Reform Q&A

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According to our attorney:

This depends on whether the employees leased through the PEO are common-law employees of the employer. Leased employees who provide services to the employer under an agreement between the employer and a leasing organization may or may not be considered a common-law employee of the employer that is receiving the worker’s services.  

IRS Publication 15-A provides the guidance below to help employer’s determine if an individual is there common-law employee:

Common-Law Rules

To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. In any employee-independent contractor determination, all information that provides evidence of the degree of control and the degree of independence must be considered.

Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties. These facts are discussed next.

Behavioral control.   Facts that show whether the business has a right to direct and control how the worker does the task for which the worker is hired include the type and degree of:

Instructions that the business gives to the worker.   An employee is generally subject to the business' instructions about when, where, and how to work. All of the following are examples of types of instructions about how to do work.

  • When and where to do the work.
  • What tools or equipment to use.
  • What workers to hire or to assist with the work.
  • Where to purchase supplies and services.
  • What work must be performed by a specified individual.
  • What order or sequence to follow.

The amount of instruction needed varies among different jobs. Even if no instructions are given, sufficient behavioral control may exist if the employer has the right to control how the work results are achieved. A business may lack the knowledge to instruct some highly specialized professionals; in other cases, the task may require little or no instruction. The key consideration is whether the business has retained the right to control the details of a worker's performance or instead has given up that right.

Training that the business gives to the worker.   An employee may be trained to perform services in a particular manner. Independent contractors ordinarily use their own methods.

Financial control.   Facts that show whether the business has a right to control the business aspects of the worker's job include:

The extent to which the worker has unreimbursed business expenses.   Independent contractors are more likely to have unreimbursed expenses than are employees. Fixed ongoing costs that are incurred regardless of whether work is currently being performed are especially important. However, employees may also incur unreimbursed expenses in connection with the services that they perform for their employer.

The extent of the worker's investment.   An independent contractor often has a significant investment in the facilities or tools he or she uses in performing services for someone else. However, a significant investment is not necessary for independent contractor status.

The extent to which the worker makes his or her services available to the relevant market.   An independent contractor is generally free to seek out business opportunities. Independent contractors often advertise, maintain a visible business location, and are available to work in the relevant market.

How the business pays the worker.   An employee is generally guaranteed a regular wage amount for an hourly, weekly, or other period of time. This usually indicates that a worker is an employee, even when the wage or salary is supplemented by a commission. An independent contractor is often paid a flat fee or on a time and materials basis for the job. However, it is common in some professions, such as law, to pay independent contractors hourly.

The extent to which the worker can realize a profit or loss.   An independent contractor can make a profit or loss.

Type of relationship.   Facts that show the parties' type of relationship include:

  • Written contracts describing the relationship the parties intended to create.
  • Whether or not the business provides the worker with employee-type benefits, such as insurance, a pension plan, vacation pay, or sick pay.
  • The permanency of the relationship. If you engage a worker with the expectation that the relationship will continue indefinitely, rather than for a specific project or period, this is generally considered evidence that your intent was to create an employer-employee relationship.
  • The extent to which services performed by the worker are a key aspect of the regular business of the company. If a worker provides services that are a key aspect of your regular business activity, it is more likely that you will have the right to direct and control his or her activities. For example, if a law firm hires an attorney, it is likely that it will present the attorney's work as its own and would have the right to control or direct that work. This would indicate an employer-employee relationship.

Note:  Professional employer organization (PEO) arrangements vary; employers who use PEOs or other leasing organizations should consult with experienced legal counsel.

 

This may be a carrier specific change because according to healthcare.gov (Georgia is under Federal Exchange) and DC HealthLink, a “mom and pop” is not considered a group.  

