The Affordable Care Act (ACA), also known as the healthcare reform law, does not require employers to provide healthcare insurance for their employees. Instead, it imposes penalties on those that do not. This type of scheme is referred to as play or pay.

Beginning in 2014, applicable large employers must decide if they want to play by providing affordable, minimum essential coverage under an eligible employer-sponsored plan or pay fines assessed under IRC Sec. 4980H. For any month that such an employer does not offer minimal essential coverage and has at least one full-time employee who uses financial assistance to obtain healthcare coverage, the employer will be assessed a fee of $2,000 per each full-time employee. This fee is referred to as an assessable payment. The first 30 employees are not counted when assessing the fee.

An applicable large employer that offers coverage but has at least one full-time employee receiving financial assistance to pay for coverage will be assessed the greater of $3,000 for each employee receiving assistance or $2,000 for each full-time employee.

While there is still more than a year before play-or-pay takes effect, October 2013 will be an important month because health care exchanges are to begin offering coverage to individuals and small employers on October 1, 2013 to take effect on January 1, 2014. Employers should begin preparing now to determine the following:

• Is or will the employer be an "applicable large employer" covered by play or pay?
• If covered, does or will the employer provide the required "minimal essential coverage" that satisfies affordability requirements to its full-time employees?
• Who are or will be the full-time employees who must be covered?
• Are there full time employees who may be eligible for financial assistance to obtain healthcare coverage?

Determining whether an employer is a covered employer

The threshold question for an employer preparing for play or pay is whether it is an "applicable large employer." This term means, for a calendar year, an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year.

An employer will not be considered to employ more than 50 full-time employees if the employer’s workforce exceeds 50 full-time employees for 120 or fewer days during the calendar year, and the employees in excess of 50 on those 120 days are seasonal workers. A "full-time employee" for this purpose is defined as an employee who is employed for an average of 30 hours per week during a month.

The term "seasonal worker" means a worker who performs labor or services on a seasonal basis as defined by DOL, including migrant agricultural workers and retail workers employed exclusively during holiday seasons.

All businesses treated as a single employer by IRC Sec. 414 are treated as one employer for this purpose also. IRC Sec. 414 is the frequently used rule for determining when related businesses should be treated as a single employer (for example when determining if an employer qualifies for the small employer exemption from COBRA).

If an employer was not in existence throughout the preceding calendar year, the determination of whether the employer is an applicable large employer is based on the average number of employees that it is reasonably expected to employ on business days in the current calendar year.

Solely for purposes of determining whether an employer is an applicable large employer, an employer must include in the count of full-time employees for any month the number of full-time equivalent employees it has. This number is determined by dividing the aggregate number of hours of service of employees who are not full-time employees for the month by 120.

BLR's healthcare reform resource center offers detailed information about the provisions of the ACA and when they take effect, providing employers with the guidance they need to understand and comply with the changes.

Martin Simon, JD is a Senior Legal Editor for BLR’s human resources and employment law publications. Mr. Simon has worked in legal publishing for over 25 years. He worked for 7 years as a legal editor for Prentice Hall, where he wrote and edited for the Pension and Profit Sharing and the Plan Administrators Compliance Manual looseleaf services. He has been a legal editor for BLR for more than 20 years. Mr. Simon has been on the Board of the Hartford Chapter of Working in Employee Benefits for 4 years. Mr. Simon has a BA degree with Honors from the University of Connecticut, where he was a member of the Honors Program and Phi Beta Kappa. He received his law degree from the University of Connecticut and is a member of the Connecticut Bar.