Employer-Mandate Postponement Does Not Defer All Employer Duties Under the ACA

While the Obama Administration has announced a one-year postponement of the employer-mandate component of the Patient Protection and Affordable Care Act (“ACA”), a different component of the law could still require action by employers during 2013.

An ACA requirement that has not attracted much attention will require an employer to provide its employees with a notice of coverage options available through the Health Insurance Marketplace by October 1, 2013. This will require employers to make a determination concerning the status of workers, as employees or independent contractors, in order to comply with this notice requirement.  The notice requirement creates an additional level of complexity for employers seeking to comply with the ACA, due to definitional issues.

1. Background

The ACA’s employer mandate is yet another law in which an employer’s duties to a worker will depend on whether, for purposes of the law, such worker is an employee of the employer or an independent contractor. The employer-mandate rules are contained in the Internal Revenue Code (the “Code”), which is administered by the Internal Revenue Service (“IRS”).

IRS has announced in proposed regulations that a worker’s status for purposes of the employer mandate will be determined under the common-law test.

The ACA’s employer mandate will require an employer that has a specified number of full-time employees to either offer those full-time employees specified health-care coverage or pay an “assessable payment.” As a general rule, an employer will be subject to this employer mandate – and be deemed an”applicable large employer” or “ALE” – if it has at least 50 full time employees.  Solely for purposes of determining whether an employer is an ALE, full-time equivalents are also taken into account, which involves adding up the total number of hours worked by part-time employees and converting those hours into full-time equivalents.

Of course, the ACA has other features in addition to its employer mandate. These other features are administered by the Treasury Department and IRS, by the Department of Labor (“DOL”) or by the Department of Health and Human Services.

1. The ACA’s Notice Requirement

One of the other features of the ACA is a new notice requirement it imposes on employers. This notice requirement is contained in 29 USCS § 218b, which is part of the Fair Labor Standards Act (“FLSA”). FLSA provisions are administered by the DOL. On May 8, 2013, the DOL issued guidance on this requirement in the form of Technical Release No. 2013-02, http://www.dol.gov/ebsa/newsroom/tr13-02.html.

The DOL’s guidance provides that employers “to which the FLSA applies” must provide a specified notice to all full-time and part-time employees of the employer (but not to their dependents). The guidance states that the specified notice must be provided to each new employee at the time of hiring beginning October 1, 2013. For 2014, a notice provided within 14 days of a new employee’s start date will be considered timely. With respect to current employees, employers are required to provide the notice not later than October 1, 2013.

According to the Technical Release, the specified notice is required to contain the following information;

1. Informing the employee of the existence of the Marketplace (referred to in the statute as the Exchange) including a description of the services provided by the Marketplace, and the manner in which the employee may contact the Marketplace to request assistance;
2. If the employer plan’s share of the total allowed costs of benefits provided under the plan is less than 60 percent of such costs, that the employee may be eligible for a premium tax credit under section 36B of the Internal Revenue Code (the Code) if the employee purchases a qualified health plan through the Marketplace; and
3. If the employee purchases a qualified health plan through the Marketplace, the employee may lose the employer contribution (if any) to any health benefits plan offered by the employer and that all or a portion of such contribution may be excludable from income for Federal income tax purposes.

As noted, the notice requirement applies only to employers “to which the FLSA applies.” The guidance provides a general overview of these covered employers:

In general, the FLSA applies to employers that employ one or more employees who are engaged in, or produce goods for, interstate commerce. For most firms, a test of not less than $500,000 in annual dollar volume of business applies. The FLSA also specifically covers the following entities: hospitals; institutions primarily engaged in the care of the sick, the aged, mentally ill, or disabled who reside on the premises; schools for children who are mentally or physically disabled or gifted; preschools, elementary and secondary schools, and institutions of higher education; and federal, state and local government agencies.

To assist employers in complying with this notice requirement, DOL has developed model notices for employers to use: one for employers that offer coverage,http://www.dol.gov/ebsa/pdf/FLSAwithplans.pdf, and a different one for employers that do not offer coverage, http://www.dol.gov/ebsa/pdf/FLSAwithoutplans.pdf.

1. The Added Complexity

1. Employees Entitles to Receive the Notice

• The ACA’s notice requirement will require action by October 1, 2013. In order to determine which workers are entitled to receive the notice, an employer will need to make a determination as to whether workers are employees or independent contractors.
• While the IRS has indicated that for purposes of the employer mandate, which is contained in the Code, a worker’s status will be determined under the common-law test, the ACA’s notice requirement is contained in the FLSA. For purposes of the FLSA, the status of a worker is generally determined under the economic realities test, which defines the term employee more expansively.
• If the broader FLSA definition of employee is deemed to apply for purposes of the notice, some individuals who are employees for purposes of the FLSA would need to be given the ACA notice, even though they are not employees for purposes of the employer mandate.
1. Employers Required to Provide the Notice
   • As noted, an employer is subject to the ACA’s employer mandate only if the employer qualifies as an ALE. The ACA’s notice requirement is imposed on an employer “to which the FLSA applies,” which is a different criterion than whether the employer is an ALE.  An employer can be an employer “to which the FLSA applies” even though it is not an ALE, because it does not have at least 50 full-time employees.
   • It follows that an employer that is not an ALE, because it does not have at least 50 full-time employees, could nonetheless be required to comply with the notice requirement if it is an employer “to which the FLSA applies.”
1. Conclusion

The inconsistent criteria for being a covered employer for purposes of the employer mandate and the notice requirement, and between how the term “employee” will be defined for each purpose, could create complexity and confusion for employers and workers.

The DOL has not yet announced a postponement of this notice requirement.