Here is an excerpt from https://dchealthlink.com/node/1699 

Small businesses that meet all of the following four criteria are eligible to purchase insurance coverage through DC Health Link:

  1. Has a valid federal tax identification number (EIN);
  2. Has 1-50 full-time equivalent employees (FTEs), not including owner(s); (Beginning in 2016, DC Health Link will expand to offer coverage to small employers with 1-100 FTEs)
  3. Offers coverage, at a minimum, to all full-time employees working at least 30 hours per week; and
  4. Has its principal business address in the District of Columbia and offers coverage to all full-time employees through DC Health Link

An excerpt from Healthcare.gov:

To participate in the Small Business Health Options Program(SHOP) Marketplace, you must:

  • Have a principal business address within the state where you’re buying coverage, or have an eligible employee with a primary worksite within the state where you’re buying coverage. Find out who to contact if you have questions or need help.
  • Have at least one common-law employee on payroll (not including a business owner or sole proprietor or their spouses on the payroll). For the definition of a common-law employee, visit the IRS website at irs.gov/Businesses/Small-Businesses-&-Self-Employed/Employee-Common-Law-Employee.

Yes, the employer mandate was delayed.  The employer mandate and potential assessment of employer penalties was originally effective January 1, 2014.  On July 2, 2013, the mandate was delayed for one year until January 1, 2015.  Then, on February 12, 2014, it was delayed until January 1, 2016 for large employers with between 50 and 99 full-time employees who meet certain criteria. 

The three conditions that have to be satisfied are: 

  1. During the period beginning on February 9, 2014, and ending on December 31, 2014, you are not able to reduce the size of your workforce or the overall hours of service of your employees solely in order to satisfy the condition of having between 50 and 99 full-time employees (including full-time equivalents). If a reduction in workforce size or overall hours of service was made for bona fide business reasons, it will not be considered to have been made in order to satisfy the workforce size condition (and thus would be permissible); and 
  2. You cannot eliminate or materially reduce the health coverage, if any, you offered as of February 9, 2014 during either a) the period beginning on February 9, 2014, and ending on December 31, 2015 if you have a calendar year plan; or b) for the period beginning on February 9, 2014, and ending on the last day of the plan year that begins in 2015 if you have a non-calendar year plan. This means that between the dates described above, you cannot narrow or reduce the class of employees (or dependents) eligible for coverage on 2/9/14 and you must continue to make a contribution toward the cost of employee-only coverage that is either (a) at least 95% of the dollar amount contributed on February 9, 2014 or (b) was the same (or a higher) percentage of the cost contributed on February 9, 2014. 
  3. You certify, on a prescribed form to be issued at a later date, that you meet the eligibility requirements set forth above. 

Note: The employer mandate has been delayed until January 1, 2015 for employers with 100 or more full-time employees and until January 1, 2016 for large employers with between 50 and 99 full-time employees who met certain criteria.

Question:

I was introduced the other day to a new company called Gravie, www.gravie.com and they were trying to sell it as a federal and private exchange for individual employees, but the sales representative was also saying that employers could "drop group and buy individual coverage".  When I asked if they dropped group and replaced with individual would this satisfy the employer mandate of offering an affordable MEC plan, I was told it does as the employer can provide a variable contribution.  In other words, they use internet and call center to enroll employees and see if each individual qualifies for subsidies and they will then apply subsidy and then they can have employer provide contribution.  If you can have your counsel look at website and let me know your thoughts, I would greatly appreciate it as I do not believe this will satisfy the employer mandate and I believe they are misleading employers.  

Answer:


We had a similar question posed by another broker, which essentially focused on the employer contributions and how they are paid.  The answer, by attorney Jennifer Berman, is as follows:

 

As a general matter, health care reform has changed the rules for health insurance coverage paid for by an employer.  I’ve summarized the current state of the law below.  Please note that this guidance applies irrespective of employer size.

 

If coverage is being provided through an employer-sponsored medical plan:

  • The employer can pay all or a portion of the cost of that coverage before taxes.  The section of Rev. Rul. 61-146 addressing employer-sponsored coverage is still applicable.  (The sections of Rev. Rul. 61-146 addressing non-employer coverage is superseded by the Affordable Care Act.)
  • If employees are contributing towards the cost of their premiums on a pre-tax basis, a 125 plan must be in place.
  • The employer needs to ensure the plan complies with ERISA.  Generally speaking, this includes implementing a wrap plan document and meeting certain distribution requirements. 

