administrative period) in period the employee is otherwise during which no hours of service were
which the initial measurement period eligible for an offer of coverage (except credited if that period exceeded the
ends), which was the rule contained in that this rule does not apply with number of weeks of that employee’s
the proposed regulations. respect to the rule regarding an period of employment with the
employer that is an applicable large applicable large employer immediately
D. Clarification of Periods During Which employer for the first time, as described preceding the period during which the
Section 4980H Liability Does Not Apply in section V.F of this preamble). For employee was not credited with any
purposes of these rules, an employee is hours of service. For example, if an
In various circumstances, the final otherwise eligible to be offered coverage employee started employment and
regulations provide that an employer under a group health plan for a calendar worked for six weeks, then had a period
will not be subject to an assessable month if, pursuant to the terms of the of eight weeks during which no hours
payment under section 4980H for a plan as in effect for that calendar month, of service were credited, the employer
certain period of time and the term the employee meets all conditions to be could treat the employee as a rehired
limited non-assessment period for offered coverage under the plan for that employee, subject to the rules for new
certain employees is added to the final calendar month, other than the employees under these regulations, if
regulations to describe these periods. In completion of a waiting period, within the employee resumed providing
particular, the final regulations provide, the meaning of § 54.9801–2. services after the eight-week break.
consistent with the proposed
regulations, that section 4980H liability The final regulations also clarify that Comments were received on these
does not apply with respect to an an employer will not be subject to an rehire rules. Several employers and
employee who is in the initial assessable payment with respect to an employer groups commented that the
measurement period (or the associated employee for the first month of an rehire rules in general, and the rule of
administrative period), for a period of employee’s employment with the parity in particular, are difficult to
time after an employee experiences a employer, if the employee’s first day of implement because they require the
change to full-time employee status employment is a day other than the first employer to maintain records of service
during the initial measurement period, day of the calendar month. of former employees across the
or with respect to a new employee who employer’s controlled group (the group
is reasonably expected to be a full-time Note that the relief from the section of applicable large employer members
employee and to whom coverage is 4980H assessable payment provided by that together are treated as an applicable
offered on the first of the month the rules described in this section does large employer). Commenters requested
following the employee’s initial three not affect an employee’s eligibility for a that employers be permitted to
full calendar months of employment. premium tax credit. For example, an determine, using any reasonable good-
The final regulations add a rule under employee or related individual is not faith method, whether an employee
the monthly measurement method eligible for coverage under the resuming services after a break in
under which an employer will not be employer’s plan (and therefore may be service constitutes a new employee or a
subject to a section 4980H assessable eligible for a premium tax credit or cost- continuing employee. Other
payment with respect to an employee sharing reduction through an Exchange) commenters requested that the length of
for the first full calendar month in during any period when coverage is not the break in service required before a
which an employee is first otherwise actually offered to the employee by the returning employee may be treated as a
eligible for an offer of coverage and the employer, including any measurement new employee be reduced from 26
immediately subsequent two calendar period or administrative period, even if weeks to some shorter length, such as
months. Further, the final regulations the employer is not subject to an four or ten weeks.
provide that with respect to an assessable payment under section
employee who was not offered coverage 4980H for this period. The Treasury Department and the IRS
by the employer at any point during the believe that it would be inequitable to
prior calendar year, if an employee is E. Rehire Rules and Break-in-Service employees who had become eligible for
offered coverage by an applicable large Rules for Continuing Employees coverage prior to the break in service to
employer, for the first time, on or before be subjected to a new period of
April 1 of the first calendar year for 1. Rehire Rules exclusion from the plan (which can be
which the employer is an applicable over a year for variable hour employees)
large employer, the employer will not be The proposed regulations provide based upon a brief break in service. The
subject to an assessable payment under that, solely for purposes of section Treasury Department and the IRS also
section 4980H by reason of its failure to 4980H, an employee who resumes remain concerned that without an
offer coverage to the employee for providing service to an applicable large objective standard for determining when
January through March of that year. employer after a period during which an employee who returns after a break
the employee was not credited with any in service may be treated as a new
The final regulations clarify that each hours of service may be treated as employee, there is a potential for an
of these rules is only available if the having terminated employment and employer to attempt to evade the
employee is offered coverage by the first having been rehired, and therefore may requirements of section 4980H through
day of the month following the end of be treated as a new employee upon the a pattern of terminating and rehiring
the applicable period, and for an resumption of services, only if the employees and then treating the
employer to not be subject to an employee did not have an hour of returning employees as new employees.
assessable payment under section service for the applicable large employer However, the Treasury Department and
for a period of at least 26 consecutive the IRS agree with the commenters

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00018 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2













Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations 8567

mstockstill on DSK4VPTVN1PROD with RULES2 employer members, the final regulations in the final regulations, consistent with Based on a commenter’s concerns about
provide that the members can treat one the definition in the proposed offering coverage to the children of an
of the members for which the employee regulations, excludes spouses. employee who works for an applicable
performs services as the employer of large employer in the United States but
that employee for that calendar month B. Foster Children and Stepchildren whose children are not U.S. citizens and
for purposes of the assessable payment who do not reside in the United States,
determination. The Treasury By incorporating section 152(f)(1), the the final regulations modify the
Department and the IRS anticipate that definition of dependent in the proposed definition of dependent to incorporate
the member who is treated as the regulations includes biological children, the rules under section 152(b)(3).
employer of that employee would report stepchildren, adopted children, and Accordingly, the final regulations
that employee as its full-time employee foster children. Commenters requested exclude a child who is not a U.S. citizen
on the member’s section 6056 that foster children and stepchildren be or national from the definition of
information return, and if the employee removed from the definition of dependent, unless that child is a
is not included in any applicable large dependent for purposes of section resident of a country contiguous to the
employer member’s section 6056 4980H. With respect to foster children, United States or is within the exception
information return, the IRS will select a commenters noted that the government for adopted children described in
member to be treated as the employer of entities responsible for a foster system section 152(b)(3)(B).
that employee for purposes of the typically provide health benefits for the
assessable payment determination. foster child, so that employer-provided XII. Worker Classification and Section
coverage would be duplicative and 4980H
In complying with section 4980H, difficult to administer. With respect to
applicable large employer members are stepchildren, commenters noted that in Consistent with the proposed
responsible for ensuring that they the case of a stepchild, the child in most regulations, these final regulations
comply with the recordkeeping cases will have two parents who are not define an employee for purposes of
requirements in section 6001, including stepparents both of whom potentially section 4980H as an individual who is
Rev. Proc. 98–25 (1998–1 CB 689) (see would be able to provide for the child’s an employee under the common law
§ 601.601(d)(2)(ii)(b)). coverage and both of whose employers standard, and as not including a leased
potentially could be subject to section employee (as defined in section
Pursuant to section 275(a)(6) 4980H for failing to offer coverage to 414(n)(2)), a sole proprietor, a partner in
regarding the nondeductibility of certain that child. These commenters suggested a partnership, a 2-percent S corporation
excise taxes, including those under that applying section 4980H to an shareholder, or a worker described in
chapter 43, an assessable payment employee’s stepchildren would in many section 3508 (this last category is added
imposed under section 4980H is not cases be duplicative and that, for this to the list of exclusions in the final
deductible. reason, many employers currently do regulations). Commenters expressed
not extend offers of coverage to concerns about the consequences under
XI. Definition of Dependent stepchildren of an employee. In light of section 4980H of an IRS examination in
these considerations, the final which workers providing services to a
A. In General regulations exclude both foster children service recipient entity are reclassified
and stepchildren from the definition of as employees of that entity. Specifically,
Section 4980H provides that in order dependent for purposes of section commenters pointed out that if a worker
to avoid a potential assessable payment 4980H only. who was not treated as an employee by
under section 4980H, an applicable the service recipient and was not offered
large employer must offer coverage to its C. Treatment During Month in Which health coverage by the service recipient
full-time employees and the full-time Dependent Attains Age 26 is reclassified as an employee of the
employees’ dependents. For this service recipient for past periods, and
purpose, the proposed regulations A commenter requested clarification that worker had sufficient hours of
define the term dependent to mean a of the application of section 4980H to an service to be a full-time employee for
child (as defined in section 152(f)(1)) of employee’s child for the month in such past periods, the reclassification
an employee who has not attained age which the child attains age 26. In may impact whether the service
26. For this purpose, a dependent does response, the final regulations clarify recipient employer had offered coverage
not include the spouse of an employee. that for purposes of section 4980H, a to no less than 95 percent of its full-time
This definition of dependent applies child is a dependent for the entire employees for a particular calendar
only for purposes of section 4980H. See calendar month during which he or she month (and therefore whether an
section XV.D.5 of this preamble for attains age 26. assessable amount was payable under
transition relief regarding offers of section 4980H(a)). In addition, one
coverage to dependents. D. Citizens or Nationals of Other commenter noted that, even if the
Countries reclassification did not result in liability
Commenters requested that the for an assessable payment under section
definition of dependent be expanded to The definition of dependent under the 4980H(a), the service recipient could
include grandchildren and qualifying proposed regulations includes children still be liable for an assessable payment
relatives (within the meaning of section who are not citizens or residents of the under section 4980H(b) if the
152). The final regulations do not United States. Section 152(b)(3), which reclassified full-time employee had
expand the definition of dependent to is not incorporated in the definition of received a premium tax credit.
include these categories because such a dependent under the proposed
definition would be inconsistent with regulations, provides that the term Commenters discussed the
the typical coverage provided by dependent does not include an applicability of section 530 of the
employer-sponsored plans. individual who is not a citizen or Revenue Act of 1978 (referred to in this
national of the United States unless preamble as ‘‘Section 530’’) for purposes
Some commenters requested that the such individual is a resident of the of section 4980H. Section 530, which is
definition of dependent be expanded to United States or a country contiguous to not incorporated into the Code, provides
include spouses, and other commenters the United States (certain adopted that ‘‘if (A) for purposes of employment
supported the proposal to exclude children are excepted from this rule).
spouses from the definition of
dependent. The definition of dependent

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00025 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2

