Transitional Relief for the Employer Mandate

The Affordable Care Act (ACA) introduced the employer shared responsibility provisions (ESRP), a set of rules often called the employer mandate. These provisions require certain employers to offer qualifying health coverage to their full-time employees or face potential payments to the Internal Revenue Service (IRS). To ease the transition, the government provided temporary relief measures for employers to help them phase into these new requirements.

This transitional relief was primarily available for the 2015 calendar year and is no longer in effect. This information is most relevant for organizations reviewing their historical compliance records or responding to IRS correspondence concerning that specific period.

Determining Applicable Large Employer Status

The first step for any business was to determine if it was an “Applicable Large Employer” (ALE), as only ALEs were subject to the employer mandate. This status was not based on a simple headcount but on a specific calculation method using data from the previous calendar year. An employer’s status in 2014 would dictate its obligations for 2015.

An employer first had to count its full-time employees, defined as any employee who, on average, worked 30 or more hours per week. The employer then had to account for its part-time employees by calculating their full-time equivalent (FTE) value. This was accomplished by taking the total hours worked by all part-time employees in a month and dividing that number by 120.

The sum of the full-time employees and the calculated FTEs determined the employer’s size for ACA purposes. If that total number was 50 or more, the business was considered an ALE. For example, a company with 40 full-time employees and part-time employees who worked a combined 1,800 hours in a month would have 15 FTEs (1,800 / 120), resulting in a total of 55.

For the 2015 transition year, a special rule allowed employers to use a shorter measurement period to determine their ALE status. Instead of using data from the entire 2014 calendar year, an employer could choose a period of at least six consecutive months from 2014 to perform its calculation.

Relief for Employers with 50 to 99 Full-Time Employees

A significant form of transitional relief was offered to ALEs with a workforce of 50 to 99 full-time employees, including equivalents. For the 2015 plan year, these employers were generally shielded from making an employer shared responsibility payment. This effectively amounted to a one-year delay of the mandate’s financial consequences for this specific group of smaller ALEs, giving them additional time to prepare for compliance.

To qualify for this relief, employers had to meet certain conditions. A primary requirement was that the employer could not have reduced its workforce size or the hours of service for its employees during 2014 specifically to fall below the 100-employee threshold.

Furthermore, if the employer already offered health coverage, it was required to continue maintaining that coverage through the 2015 plan year. Claiming this relief required a formal certification to the IRS that the employer met all the necessary conditions for the relief, which was part of the annual information reporting process.

Relief for Employers with 100 or More Full-Time Employees

Larger employers, those with 100 or more full-time and full-time equivalent employees, were not exempt from the mandate in 2015 but were granted a different set of transitional relief provisions. These measures were designed to reduce the immediate compliance burden and potential financial impact for the initial year.

One of the most significant relief provisions for these larger ALEs was a temporary reduction in the coverage threshold. Under the permanent rules, an employer must offer coverage to at least 95% of its full-time employees. For 2015, transitional relief lowered this bar, requiring employers to offer coverage to just 70% of their full-time employees and their dependents.

Another form of relief adjusted the calculation for the shared responsibility payment. Normally, the payment is calculated based on the employer’s total number of full-time employees, with a reduction of 30 employees. For 2015, the transitional relief made this calculation more favorable by allowing the employer to reduce its full-time employee count by 80.

These provisions worked together to create a phased-in approach to the mandate’s requirements. The relief provided a bridge to the full 95% coverage requirement and the standard penalty calculation that would take effect in subsequent years.

Reporting Transitional Relief on Required Forms

Employers claimed their eligibility for the various 2015 transitional relief provisions through specific IRS forms. The primary document for this purpose was Form 1094-C, the “Transmittal of Employer-Provided Health Insurance Offer and Coverage Information Returns.” This form served as a summary of the employer’s compliance status and was filed annually with the IRS along with individual employee statements on Form 1095-C.

On Form 1094-C, an employer certified its eligibility for specific relief by checking designated boxes and entering corresponding codes. An employer with 50 to 99 full-time equivalent employees would indicate on Part II, line 22, that it was eligible for “Section 4980H Transition Relief” by checking Box C. This served as the formal certification that the employer met the conditions for delaying the employer shared responsibility payment.

For larger employers with 100 or more employees, different parts of the form were used to report their use of transitional relief. To claim the relief that lowered the coverage offer threshold to 70%, these employers would also check Box C in Part II for “Section 4980H Transition Relief.” Then, in Part III, column (e), they would enter a code to certify their eligibility.

Properly completing Form 1094-C was the mechanism by which an ALE communicated its compliance strategy to the IRS. Failure to accurately report eligibility for transitional relief could lead to incorrect penalty assessments and further correspondence with the agency.