If coverage is NOT provided through an employer-sponsored health plan:

  • The value of any employer contributions towards the cost of that coverage MUST be imputed into the employee’s income and employees may not be permitted to pay premiums on a pre-tax basis via payroll deductions.  In the event that the value any coverage paid for by the employer is not included in the employee’s income, the employer is subject to a potential penalty of $100/employee/day.  

The foundation for this rule is outlined in IRS Notice 2013-54.  Essentially, an employer contribution towards the cost of non-employer sponsored coverage is deemed to be either a health reimbursement arrangement or an employer payment plan.  In either case, such an arrangement is deemed to create a medical plan subject to health care reform.  Health care reform requires that medical plans may not impose annual limits on coverage for essential health benefits and pay for preventive are on a first-dollar basis.  Because, in this context neither employer reimbursement arrangements nor employer payment plans meet these criteria, the $100/day penalty under health care reform can be triggered.

Attached is an IRS Q&A emphasizing the existence of this penalty.

At a high level, these rules are designed to eliminate the ability of employers to pay premiums for non-employer sponsored plans on a tax-preferred basis.  With respect to the under 50 market in particular, this new policy has been viewed by many as a mechanism to keep employers who are not subject to the employer mandate from eliminating their health plans.

 

Yes, your statement is correct.  Below is an excerpt from http://www.irs.gov/uac/Form-W-2-Reporting-of-Employer-Sponsored-Health-Coverage showing the transition relief will remain in effect until further guidance is issued.

Transition Relief

For certain employers, types of coverage and situations, there is transition relief from the requirement to report the value of coverage beginning with the 2012 Forms W-2.  This transition relief applies to the 2013 Forms W-2 and will continue to apply to future calendar years until the IRS publishes additional guidance.  (Note: employers generally are required to provide employees with the 2013 Forms W-2 in January 2014.) Any guidance that expands the reporting requirements will apply only to calendar years that start at least six months after the guidance is issued.  See the “Optional Reporting” column in the below chart for the employers, types of coverage, and situations eligible for the transition relief.

 

No, it applies to a group of any size.  

Yes, you are correct.  When HRAs are integrated with other coverage under a group health plan (i.e. with a high deductible major medical plan) and the employee is enrolled in both, the fact that the benefits are limited under the HRA does not cause it to violate PPACA, if the major medical coverage is in compliance with all the applicable health insurance reform provisions.

 

Our attorney, Jennifer Berman, answered this question and below is her reply.

As a general matter, health care reform has changed the rules for health insurance coverage paid for by an employer.  I’ve summarized the current state of the law below.  Please note that this guidance applies irrespective of employer size.

If coverage is being provided through an employer-sponsored medical plan:

  • The employer can pay all or a portion of the cost of that coverage before taxes.  The section of Rev. Rul. 61-146 addressing employer-sponsored coverage is still applicable.  (The sections of Rev. Rul. 61-146 addressing non-employer coverage is superseded by the Affordable Care Act.)
  • If employees are contributing towards the cost of their premiums on a pre-tax basis, a 125 plan must be in place.
  • The employer needs to ensure the plan complies with ERISA.  Generally speaking, this includes implementing a wrap plan document and meeting certain distribution requirements. 

If coverage is NOT provided through an employer-sponsored health plan:

  • The value of any employer contributions towards the cost of that coverage MUST be imputed into the employee’s income and employees may not be permitted to pay premiums on a pre-tax basis via payroll deductions.  In the event that the value any coverage paid for by the employer is not included in the employee’s income, the employer is subject to a potential penalty of $100/employee/day.  

The foundation for this rule is outlined in IRS Notice 2013-54.  Essentially, an employer contribution towards the cost of non-employer sponsored coverage is deemed to be either a health reimbursement arrangement or an employer payment plan.  In either case, such an arrangement is deemed to create a medical plan subject to health care reform.  Health care reform requires that medical plans may not impose annual limits on coverage for essential health benefits and pay for preventive are on a first-dollar basis.  Because, in this context neither employer reimbursement arrangements nor employer payment plans meet these criteria, the $100/day penalty under health care reform can be triggered.

