Date: Nov 01, 2014
November 2014: Drought Diagnosis--Difficult Year Ahead

Dear Jon,

I know that the health care employer mandate is right around the corner, but I have some lingering questions.  What size employer is subject to pay or play mandate 2015?  How do I know if I’m a large or small employer?  What’s this news about California doing away with waiting periods?  Is there anything else I should know?

— Questions Abound In Truckee Town


2015 Employer Mandate

In 2015, the Patient Protection and Affordable Care Act’s (ACA) large employer mandate applies to employers with 100 or more full-time employees and full-time equivalents.  Employers with 50-99 full-time employees and equivalents have, generally speaking, until 2016 to comply.  Small employers with less than 50 full-time employees and equivalents are not subject to the mandate.  Here’s an illustration that might help explain the delay:

Very Large, Large, and Small Employers

To determine whether they are small, large or very large, employers must use what is known as the monthly measurement method to determine their size.

The calculation can be broken down into five parts:

•             Part 1:  Identify the Employer

                This is likely a very straightforward exercise for most employers; however, for those employers that are jointly owned, controlled or affiliated, this exercise is more complex.  All entities treated as a single employer under internal revenue code section 414(b), (c), (m) or (o) are treated as one employer for purposes of determining applicable large employer status.

•             Part 2:  Identify Your Employees

                Under the ACA’s regulations, determining who is an employee of an employer is governed by common law.  In general, under common law, an employment relationship is present when the person for whom the services are performed has the right to direct and control the individual performing the services.  Employers should ensure that independent contractors are not mislabeled employees because a mischaracterization may affect their large employer status.

•             Part 3:  Count Employee Hours of Service

                A full-time employee is one who works 30 hours of service per week in a given month or averages 130 hours of service per month.  Employers must be cognizant of “hours of service” which include:

o             Each hour for which the employee is paid, or entitled to payment for the performance of duties for the employer; and

o             Each hour for which the employee is paid, or entitled to payment, by the employer on account of a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty, or leave of absence.

o             If an employee is part of a controlled group or affiliated service group, hours of service under each entity of the group must be counted.

                When calculating hourly employees’ hours of service, an employer is required to count based upon its employee records.  For non-hourly employees (e.g., salaried employees) an employer may choose among the following methods:

o             Counting actual hours of service

o             Crediting an employee with eight hours of service for each day in which one hour of service is credited or

o             Crediting an employee with 40 hours of service for each week in which at least one hour of service is credited

•             Part 4:  Count Full-Time Employees and Full-Time Equivalents

                Employers must calculate full-time employees and equivalents working each month.  The easiest way to identify full-time employees working 30 hours a week or 130 hours a month; these are your full-time employees.


                Next, it’s time to calculate full-time equivalents.  Take the hours of service worked by all non-full-time employees (but not more than 120 per employee/month) each month and add them all up and divide by 120.  The resulting number is the full-time equivalents worked during that month.


•             Part 5:  Applicable Large Employer Status

                Now an employer must add the full-time employees and full-time equivalents for each month during the prior calendar year and divide by 12 (rounding down to the nearest whole number). 

                IMPORTANT NOTE: an employer can use a six consecutive month period in 2014 (rather than the entire 2014 year) only for 2015, thanks to some transition relief.

As referenced in the chart above, if the average number is 100 or more, the employer is considered “very large” and must comply with the employer mandate in 2015.  If the average number of full-time employees and full-time equivalents is 50 or more, but less than 100, the employer is “large” and has until 2016 to comply with the employer mandate.

An employer’s status as “large” is set on January 1st of each relevant year.  If an employer reduces its workforce to less than 100 (or 50 for example) after January 1, it doesn’t change its very large (or large) employer status for that particular year.

Seasonal Worker Exception

An employer may exclude seasonal workers from its employee count where those seasonal workers are working 120 days or less (or four months or less, an equivalent time period under the law) during a calendar year and would otherwise push the employer over 50 or 100 employees during those 120 days or four months.  If, for example, in 2014 employer XYZ, Co., employs 80 full-time employees from January through December and 200 seasonal workers employed June through August working 120 hours a month, the employer can exclude these seasonal workers from its employee count.  The result: XYZ, Co. is not considered a “very large” employer for 2015.  You’ll note that if these seasonal workers were in fact counted, XYZ, Co. would be consider “very large” for 2015 with an average of 130 full-time employees and equivalents.

New Employer Rule

If an employer did not exist during the prior year, it will still be treated as a large employer in 2015 if it is reasonably expected to employ an average of 50 employees and will be subject to the mandate in 2015 if it is reasonably expected to employ 100 or more.

California Prohibits Waiting Periods

California’s Governor Jerry Brown signed a new law which repeals California’s 60-day waiting period and prohibits insurance carriers and HMOs from imposing any waiting or affiliation periods.  In the absence of a stricter state law requirement, the ACA’s 90-day waiting period and optional orientation period apply.  For those employers that modified their plan’s terms based upon California law, an amendment may be executed and disseminated to enrollees adopting the ACA’s 90-day waiting period and optional one-month orientation period.

IRS Reporting Requirements

The Internal Revenue Service (IRS) has released draft forms and new guidance for reporting coverage offered to individuals.  This reporting provides the IRS information about which individuals are offered coverage and which employers are offering coverage; this is crucial information necessary for the award of subsidies through the health insurance exchanges and for levying penalties (penalties are mandated under 1) the individual mandate if an individual fails to obtain coverage and 2) under the employer pay or play scenario if coverage should be offered, but isn’t; OR coverage is offered, but doesn’t meet the law’s requirements, e.g., it’s unaffordable or doesn’t meet minimum value).

Internal Revenue Code sections 6055 and 6056 require providers of minimum essential coverage and applicable large employers, respectively, to report information about coverage offered on an annual basis to the IRS and to furnish information about the same to employees.  The first reporting year is 2015.  Statements regarding coverage must be furnished to employees by January 31, 2016. The first IRS reports are due February 28, 2016, if filed by mail and March 31, 2016, if filed electronically.

Please note that all employers that participate in a multiple employer welfare arrangement (like Western Growers Assurance Trust) must file these reports regardless of employer size.  Large employers will use Form 1094-C (transmittal form) and Form 1095-C (reporting form).  A copy of the Form 1095-C can be furnished to employees.  Small employers may use Form 1094-B and Form 1095-B. A copy of Form 1095-B can be furnished to employees.  Employers filing more than 250 forms must file electronically.

For more information about this article or if you have other questions about health care reform contact our Health Care Reform team today at or 800-333-4WGA.  Write to Dear Jon at

For more information and resources on Health Care Reform, visit

WG Staff Contact

Jonathan Alexander
Vice President & PCMI Compliance

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