[Federal Register Volume 79, Number 29 (Wednesday, February 12, 2014)]
[Rules and Regulations]
[Pages 8543-8601]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2014-03082]



[[Page 8543]]

Vol. 79

Wednesday,

No. 29

February 12, 2014

Part II





Department of the Treasury





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Internal Revenue Service





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26 CFR Parts 1, 54, and 301





Shared Responsibility for Employers Regarding Health Coverage; Final
Rule

Federal Register / Vol. 79, No. 29 / Wednesday, February 12, 2014 /
Rules and Regulations

[[Page 8544]]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1, 54, and 301

[TD 9655]
RIN 1545-BL33


Shared Responsibility for Employers Regarding Health Coverage

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations providing guidance to
employers that are subject to the shared responsibility provisions
regarding employee health coverage under section 4980H of the Internal
Revenue Code (Code), enacted by the Affordable Care Act. These
regulations affect employers referred to as applicable large employers
(generally meaning, for each year, employers that had 50 or more full-
time employees, including full-time equivalent employees, during the
prior year). Generally, under section 4980H an applicable large
employer that, for a calendar month, fails to offer to its full-time
employees health coverage that is affordable and provides minimum value
may be subject to an assessable payment if a full-time employee enrolls
for that month in a qualified health plan for which the employee
receives a premium tax credit.

DATES: Effective date: These regulations are effective February 12,
2014.
Applicability Dates: For dates of applicability, see section XVI of
this preamble, Sec. Sec. 54.4980H-1(b), 54.4980H-2(f), 54.4980H-3(i),
54.4980H-4(h), 54.4980H-5(g), and 54.4980H-6(b).

FOR FURTHER INFORMATION CONTACT: Kathryn Johnson or Shad Fagerland,
(202) 317-6846 (not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

Sections I through IV of the preamble (``Background'') describe
section 4980H, including previously issued guidance under section
4980H, as well as related statutory provisions. Sections V through XIV
of the preamble (``Explanation and Summary of Comments'') describe the
comments received on the proposed regulations and explain amendments to
the proposed regulations. Section XV of the preamble (``Transition
Relief and Interim Guidance'') provides certain transition relief and
interim guidance under section 4980H, and section XVI of the preamble
provides information on the effective date for and reliance on these
final regulations.

I. Shared Responsibility for Employers (Section 4980H)

A. In general

Section 4980H was added to the Code by section 1513 of the Patient
Protection and Affordable Care Act, Public Law 111-148 (124 Stat. 119
(2010)), was amended by section 10106(e) and (f) of the Patient
Protection and Affordable Care Act, was further amended by section 1003
of the Health Care and Education Reconciliation Act of 2010, Public Law
111-152 (124 Stat. 1029 (2010)), and was further amended by the
Department of Defense and Full-Year Continuing Appropriations Act,
2011, Public Law 112-10 (125 Stat. 38 (2011)) (collectively, the
Affordable Care Act). Section 1513(d) of the Affordable Care Act
provides that section 4980H applies to months beginning after December
31, 2013; however, Notice 2013-45 (2013-31 IRB 116), issued on July 9,
2013, provides transition relief for 2014 with respect to section
4980H.
Section 4980H applies only to applicable large employers. An
applicable large employer with respect to a calendar year is defined in
section 4980H(c)(2) as an employer that employed an average of at least
50 full-time employees on business days during the preceding calendar
year. For purposes of determining whether an employer is an applicable
large employer, full-time equivalent employees (FTEs), as well as full-
time employees, are taken into account. As set forth in section
4980H(c)(2)(E), the number of an employer's FTEs is determined based on
the hours of service of employees who are not full-time employees.
Under section 4980H(c)(2)(C), the determination of whether an employer
that was not in existence in the preceding calendar year is an
applicable large employer is based on the average number of employees
that it is reasonably expected the employer will employ on business
days in the current calendar year.
Section 4980H generally provides that an applicable large employer
is subject to an assessable payment if either (1) the employer fails to
offer to its full-time employees (and their dependents) the opportunity
to enroll in minimum essential coverage (MEC) under an eligible
employer-sponsored plan and any full-time employee is certified to the
employer as having received an applicable premium tax credit or cost-
sharing reduction (section 4980H(a) liability), or (2) the employer
offers its full-time employees (and their dependents) the opportunity
to enroll in MEC under an eligible employer-sponsored plan and one or
more full-time employees is certified to the employer as having
received an applicable premium tax credit or cost-sharing reduction
(section 4980H(b) liability). Section 4980H(c)(4) provides that a full-
time employee with respect to any month is an employee who is employed
on average at least 30 hours of service per week.
An employer may be liable for an assessable payment under section
4980H(a) or (b) only if one or more full-time employees are certified
to the employer as having received an applicable premium tax credit or
cost-sharing reduction. The assessable payment under section 4980H(a)
is equal to the number of all full-time employees (excluding 30 full-
time employees) multiplied by one-twelfth of $2,000 for each calendar
month, while the assessable payment under section 4980H(b) is based on
the number of full-time employees who are certified to the employer as
having received an applicable premium tax credit or cost-sharing
reduction with respect to that employee's purchase of health insurance
for the employee on an Affordable Insurance Exchange (Exchange) \1\
multiplied by one-twelfth of $3,000 for each calendar month. In no
case, however, may the liability under section 4980H(b) exceed the
maximum potential liability under section 4980H(a). Generally,
liability under section 4980H(b) may arise because, with respect to a
full-time employee who has been certified to the employer as having
received an applicable premium tax credit or cost-sharing reduction,\2\
the coverage \3\ offered by the employer is not affordable within the
meaning of section 36B(c)(2)(C)(i) or does not provide minimum value
(MV) within the meaning of section 36B(c)(2)(C)(ii). An employee's
receipt of a premium tax credit under section 36B (premium tax credit)
with respect to coverage for a dependent only will not result in
liability for the employer under section 4980H.
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\1\ An Exchange is also referred to in other published guidance
as a Marketplace.
\2\ For simplicity, references in this preamble to full-time
employees certified as having received a premium tax credit include
full-time employees receiving the premium tax credit or the cost-
sharing reduction because, in connection with Exchange coverage,
only individuals who qualify for the premium tax credit can qualify
for a cost-sharing reduction.
\3\ For purposes of this preamble, the term ``coverage'' means
MEC.
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B. Previously issued guidance