8568 Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations

mstockstill on DSK4VPTVN1PROD with RULES2 taxes, the taxpayer did not treat an care provider as to how they perform applicable large employer, which
individual as an employee for any the services, including the ability to excludes only those seasonal workers
period, and (B) in the case of periods choose the home care provider, select employed for a period of no more than
after December 31, 1978, all Federal tax the services to be performed, and set the 120 days, does not adequately address
returns (including information returns) hours of the home care provider, these these workers because many of these
required to be filed by the taxpayer with facts would indicate that the service individuals work more than 120 days
respect to such individual for such recipient is the employer under the due to serial growing seasons. However,
period are filed on a basis consistent common law standard. In that case, the the statutory provisions related to
with the taxpayer’s treatment of such agency that placed the home care seasonal workers are explicit that
individual as not being an employee, provider would not be subject to section seasonal workers are employees and
then, for purposes of applying such 4980H with respect to that particular that seasonal workers may be
taxes for such period with respect to the provider, and the service recipient disregarded for purposes of the
taxpayer, the individual shall be employer generally would not be subject determination of whether an employer
deemed not to be an employee unless to section 4980H with respect to any is an applicable large employer only if
the taxpayer had no reasonable basis for employee because the service recipient the seasonal workers cause the
not treating such individual as an is unlikely to employ 50 full-time employer to exceed 50 full-time
employee.’’ However, the relief under employees (including FTEs). employees for a period of no more than
Section 530 applies solely for purposes 120 days. Furthermore, no justification
of the employment tax provisions of the B. Section 3508 Employees was provided for exempting holders of
Code, and therefore does not apply to H–2B visas, which cover non-
potential liabilities under section Commenters requested clarification agricultural workers. For these reasons,
4980H. on whether the categories of workers the final regulations do not adopt the
identified in section 3508 (that is, real suggestion that holders of H–2A and H–
In response to the limitation on the estate agents and direct sellers) are 2B visas be generally exempted from the
relief under Section 530, commenters treated as employees for purposes of definition of employee for purposes of
requested that the Treasury Department section 4980H. Because section 3508 section 4980H.
and the IRS formulate a similar provides that the identified categories of
provision in these final regulations workers are not treated as employees for The final regulations also do not
applicable to potential liabilities under any purpose of the Code, the final adopt a special rule with respect to
section 4980H. The Treasury regulations clarify that workers these workers’ status as seasonal
Department and the IRS are concerned identified in section 3508 do not employees. The definition of seasonal
that the relief requested would serve to constitute employees for purposes of employee is different from the
increase the potential for worker section 4980H (and, therefore, do not definition of seasonal worker, and is
misclassification by significantly constitute full-time employees for any relevant to the determination of a
increasing the benefit of having an purpose, and their hours of service are worker’s status as a full-time employee
employee treated as an independent not taken into account in determining for reasons other than the entity’s
contractor. Accordingly, the final the number of an employer’s FTEs). determination of status as an applicable
regulations do not adopt this suggestion. large employer. In applying the
XIV. International Issues definition of seasonal employee,
XIII. Particular Positions of whether the employee holds any
Employment A. Foreign States and International particular visa is not relevant. See
Organizations section VII.C.8 of this preamble for a
A. Home Care Workers discussion of the definition of a
One commenter requested that the seasonal employee.
Commenters on behalf of the home Treasury Department and the IRS
care industry, as well as other consider the effect of U.S. laws and C. Employees Performing Services on
industries, stated that the additional treaty obligations on the applicability of Cruise Ships
expense of providing coverage or paying section 4980H to certain operations of
the assessable payment under section foreign states and certain international Representatives of the cruise ship
4980H could cause an employer organizations in the United States. Due industry requested that services
financial difficulties. The Treasury to these applicable U.S. laws and treaty performed on a cruise ship be treated as
Department and the IRS understand that obligations, certain operations of foreign services performed outside the United
in certain instances the additional states and certain international States, meaning that those services
expense may be a burden for an organizations would not be subject to would not count as hours of service for
employer; however, section 4980H assessable payments under section purposes of identifying an employer as
applies to all applicable large employers 4980H. Accordingly, the final an applicable large employer, or an
and does not provide an exception, regulations do not explicitly address employee as a full-time employee.
either for employers in a particular this matter. See section 894(a)(1). However, that treatment would be
industry such as the home care inconsistent with the longstanding rules
industry, or for employers with more B. Employees Holding H–2A and H–2B in section 863(c) that apply to
difficulty adjusting revenue streams. Visas transportation income derived from
Accordingly, the final regulations do not personal services and treat some such
provide for these types of exceptions. Commenters, generally representing income as income from sources within
employers in the agricultural industry, the United States. Under the general
Section 4980H applies, however, only requested that holders of H–2A and H– rules for determining hours of service
with respect to an applicable large 2B visas be exempted from the under both the proposed and the final
employer, and in some circumstances definition of employee for purposes of regulations, hours of service do not
the service recipient rather than a home section 4980H. The commenters include hours for which an employee
care agency may be the common law suggested that such employees are receives compensation that is taxed as
employer of the health care provider. generally seasonal workers, but that the income from sources outside the United
For example, if the service recipient has exemption for certain seasonal workers States. The final regulations clarify that
the right to direct and control the home for purposes of the definition of an

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00026 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2













Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations 8575

mstockstill on DSK4VPTVN1PROD with RULES2 c. Application of Transition Relief to full-time employee count for 2015 (but 7. Limited 2015 Section 4980H(a)
New Employers not for any subsequent year).15 Transition Relief