Attached is an IRS Q&A emphasizing the existence of this penalty.

At a high level, these rules are designed to eliminate the ability of employers to pay premiums for non-employer sponsored plans on a tax-preferred basis.  With respect to the under 50 market in particular, this new policy has been viewed by many as a mechanism to keep employers who are not subject to the employer mandate from eliminating their health plans.

 

We will assume you are asking about a non-calendar year plan and the group has 100 or more FTEs.  If so, the criteria below must be met for the mandate to be in effective for their calendar year renewal date.  

The employer shared responsibility mandate is generally effective on January 1, 2015.  However, transition rules apply that may delay the assessment of penalties until the first day of your first plan year that starts on or after January 1, 2015.  The transition rules say that if 1) you maintained a non-calendar year plan as of December 27, 2012; 2) your plan year was not modified after December 27, 2012 to begin at a later calendar date; 3) at least 95% (70% if certain criteria as described above are met) of your full-time employees are offered coverage no later than that first day of the plan year that starts in 2015; and 4) your employees would not be eligible for coverage under any other of your group health plans that has a calendar year plan year, penalties will not be assessed for the months prior to the first day of the plan year that starts in 2015 for (below is using a July 1, 2015 as the renewal date): 

  1. Any employee (whenever hired) that would be eligible for coverage, as of the first day of the first plan year that begins in 2015 under the eligibility terms of the plan as in effect on February 9, 2014; and 
  2. Any other employees that are not eligible under the terms of the plan in effect on February 9, 2014 if: 
  • your non-calendar year plan covered at least one quarter of your employees (full-time and part-time) as of any date in the 12 months ending on February 9, 2014 or your plan offered coverage to at least one third of your employees (full-time and part-time) during the open enrollment period that ended most recently before February 9, 2014; OR 
  • your non-calendar year plan covered at least one third of your full-time employees as of any date in the 12 months ending on February 9, 2014 or your plan offered coverage to one half or more of your full-time employees during the open enrollment period that ended most recently before February 9, 2014. 

Therefore, if the four criteria described above are met, for any of your employees who are eligible to participate in the plan under its terms as of February 9, 2014 (whether or not they take the coverage), you will not be subject to a penalty for those employees until July 1, 2015 if they are offered affordable coverage that provides minimum value no later than July 1, 2015. 

For any other of your employees that were not eligible to participate under the terms of the plan in effect on February 9, 2014, you can avoid liability for a penalty for those non-eligible employees until July 1, 2015 if they are offered affordable, minimum value coverage on July 1, 2015 and: 

  1. Your plan covered at least one quarter of all your full-time and part-time employees as of any date in the 12 months ending  on February 9, 2014 or offered coverage under your non-calendar year plan to at least one third of your full-time and part-time employees during the open enrollment period for your July 1, 2013 renewal; OR 
  2. Your plan covered at least one third of your full-time employees as of any date in the 12 months ending on February 9, 2014 or offered coverage to one half or more of your full-time employees during the open enrollment period for your July 1, 2013 renewal. 
 

Unfortunately, what you heard is not correct.  Look back periods are still being used.

New “Variable Hour” Employees

Employees would be considered to be full-time employees if they work on average at least 130 hours per month.  For example, using a 12-month measurement period you would count up the number of hours worked in those 12 months and divide by 12.  If the hours worked per month averages 130 or more, that employee would be a full-time employee for the ensuing stability period.

Assumption: Employer uses 12-month “initial measurement period” for variable hour employees employed on or after Jan. 1, 2014.  “Variable-hour” employees are those whom the firm cannot reasonably determine on their start date will average at least over 30 hours per week over the course of the initial measurement period.

Example: Employee starts work 3/15/2015.  On 3/14/16, staffing firm “look backs” to see if employee worked at least 1560 hours over the 12-month period.  If so, staffing firm must offer coverage or pay penalties during 12-month “initial stability period” as long as they remain employed.