During 2011 and 2012, the Treasury Department and the IRS published
four notices, each of which outlined potential approaches to future
guidance

[[Page 8545]]

under section 4980H and requested public comments: (1) Notice 2011-36
(2011-21 IRB 792) (addressed the definition of the terms employer,
employee, and hour of service and requested comments on an approach to
use an optional look-back measurement method for determining full-time
employee status); (2) Notice 2011-73 (2011-40 IRB 474) (requested
comments on a health coverage affordability safe harbor for employers
under section 4980H using Form W-2 wages); (3) Notice 2012-17 (2012-9
IRB 430) (provided that the look-back measurement method and the Form
W-2 affordability safe harbor will be incorporated into upcoming
proposed regulations and requested comments on a potential approach for
determining the full-time employee status of new employees under
section 4980H); and (4) Notice 2012-58 (2012-41 IRB 436) (provided
guidance and reliance on approaches for ongoing employees and new
employees who are reasonably expected to be full-time employees and
requested comments on a revised optional method for determining the
full-time employee status for new employees with variable hours and new
seasonal employees). Public comments were submitted in response to each
of the four notices.
Taking into account all the comments received in response to this
series of notices, on December 28, 2012, the Treasury Department and
the IRS released a notice of proposed rulemaking (REG-138006-12, 78 FR
218). Written and electronic comments responding to the notice of
proposed rulemaking were received. The comments are available for
public inspection at www.regulations.gov or upon request. A public
hearing was conducted on April 23, 2013. After consideration of all of
the comments and testimony, the proposed regulations are adopted as
amended by this Treasury decision. The amendments are discussed in this
preamble.
After the issuance of the proposed regulations, on July 9, 2013,
the Treasury Department and the IRS issued Notice 2013-45, which
provides as transition relief that no assessable payments under section
4980H will apply for 2014. Notice 2013-45 also provides transition
relief for 2014 for the section 6056 information reporting requirements
for applicable large employers and the section 6055 information
reporting requirements for providers of MEC.
The preamble to the proposed regulations provides transition relief
that allows flexibility for individuals to make changes in salary
reduction elections for accident and health plans provided through
section 125 cafeteria plans for non-calendar cafeteria plan years
beginning in 2013. The scope of this transition relief was clarified in
section VI of Notice 2013-71 (2013-47 IRB 532), issued on October 31,
2013.

II. Minimum Essential Coverage, Minimum Value and Affordability
(Sections 5000A and 36B)

MEC, MV and affordability are defined under Code provisions other
than section 4980H, but all relate to the determination of liability
under section 4980H, and accordingly are summarized briefly in this
section of the preamble (but are more fully described in other cited
guidance). Specifically, for purposes of section 4980H, an employer is
not treated as having offered coverage to an employee unless the
coverage is MEC. Moreover, under section 36B, an individual who is
offered employer coverage but instead purchases coverage under a
qualified health plan within the meaning of section 1301(a) of the
Affordable Care Act on an Exchange may be eligible for a premium tax
credit if the household income of the individual's family falls within
certain thresholds and the coverage offered by the employer either does
not provide MV or is not affordable. While an individual may purchase
coverage under a qualified health plan on an Exchange without regard to
whether the individual is eligible for a premium tax credit, an
employer's potential liability under section 4980H is affected by the
individual's purchase of coverage on an Exchange only if the individual
receives a premium tax credit.