As described in section V.B of this e. Example a. Offers of Coverage to at Least 70
preamble, an employer that was not in Percent (Rather Than 95 Percent) of
existence on any day of the previous The following example illustrates the Full-Time Employees (and Their
calendar year may be an applicable large transition relief described in this section Dependents)
employer for the current calendar year XV.D.6 of the preamble:
if the employer is reasonably expected For purposes of section 4980H(a), the
to employ an average of at least 50 full- (i) Facts. As of February 9, 2014, final regulations provide that an
time employees (including FTEs) on Employer A sponsors a group health applicable large employer member is
business days during the current plan with a calendar year plan year treated as offering coverage to its full-
calendar year and it actually employs an under which 40 of its full-time time employees (and their dependents)
average of at least 50 full-time employees are offered coverage with an for a month if, for that month, it offers
employees (including FTEs) on business employer contribution of $300 per coverage to all but five percent or, if
days during the calendar year. For month for employee-only coverage. The greater, five, of its full-time employees.
employers first coming into existence in offer of coverage is affordable with As provided in § 54.4980H–4(a), an
2015 that are applicable large employers respect to some, but not all, of Employer employee is treated as having been
under the standard in the preceding A’s full-time employees. During the offered coverage only if the employer
sentence, the relief described in this period from February 9, 2014, through also offered coverage to that employee’s
section XV.D.6 applies if (1) the December 31, 2014, two of Employer A’s dependents. But see section XV.D.5 of
employer reasonably expects to employ employees voluntarily terminate this preamble for transition relief for a
and actually employs fewer than 100 employment and Employer A terminates failure to offer coverage to dependents
full-time employees (including FTEs) on three employees because of the non- for the 2015 plan year.
business days during 2015, (2) the renewal of a customer contract but does
employer reasonably expects to meet not otherwise reduce the size of its As further transition relief, for each
and actually meets the maintenance workforce or reduce any employee’s calendar month during 2015 and any
standards described in paragraphs (2) hours of service. Had those five calendar months during the 2015 plan
and (3) above, as measured from the employees continued in employment year that fall in 2016, an applicable
date the employer is first in existence, throughout 2014, the employer would large employer member that offers
and (3) the employer certifies in the have had an average of 100 full-time coverage to at least 70 percent (or that
manner described in paragraph (4) employees (including FTEs) on business fails to offer to no more than 30 percent)
above. days in 2014. However, as a result of the of its full-time employees (and, to the
terminations, it had an average of only extent required under § 54.4980H–4(a)
d. Coordination With Other Transition 97 full-time employees (including FTEs) and the transition relief in section
Relief for business days in 2014. During the XV.D.5 of this preamble, their
coverage maintenance period, Employer dependents) will not be subject to an
For periods on or after January 1, 2016 A does not change the eligibility assessable payment under section
(or, if applicable, for any period after the requirements for the group health plan 4980H(a). Applicable large employer
last day of the 2015 plan year), the (including not amending it to eliminate members qualifying for the transition
transition relief set forth in section its existing health coverage for relief set forth in this section XV.D.7.a
XV.D.1 (non-calendar plan years), dependents) and continues to make an continue to be subject to a potential
section XV.D.2 (shorter measurement employer contribution of $300 per assessable payment under section
periods permitted for stability period month toward the cost of employee-only 4980H(b).
starting during 2015), section XV.D.4 coverage that provides minimum valve.
(offer of coverage for January 2015), Employer A certifies in a timely manner b. Calculation of Assessable Payments
section XV.D.5 (coverage for as to its eligibility for the transition Under Section 4980H(a) for Applicable
dependents), and section XV.D.7 relief. Large Employers With 100 or More Full-
(limited 2015 section 4980H(a) Time Employees (Including FTEs) for
transition relief) of the preamble will (ii) Conclusion. Employer A will not 2015
not be available. The transition relief be subject to an assessable payment
listed in the prior sentence is available under section 4980H(a) or (b) for 2015. In general, an assessable payment
only with respect to 2015 or, if under section 4980H(a) is equal to the
applicable, the 2015 plan year and does 15 Section 54.4980H–2(b)(5) of the final number of all full-time employees
not apply to an applicable large regulations provides a transition rule for an (excluding 30 full-time employees)
employer that is eligible for the relief employer’s first year as an applicable large multiplied by one-twelfth of $2,000 for
described in this section XV.D.6 because employer, subject to certain conditions. Because an each calendar month. For purposes of
that eligible employer will first become employer qualifies for the relief set forth in the liability calculation under section
subject to a potential assessable § 54.4980H–2(b)(5) only for the first year that the 4980H(a), with respect to each calendar
payment under section 4980H after 2015 employer is an applicable large employer, the relief month, an applicable large employer
or, if applicable, after the 2015 plan year set forth in § 54.4980H–2(b)(5) will not be available member’s number of full-time
and, accordingly, already will have had to an applicable large employer that is eligible for employees is reduced by that member’s
the benefit of an extra year to plan for the relief described in this section XV.D.6 for the allocable share of 30. Accordingly, an
and implement changes. However, an first year for which the employer may be subject to applicable large employer with 50 full-
employer may use the rule set forth in an assessable payment under section 4980H time employees that is subject to an
section XV.D.3 of the preamble (shorter (generally 2016). assessable payment under section
period in 2014 permitted for 4980H(a) may be subject to an
determining applicable large employer assessable payment based on 20
status for 2015) in determining employees (that is, 50 minus 30) times
applicable large employer status and one-twelfth of $2,000 for each calendar
month. An applicable large employer
member’s allocation is equal to 30

