Second Opinions

SECOND OPINIONS: Final Regulations on Employer Shared Responsibility Rules

May 7, 2014 ( - On February 12, 2014, Treasury and the Internal Revenue Service (IRS) published long-awaited final regulations on the Patient Protection and Affordable Care Act’s (ACA’s) Code section 4980H employer shared responsibility provisions.

By PS | May 07, 2014
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We address recent questions we have received about the employer shared responsibility provisions and final regulations.

Do the final regulations include look-back rules for employers to use in determining their full-time employees?

Yes.  The final regulations retain the optional look-back measurement method from the proposed regulations.  The final regulations do not fundamentally change or simplify the look-back measurement method but do make changes to certain requirements.  For example, the final regulations retain the look-back rules that apply to “ongoing employees” and the look-back rules that apply to new “variable hour” or “seasonal employees.”  The final regulations also create a new category of employee – “part-time” – for a new employee who is reasonably expected at his/her start date to not be a full-time employee and is not a variable hour or seasonal employee.  The look-back rules that apply to new variable hour and seasonal employees also apply to new part-time employees.

What is the definition of seasonal employee for purposes of applying the new employee look-back rules? 

The final regulations define the term seasonal employee as an employee in a position for which the customary annual employment is six months or less.  The preamble notes that the period of employment should generally begin in the same part of the year each year, like summer or winter, and an employee can still be considered seasonal if the employment period extends beyond its customary duration – like ski instructors during a long snow season. 

What alternative measurement methods are available to an employer that chooses not to use the look-back method?

The proposed regulations included optional look-back rules but did not specify how an employer is to determine full-time employee status if it decided not to use the look-back method.  The preamble to the final regulation states that, pursuant to the statute, employees for whom a look-back method is not being used must be identified based on actual hours of service for each calendar month.  The final regulations call this method the “monthly measurement method” and provide some rules on this determination.  In general, this method requires an employer to count an employee’s hours during a particular month to see if the employee was full-time (i.e., had an average of at least 30 hours of service per week) for that month.  It is unclear how this method would apply in practice for employers that have employees who work full-time hours one month and non-full-time hours the next month.  It seems likely that the IRS intended for the monthly measurement period to be used more as an “after the fact” method to calculate excise tax liability rather than as a plan design method.