The guidance, in the form of an All Agency Memorandum addressed to federal contracting agencies, is consistent with how many of us have already been viewing the interplay.  Still, the Memorandum offers helpful clarity and confirmation that our reading of the interplay between these federal laws has been on target.

Background on the Laws

The ACA’s employer shared responsibility provisions require applicable large employers to offer full-time employees affordable, minimum essential coverage. If an employer declines to offer such coverage, and an employee receives the premium tax credit for purchasing coverage through the Exchange, that employer may be subject to an assessable payment in the form of a non-deductible excise tax.

The Service Contract Act and Davis-Bacon Act generally require that workers employed on federal service contracts over $2,500 and construction contracts over $2,000 respectively be paid prevailing wages and fringe benefits. The Service Contract Act obligates employers to provide scheduled amounts of health and welfare fringe benefits.

Under Davis-Bacon, the prevailing wage that must be paid is comprised of both a base hourly rate of pay and any fringe benefits found to be prevailing.   Davis-Bacon allows a covered employer to satisfy its basic obligation by paying fringe benefits, with health insurance being one such benefit that will be counted.

The Guidance

Covered employers are able to take Service Contract or Davis-Bacon credit for the ACA compliant health benefits they provide to employees in order to avoid an IRS penalty.

However, employers who are assessed an ACA penalty – either for failing to offer ACA compliant coverage, or such coverage that is affordable – cannot credit the cost of the penalty toward Service Contract or Davis Bacon obligations.

An important point that the Guidance restated was that it is the employer – not the employee – who can dictate whether an employer will provide fringe benefits in the form of health coverage instead of providing a cash payment or some other fringe benefit payment. Thus, an employer subject to the ACA need not provide its employees the option to decline coverage, if the health plan the employer offers complies with the ACA’s requirements.

Bottom Line

The intersection of these federal laws was uncharted territory until now so it is somewhat of a relief to receive this Memorandum and have our suppositions confirmed..

The post New Guidance on Affordable Care Act and Federal Contract Laws appeared first on Felhaber Larson.

On July 24, 2014, the IRS issued Revenue Procedure 2014-37.  This Revenue Procedure adjusts the Section 36B Required Contribution Percentage to 9.56%.   This adjustment is effective for the taxable and plan years beginning after December 31, 2014.

This adjustment of 6 one-hundredths of one percent is clearly not massive; but it may be significant for employers whose offers of coverage had tested unaffordable for certain classifications of workers.

Employers can now use this adjustment to make more definitive plans for 2015, in particular with use of the Federal Poverty Line Safe Harbor.

The Federal Poverty Line Safe-Harbor is a ‘fail-safe’ safe harbor.  It applies even if the federal poverty line amount is less than a particular employee’s actual income.  That is, if an employee’s contribution does not exceed the Federal Poverty Line Safe-Harbor, even if the employee’s contribution towards the cost of the lowest level, self-only exceeds 9.5%, the coverage is considered affordable.  An employer who satisfies the Federal Poverty Line Safe Harbor will always meet the affordability test.

The Federal Poverty Line Safe Harbor is calculated by taking the Federal Poverty Line, dividing it by 12, and taking 9.56% of that.  The final regulations allow an employer to use the Federal Poverty Line Safe Harbor rate in effect six months prior to the start of the plan year, rather than at the start of the plan year.

The Federal Poverty Line for 2014 is $11,670.  For an employer with a tax or plan year starting January 1, 2015, applying the new guidance of Revenue Procedure 2014-37 coverage is affordable if an employee’s monthly contribution for the lowest level, self-only coverage does not exceed $92.97.

The post IRS Adjusts Affordability to 9.56% Under Employer Mandate appeared first on Felhaber Larson.

In general, the employer mandate provides that applicable large employers with 50 or more full-time employees and/or full-time equivalents are subject to a penalty if they don’t offer affordable health care coverage to their full-time employees, and at least one of those employees obtains a premium tax-credit or cost sharing subsidy in the Exchange.

Back in July, 2013, the effective date of the mandate was pushed back to 2015, along with the required reporting by employers.

The final rules do not change anything for employers with fewer than 50 full-time employees – they are not subject to any penalties or any reporting requirements.  But there are changes for employers subject to the mandate.

For employers with 100 or more employees, the final rules provide a phase-in approach.  These employers will need to offer affordable coverage to at least 70% of their full-time employees in 2015, or be subject to a penalty.  This increases to 95% in 2016.

For employers with between 50 and 99 employees, there will be no penalty for 2015; it will not take effect until 2016.  However, even though these employers cannot be subject to a penalty until 2016, they will still have to comply with the reporting requirements for 2015.

The final rules also offer additional guidance on how to count the number of full-time employees and shorten the permissible maximum measurement period from 1 year to 6 months.  The final rules also state that there will be additional regulations issued in the near future that detail the employer reporting requirements.

With this newest guidance planning and strategizing is increasingly important.  Employers on the edge of 100 full-time employees (including all members of their controlled group) will need to carefully measure their employees’ hours.  The forthcoming regulations on the reporting requirements will also provide much needed guidance on what data employers need to be maintaining.

Should you have any questions please contact our Benefits team.

The post Final Employer Mandate Rules Contain Transition Relief for Certain Employers appeared first on Felhaber Larson.