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00033 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2

8576 Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations

mstockstill on DSK4VPTVN1PROD with RULES2 allocated ratably among all members of 2015), section XV.D.3 (shorter period provides MV is determined under
the applicable large employer on the permitted in 2014 for determining section 36B(c)(2)(C)(ii).
basis of the number of full-time applicable large employer status for
employees employed by each applicable 2015), section XV.D.4 (offer of coverage For purposes of determining whether
large employer member during the for January 2015), and section XV.D.5 coverage under the multiemployer plan
calendar month. See § 54.4980H–4(e). (coverage for dependents) of this is affordable, employers participating in
preamble. the plan may use any of the affordability
For 2015 plus any calendar months of safe harbors set forth in the final
2016 that fall within the employer’s E. Interim Guidance With Respect to regulations. Coverage under a
2015 plan year, if an applicable large Multiemployer Arrangements multiemployer plan will also be
employer with 100 or more full-time considered affordable with respect to a
employees (including FTEs) on business In response to commenters’ requests full-time employee if the employee’s
days during 2014 (or an applicable large for special rules for employers required contribution, if any, toward
employer member that is part of such an participating in multiemployer plans in self-only health coverage under the plan
applicable large employer) is subject to view of such plans’ unique operating does not exceed 9.5 percent of the wages
an assessable payment under section structures, section IX.D of the preamble reported to the qualified multiemployer
4980H(a), the assessable payment under to the proposed regulations, as plan, which may be determined based
section 4980H(a) with respect to the corrected, contains transition guidance on actual wages or an hourly wage rate
transition relief period will be that is intended to provide an under the applicable collective
calculated by reducing an applicable administratively feasible means for bargaining agreement or participation
large employer member’s number of employers that contribute to agreement.
full-time employees by that member’s multiemployer plans to comply with
allocable share of 80 rather than 30. The section 4980H. If any assessable payment were due
rules set forth in § 54.4980H–4(e) apply under section 4980H, it would be
with respect to allocation of the Pursuant to this preamble, employers payable by a participating applicable
reduction by 80 full-time employees for may rely on the interim guidance large employer member and that
the applicable large employer. For this described in this section XV.E. This member would be responsible for
transition relief period, the aggregate interim guidance is intended to identifying its full-time employees for
amount of assessable payment continue the transition guidance this purpose (which would be based on
determined under section 4980H(b) for originally set forth in section IX.D of the hours of service for that employer). If
an applicable large employer member preamble to the proposed regulations, as the applicable large employer member
also may not exceed the potential corrected, and as clarified in this contributes to one or more
assessable payment under section preamble. Any future guidance that multiemployer plans and also maintains
4980H(a), including the reduction by limits the scope of the interim guidance a single employer plan, the interim
the ratable portion of 80 as set forth in will be applied prospectively and will guidance applies to each multiemployer
this paragraph, for that applicable large apply no earlier than January 1 of the plan but not to the single employer
employer member.16 calendar year beginning at least six plan.
months after the date of issuance of the
c. Application to Non-Calendar Year guidance. One commenter asked whether the
Plans rule set out in section IX.D of the
This interim guidance applies to an preamble to the proposed regulations, as
The transition relief described in this applicable large employer member that corrected, applies to non-federal
section XV.D.7 applies to all calendar is required by a collective bargaining governmental multiemployer plans. The
months of 2015 plus any calendar agreement or an appropriate related commenter noted that the proposed
months of 2016 that fall within the participation agreement to make regulations do not define multiemployer
employer’s 2015 plan year, and is contributions, with respect to some or plan but that section 414(f)(1) defines a
available for an employer only if it did all of its employees, to a multiemployer multiemployer plan as a plan (A) to
not modify the plan year of its plan after plan that offers, to individuals who which more than one employer is
February 9, 2014, to begin on a later satisfy the plan’s eligibility conditions, required to contribute, (B) which is
calendar date (for example, changing the coverage that is affordable and provides maintained pursuant to one or more
start date of the plan year from January MV, and that offers coverage to those collective bargaining agreements
1 to December 1). individuals’ dependents. Under this between one or more employee
interim guidance, the applicable large organizations and more than one
d. Coordination With Other Transition employer member will not be treated, employer, and (C) which satisfies such
Relief with respect to employees for whom the other requirements as the Secretary of
employer is required by the collective Labor may prescribe by regulation. The
The relief described in this section bargaining agreement or appropriate commenter asked whether the rule set
XV.D.7 of the preamble applies in related participation agreement to make out in section IX.D of the preamble to
addition to the forms of transition relief contributions to the multiemployer the proposed regulations, as corrected,
described in section XV.D.1 (non- plan, as failing to offer the opportunity applies to public sector multiemployer
calendar plan years), section XV.D.2 to enroll in MEC to full-time employees plans which are not subject to the
(shorter measurement periods permitted (and their dependents) for purposes of jurisdiction of DOL. The rule set out in
for stability period starting during section 4980H(a), and will not be section IX.D of the preamble to the
subject to an assessable payment under proposed regulations and in this section
16 The number 80 applies for purposes of the 2015 section 4980H(b). For purposes of this of the preamble applies to a
transition rule in lieu of the number 30 that applies section XV.E of the preamble, whether multiemployer plan that is not subject
under the general rule because this maintains the the employee is a full-time employee is to the jurisdiction of DOL if the plan
same 20-full-time-employee difference between the determined under section 4980H(c)(4), meets the requirements of section
applicable threshold number (50 under the general whether coverage is affordable is 414(f)(1)(A) and (B).
rule; 100 under the 2015 transition rule) and the determined under section
number of full-time employees (30 under the 36B(c)(2)(C)(i), and whether coverage
general rule; 80 under the 2015 transition rule) by
which the applicable large employer’s number of
full-time employees is reduced.

