On December 28, 2012, the Internal Revenue Service (IRS) issued proposed regulations under the Employer Shared Responsibility provisions of Obamacare. To be subject to the provisions, an employer must have at least 50 full-time employees or a combination of full-time and part-time employees that is equivalent to at least 50 full-time employees. Companies that have a common owner or are otherwise related generally are combined together for purposes of determining whether or not they employ at least 50 employees. Those employers that may be close to the 50 full-time employees (or equivalent) threshold need to know what to do for 2014, so special transition relief is available to help them count their employees in 2013. This will provide additional information about how to determine the average number employees for the year. While the Employer Shared Responsibility provisions generally go into effect on January 1, 2014, employers will use information about the employees they employed during 2013 to determine whether they employ enough employees to be subject to these new provisions in 2014.
Determination of Liability
In 2014, an employer meeting the 50 employee threshold will generally be liable for an employer shared responsibility payment only if: (a) the employer does not offer health coverage or offers coverage to less than 95% of its full-time employees and at least one of the full-time employees receives a premium tax credit to help pay for coverage on an exchange; or (b) the employer offers health coverage to at least 95% of its full-time employees, and at least one full-time employee receives a premium tax credit to help pay for coverage on an exchange, which may occur because the employer did not offer coverage to that employee or because the coverage the employer offered that employee was either unaffordable to the employee or did not provide minimum value. In determining whether the coverage the employer offers is affordable, if an employee’s share of the premium from employer-provided coverage would cost the employee more than 9.5% of that employee’s annual household income, the coverage is not considered affordable for that employee. If an employer offers multiple healthcare coverage options, the affordability test applies to the lowest-cost option available to the employee that also meets the minimum value requirement. Various safe harbors are provided in determining employees’ household incomes, including, but not limited to, wages the employer pays the employee that year as recorded on the Form W-2. In determining whether the coverage offered provides minimum value, there will be a minimum value calculator made available whereby employers can input certain information about the plan, such as deductibles and co-pays, and get a determination as to whether the plan provides minimum value by covering at least 60% of the total allowed cost of benefits that are expected to be incurred under the plan.
Calculation of the Tax
If the employer is subject to the Employer Shared Responsibility provisions and does not offer coverage during the 2014 calendar year to at least 95% of its full-time employees, it owes the Employer Shared Responsibility payment equal to the number of full-time employees the employer employed for the year (minus 30) multiplied by $2,000, as long as at least one full-time employee receives a premium tax credit. The payment is computed separately for each month.
Slightly different rules apply if an employer offers coverage to at least 95% of its employees, but has one or more full-time employees who receive a premium tax credit. In this situation, the amount of the payment for the month equals the number of full-time employees who receive a premium tax credit for that month multiplied by one-twelfth (1/12) of $3,000. The amount of maximum payment for any calendar month is kept at the number of the employer’s full-time employees for the month (minus up to 30) multiplied by one-twelfth (1/12) of $2,000.
The IRS will contact employers to inform them of their potential liability and provide them an opportunity to respond before any liability is assessed and before notice and demand for payment is made.
Special Transition Rules for 2014
Special transition rules apply during 2014 for employers’ health plans run on fiscal year plan year basis which start in 2013 and run into 2014. First, for any employees who are eligible to participate in the plan under its terms as of December 27, 2012 (whether or not they take the coverage), the employer will not be subject to a potential payment until the first day of the fiscal plan year starting in 2014. Second, if (a) the fiscal year plan was offered to at least one-third (1/3) of the employer’s employees at the most recent open season; or (b) for the fiscal year the plan covered at least one quarter of the employer’s employees, then the employer also will not be subject to the Employer Shared Responsibility payment with respect to any of its full-time employees until the first day of the fiscal plan year starting in 2014, provided that those full-time employees are offered affordable coverage that meets minimum value no later than that first day.
Other transition relief is available to help employers that are close to the 50 full-time employees threshold to determine their options for 2014. Rather than being required to use the full twelve months of 2013 to measure whether it has fifty (50) full-time employees, an employer may measure using any six-consecutive-month period in 2013.
Also, for 2014 only, the regulations offer transitional relief for employers that do not currently provide dependent coverage. After 2014, employers that do not offer coverage or that offer coverage to less than 95%of their full time employees and the dependents of those employees will be subject to the Employer Shared Responsibility payment.
Status of Proposed Regulations
Written comments are due on the proposed regulations by March 18, 2013, and there will be a public hearing on April 23, 2013.
In December, Michigan became the 24th right to work State in the nation. Michigan is certainly an unlikely candidate for such a distinction, with one of the highest unionization rates in the U.S., and home of the United Auto Workers Union. How did it happen, and what does this mean for the future of right to work laws?
State right-to-work laws are allowed under the famous Section 14(b) of the National Labor Relations Act, a provision which allows States to pass laws for individual workers to choose for themselves if they want to join a Union or pay Union dues. This concept certainly has an appeal on civil rights grounds, and a number of studies have shown that most of the States with the highest personal income growth have right-to-work laws. In fact, the numbers actually show a migration of workers from forced union States to right-to-work States.
The right-to-work issue gained public attention during 2011 when the National Labor Relations Board issued an unfair labor practice complaint against Boeing, relating to its opening a plant in a right-to-work State (South Carolina) rather than the State of Washington. The outcome of the action ironically served to demonstrate that State right-to-work laws had helped pull businesses away from other States and create jobs in right-to-work States. The political fall-out of the NLRB complaint was so severe, that allegedly the Union dropped the complaint to avoid political consequences on the November elections.
Other things were going on in Michigan that created a background for the legislative action. In the November elections, the Union movement in Michigan had attempted to write the collective bargaining concept into the state constitution, a measure that would have barred not only against State right-to-work laws but also efforts to control state and local public employee bargaining. The measure gathered only 42 percent of the votes, and encouraged the right-to-work movement. Further, a neighboring State (Indiana) had become the 23rd right-to-work State in February 2012, and there were published reports of job improvements in the State of Indiana following the change. The last previous State to become right-to-work was Oklahoma in 2001.
The passage of right-to-work laws in Michigan was related to support by a Republican governor, and passage of the bill by two houses of the State legislature with Republican majorities. The State legislature in New Hampshire approved a right-to-work measure in 2011, but it was vetoed by the Democratic governor. In other States, Democratic governors generally are threatening to veto such legislation if it reaches their desks.
Possible candidates for State right-to-work laws in the future include Ohio and Pennsylvania, both with Republican governors and GOP-lead legislatures. However, both governors indicate that such legislation is not a priority. Another possibility is Missouri, where Republicans hold veto-proof majorities in both the State house and senate.
Supporters of right-to-work legislation contend that the bill supports the rights of individual workers and encourages job growth. Democrats and supporters of organized labor argue that employees in right-to-work States have lower wages, and encourage persons not paying dues to be “free-riders” not supporting the expenses of collective bargaining.