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00034 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2













Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations 8583

mstockstill on DSK4VPTVN1PROD with RULES2 during the first year that an employer is employees each of whom averages 35 hours incorporation, Corporation S’s owners
an applicable large employer (and of service per week, 40 employees each of purchased a factory intended to open within
would not apply if, for example, the whom averages 90 hours of service per two calendar months of incorporation and to
employer falls below the 50 full-time calendar month, and no seasonal workers. employ approximately 100 full-time
employee (plus FTE) threshold for a employees. By March 15, 2016, Corporation
subsequent calendar year and then (ii) Conclusion. Each of the 20 employees S has more than 75 full-time employees.
increases employment and becomes an who average 35 hours of service per week
applicable large employer again). count as one full-time employee for each (ii) Conclusion. Because Corporation S can
calendar month. To determine the number of reasonably be expected to employ on average
(c) Full-time equivalent employees FTEs for each calendar month, the total hours at least 50 full-time employees on business
(FTEs)—(1) In general. In determining of service of the employees who are not full- days during 2016, and actually employs an
whether an employer is an applicable time employees (but not more than 120 hours average of at least 50 full-time employees on
large employer, the number of FTEs it of service per employee) are aggregated and business days during 2016, Corporation S is
employed during the preceding calendar divided by 120. The result is that the an applicable large employer (and an
year is taken into account. All employer has 30 FTEs for each calendar applicable large employer member) for
employees (including seasonal workers) month (40 × 90 = 3,600, and 3,600 ÷ 120 = calendar year 2016.
who were not employed on average at 30). Because Employer W has 50 full-time
least 30 hours of service per week for a employees (the sum of 20 full-time Example 6 (First year as applicable large
calendar month in the preceding employees and 30 FTEs) during each employer). (i) Facts. As of January 1, 2015,
calendar year are included in calendar month in 2015, and because the Employer R has been in existence for several
calculating the employer’s FTEs for that seasonal worker exception is not applicable, years and did not average 50 or more full-
calendar month. Employer W is an applicable large employer time employees (including FTEs) on business
for 2016. days during 2014. Employer R averages 50 or
(2) Calculating the number of FTEs. more full-time employees on business days
The number of FTEs for each calendar Example 3 (Seasonal worker exception). (i) during 2015, so that for 2016 Employer R is
month in the preceding calendar year is Facts. During 2015, Employer V has 40 full- an applicable large employer, for the first
determined by calculating the aggregate time employees for the entire calendar year, time. For all the calendar months of 2016,
number of hours of service for that none of whom are seasonal workers. In Employer R has the same 60 full-time
calendar month for employees who addition, Employer V also has 80 seasonal employees. Employer R offered 20 of those
were not full-time employees (but not workers who are full-time employees and full-time employees healthcare coverage
more than 120 hours of service for any who work for Employer V from September during 2015, and offered those same
employee) and dividing that number by through December 2015. Employer V has no employees coverage providing minimum
120. In determining the number of FTEs FTEs during 2015. value for 2016. With respect to the 40 full-
for each calendar month, fractions are time employees who were not offered
taken into account; an employer may (ii) Conclusion. Before applying the coverage during 2015, Employer R offers
round the number of FTEs for each seasonal worker exception, Employer V has coverage providing minimum value for
calendar month to the nearest one 40 full-time employees during each of eight calendar months April 2016 through
hundredth. calendar months of 2015, and 120 full-time December 2016.
employees during each of four calendar
(d) Examples. The following examples months of 2015, resulting in an average of (ii) Conclusion. For the 40 full-time
illustrate the rules of paragraphs (a) 66.67 full-time employees for the year. employees not offered coverage during 2015
through (c) of this section. In these However, Employer V’s workforce exceeded and offered coverage providing minimum
examples, hours of service are 50 full-time employees (counting seasonal value for the calendar months April 2016
computed following the rules set forth workers) for no more than four calendar through December 2016, the failure to offer
in § 54.4980H–3, and references to years months (treated as the equivalent of 120 coverage during the calendar months January
refer to calendar years unless otherwise days) in calendar year 2015, and the number 2016 through March 2016 will not result in
specified. The employers in Example 2 of full-time employees would be less than 50 an assessable payment under section 4980H
through Example 6 are each the sole during those months if seasonal workers with respect to those employees for those
applicable large employer member of were disregarded. Accordingly, because after three calendar months. For those same 40
the applicable large employer, as application of the seasonal worker exception full-time employees, the offer of coverage
determined under section 414(b), (c), described in paragraph (b)(2) of this section during the calendar months April 2016
(m), and (o). Employer V is not considered to employ through December 2016 may result in an
more than 50 full-time employees, Employer assessable payment under section 4980H(b)
Example 1 (Applicable large employer/ V is not an applicable large employer for with respect to any employee for any
controlled group). (i) Facts. For all of 2015 2016. calendar month for which the offer is not
and 2016, Corporation Z owns 100 percent of affordable and for which Employer R has
all classes of stock of Corporation Y and Example 4 (Seasonal workers and other received a Section 1411 Certification. For the
Corporation X. Corporation Z has no FTEs). (i) Facts. Same facts as Example 3, other 20 full-time employees, the offer of
employees at any time in 2015. For every except that Employer V has 20 FTEs in coverage during 2016 may result in an
calendar month in 2015, Corporation Y has August, some of whom are seasonal workers. assessable payment under section 4980H(b)
40 full-time employees and Corporation X for any calendar month if the offer is not
has 60 full-time employees. Corporations Z, (ii) Conclusion. The seasonal worker affordable and Employer R has received a
Y, and X are a controlled group of exception described in paragraph (b)(2) of Section 1411 Certification with respect to the
corporations under section 414(b). this section does not apply if the number of employee who received the offer of coverage.
an employer’s full-time employees (including For all calendar months of 2016, Employer R
(ii) Conclusion. Because Corporations Z, Y seasonal workers) and FTEs exceeds 50 for will not be subject to an assessable payment
and X have a combined total of 100 full-time more than 120 days during the calendar year. under section 4980H(a).
employees during 2015, Corporations Z, Y, Because Employer V has at least 50 full-time
and X together are an applicable large employees for a period greater than four (e) Additional guidance. With respect
employer for 2016. Each of Corporations Z, calendar months (treated as the equivalent of to an employer’s status as an applicable
Y and X is an applicable large employer 120 days) during 2015, the exception large employer, the Commissioner may
member for 2016. described in paragraph (b)(2) of this section prescribe additional guidance of general
does not apply. Employer V averaged 68 full- applicability, published in the Internal
Example 2 (Applicable large employer with time employees in 2015: [(40 × 7) + (60 × 1) Revenue Bulletin (see
FTEs). (i) Facts. During each calendar month + (120 × 4)] ÷ 12 = 68.33, and accordingly, § 601.601(d)(2)(ii)(b) of this chapter).
of 2015, Employer W has 20 full-time Employer V is an applicable large employer
for calendar year 2016. (f) Effective/applicability date. This
section is applicable for periods after
Example 5 (New employer). (i) Facts. December 31, 2014.
Corporation S is incorporated on January 1,
2016. On January 1, 2016, Corporation S has
three employees. However, prior to

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00041 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2















Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 / Rules and Regulations 8591

mstockstill on DSK4VPTVN1PROD with RULES2 period for new variable hour employees administrative period). (i) Facts. Same as addition, Employer Z tests Employee A again
that begins on the start date and applies Example 1, except that Employer Z uses an based on Employee A’s hours of service from
an administrative period from the end of 11-month initial measurement period that October 15, 2015, through October 14, 2016
the initial measurement period through begins on the start date and applies an (Employer Z’s first standard measurement
the end of the first calendar month administrative period from the end of the period that begins after Employee A’s start
beginning after the end of the initial initial measurement period until the end of date), determines that Employee A has an
measurement period. the second calendar month beginning after average of 30 hours of service per week
the end of the initial measurement period. during that period, and offers Employee A
Example 1 (12-Month initial measurement Employee A’s initial measurement period coverage for July 1, 2017, through December
period followed by 1+ partial month runs from May 10, 2015, through April 9, 31, 2017. (Employee A already has an offer
administrative period). (i) Facts. For new 2016. The administrative period associated of coverage for the period of January 1, 2017,
variable hour employees, Employer Z uses a with Employee A’s initial measurement through June 30, 2017, because that period is
12-month initial measurement period that period ends on June 30, 2016. Employee A covered by the initial stability period
begins on the start date and applies an has an average of 30 hours of service per following the initial measurement period,
administrative period from the end of the week during this initial measurement period. during which Employee A was determined to
initial measurement period through the end be a full-time employee.)
of the first calendar month beginning on or (ii) Conclusion. Same as Example 1.
after the end of the initial measurement Example 3 (11-Month initial measurement (ii) Conclusion. Employer Z is not subject
period. Employer Z hires Employee A on period preceded by partial month to any payment under section 4980H for any
May 10, 2015. Employee A’s initial administrative period and followed by 2- calendar month during 2017 with respect to
measurement period runs from May 10, 2015, month administrative period). (i) Facts. Employee A.
through May 9, 2016. Employee A has an Same as Example 1, except that Employer Z
average of 30 hours of service per week uses an 11-month initial measurement period Example 6 (Initially full-time employee,
during this initial measurement period. that begins on the first day of the first becomes non-full-time employee). (i) Facts.
Employer Z offers coverage that provides calendar month beginning after the start date Same as Example 1; in addition, Employer Z
minimum value to Employee A for a stability and applies an administrative period that tests Employee A again based on Employee
period that runs from July 1, 2016, through runs from the end of the initial measurement A’s hours of service from October 15, 2015,
June 30, 2017. For each calendar month period through the end of the second through October 14, 2016 (Employer Z’s first
during the period beginning with June 2015 calendar month beginning on or after the end standard measurement period that begins
and ending with June 2016, Employee A is of the initial measurement period. Employee after Employee A’s start date), and
otherwise eligible for an offer of coverage A’s initial measurement period runs from determines that Employee A has an average
with respect to the coverage that is offered to June 1, 2015, through April 30, 2016. The of 28 hours of service per week during that
Employee A on July 1, 2016. administrative period associated with period. Employer Z continues to offer
Employee A’s initial measurement period coverage to Employee A through June 30,
(ii) Conclusion. Employer Z uses an initial ends on June 30, 2016. Employee A has an 2017 (the end of the stability period based on
measurement period that does not exceed 12 average of 30 hours of service per week the initial measurement period during which
months; an administrative period totaling not during this initial measurement period. Employee A was determined to be a full-time
more than 90 days; and a combined initial (ii) Conclusion. Same as Example 1. employee), but does not offer coverage to
measurement period and administrative Example 4 (12-Month initial measurement Employee A for the period of July 1, 2017,
period that does not last beyond the final day period preceded by partial month through December 31, 2017.
of the first calendar month beginning on or administrative period and followed by 2-
after the one-year anniversary of Employee month administrative period). (i) Facts. For (ii) Conclusion. Employer Z is not subject
A’s start date. Accordingly, Employer Z new variable hour employees, Employer Z to any payment under section 4980H for any
complies with the standards for the initial uses a 12-month initial measurement period calendar month during 2017 with respect to
measurement period and stability periods for that begins on the first day of the first month Employee A.
a new variable hour employee. Employer Z following the start date and applies an
will not be subject to an assessable payment administrative period that runs from the end Example 7 (Initially non-full-time
under section 4980H(a) with respect to of the initial measurement period through the employee). (i) Facts. Same as Example 1,
Employee A for any calendar month from end of the second calendar month beginning except that Employee A has an average of 28
June 2015 through June 2016 because, for on or after the end of the initial measurement hours of service per week during the initial
each month during that period, Employee A period. Employer Z hires Employee A on measurement period (May 10, 2015, through
is otherwise eligible for an offer of coverage May 10, 2015. Employee A’s initial May 9, 2016), and Employer Z does not offer
and because coverage is offered no later than measurement period runs from June 1, 2015, coverage to Employee A for any calendar
the end of the initial measurement period through May 31, 2016. Employee A has an month in 2016.
plus the associated administrative period average of 30 hours of service per week
(July 1, 2016). Employer Z will not be subject during this initial measurement period. (ii) Conclusion. From Employee A’s start
to an assessable payment under section Employer Z offers coverage to Employee A date through the end of 2016, Employer Z is
4980H(b) with respect to Employee A for any for a stability period that runs from August not subject to any payment under section
calendar month from June 2015 through June 1, 2016, through July 31, 2017. 4980H with respect to Employee A, because
2016 because the coverage Employer Z offers (ii) Conclusion. Employer Z does not Employer Z complies with the standards for
to Employee A provides minimum value. satisfy the standards for the look-back the measurement and stability periods for a
Employer Z will not be subject to an measurement method in paragraph new variable hour employee with respect to
assessable payment under section 4980H(a) (d)(3)(vi)(B) of this section because the Employee A and because under those
or (b) with respect to Employee A for May combination of the initial partial month standards, Employee A is not a full-time
2015 because an applicable large employer delay, the 12-month initial measurement employee for any month during 2016.
member is not subject to an assessable period, and the two month administrative
payment under section 4980H with respect to period means that the coverage offered to Example 8 (Initially non-full-time
an employee for the calendar month in which Employee A does not become effective until employee, becomes full-time employee). (i)
falls the employee’s start date if the start date after the first day of the second calendar Facts. Same as Example 7; in addition,
is on a date other than the first day of the month following the first anniversary of Employer Z tests Employee A again based on
calendar month. Employer Z must test Employee A’s start date. Accordingly, Employee A’s hours of service from October
Employee A again based on the period from Employer Z is potentially subject to an 15, 2015, through October 14, 2016
October 15, 2015, through October 14, 2016 assessable payment under section 4980H for (Employer Z’s first standard measurement
(Employer Z’s first standard measurement each full calendar month during the initial period that begins after Employee A’s start
period that begins after Employee A’s start measurement period and associated date), determines that Employee A has an
date). administrative period. average of 30 hours of service per week
Example 5 (Continuous full-time during this standard measurement period,
Example 2 (11-Month initial measurement employee). (i) Facts. Same as Example 1; in and offers coverage to Employee A for 2017.
period followed by 2+ partial month
(ii) Conclusion. Employer Z is not subject
to any payment under section 4980H for any
calendar month during 2017 with respect to
Employee A.

VerDate Mar<15>2010 17:32 Feb 11, 2014 Jkt 232001 PO 00000 Frm 00049 Fmt 4701 Sfmt 4700 E:\FR\FM\12FER2.SGM 12FER2