A. Minimum Essential Coverage (MEC)

MEC is defined in section 5000A(f) and the regulations under that
section. Section 5000A(f)(1)(B) provides that MEC includes coverage
under an eligible employer-sponsored plan. Under section 5000A(f)(2)
and Sec. 1.5000A-2(c)(1), an eligible employer-sponsored plan is, with
respect to any employee, (1) group health insurance coverage offered
by, or on behalf of, an employer to the employee that is either (a) a
governmental plan within the meaning of section 2791(d)(8) of the
Public Health Service Act (PHS Act) (42 U.S.C. 300gg-91(d)(8)), (b) any
other plan or coverage offered in the small or large group market
within a State, or (c) a grandfathered health plan, as defined in
section 5000A(f)(1)(D), offered in a group market, or (2) a self-
insured group health plan under which coverage is offered by, or on
behalf of, an employer to the employee. Section 5000A(f)(3) and
regulations thereunder provide that MEC does not include coverage
consisting solely of excepted benefits described in section 2791(c)(1),
(c)(2), (c)(3), or (c)(4) of the PHS Act or regulations issued under
these provisions. See Sec. 1.5000A-2(g).

B. Minimum Value (MV)

If the coverage offered by an employer fails to provide MV, an
employee may be eligible to receive coverage in a qualified health plan
supported by the premium tax credit. Under section 36B(c)(2)(C)(ii), a
plan fails to provide MV if the plan's share of the total allowed costs
of benefits provided under the plan is less than 60 percent of those
costs.
Section 1302(d)(2)(C) of the Affordable Care Act provides that, in
determining the percentage of the total allowed costs of benefits
provided under a group health plan, the regulations promulgated by the
Secretary of Health and Human Services (HHS) under section 1302(d)(2)
of the Affordable Care Act apply. HHS published final regulations under
section 1302(d)(2) of the Affordable Care Act on February 25, 2013 (78
FR 12834). On May 3, 2013, the Treasury Department and the IRS
published a notice of proposed rulemaking (REG-125398-12, 78 FR 25909)
that adopts the HHS rules and provides additional guidance on MV. The
HHS regulations at 45 CFR 156.20 define the percentage of the total
allowed costs of benefits provided under a group health plan as (1) the
anticipated covered medical spending for essential health benefits
(EHB) coverage (as defined in 45 CFR 156.110(a)) paid by a health plan
for a standard population, (2) computed in accordance with the plan's
cost sharing, and (3) divided by the total anticipated allowed charges
for EHB coverage provided to the standard population. In addition, 45
CFR 156.145(c) provides that the standard population used to compute
this percentage for MV (as developed by HHS for this purpose) reflects
the population covered by typical self-insured group health plans. The
HHS regulations describe several options for determining MV, including
the MV Calculator (available at http://cciio.cms.gov/resources/regulations/index.html). Alternatively, a plan may determine MV through
one of the safe harbors being established by HHS and the IRS. For plans
with nonstandard features that are incompatible with the MV Calculator
or a safe harbor, 45 CFR 156.145(a)(3) provides that the plan may
determine MV through an actuarial certification from a member of the
American Academy of Actuaries after the member performed an analysis in

[[Page 8546]]

accordance with generally accepted actuarial principles and
methodologies. Under proposed Sec. 1.36B-6(f)(4), an actuary
performing an actuarial certification for a plan with nonstandard
features must use the MV Calculator to determine the plan's MV for plan
coverage the MV calculator measures. The actuary adds to that MV
percentage the result of the actuary's analysis of nonstandard
features. Finally, 45 CFR 156.145(a)(4) provides that a plan in the
small group market satisfies MV if it meets the requirements for any of
the levels of metal coverage defined at 45 CFR 156.140(b) (bronze,
silver, gold, or platinum).

C. Affordability

Under section 36B(c)(2)(B) and (C), an employee is not eligible for
subsidized coverage for any month in which the employee is offered
health coverage under an eligible employer-sponsored plan (as defined
in section 5000A(f)(2)) that provides MV and that is affordable to the
employee. Coverage for an employee under an eligible employer-sponsored
plan is affordable if the employee's required contribution (within the
meaning of section 5000A(e)(1)(B)) for self-only coverage does not
exceed 9.5 percent of the taxpayer's household income for the taxable
year. See section 36B(c)(2)(C)(i) and Sec. 1.36B-1(e).

III. Reporting Requirements for Applicable Large Employers (Section
6056)

Section 6056, enacted by the Affordable Care Act, directs an
applicable large employer to file a return with the IRS that reports,
for each employee who was a full-time employee for one or more months
during the calendar year, certain information described in section
6056(b) about the health care coverage the employer offered to that
employee (or, if applicable, that the employer did not offer health
care coverage to that employee). Section 6056 also requires applicable
large employers to furnish, by January 31 of the calendar year
following the calendar year for which the return must be filed, a
related statement described in section 6056(c) to each full-time
employee for whom information is required to be included on the return.
On September 5, 2013, the Treasury Department and the IRS released a
notice of proposed rulemaking (REG-136630-12, [78 FR 54996]) providing
guidance under section 6056, including a description of and request for
comments on certain simplified reporting methods under consideration by
the Treasury Department and the IRS.

IV. The 90-Day Limit on Waiting Periods (Public Health Service Act
Section 2708)

Section 2708 of the PHS Act \4\ provides that, for plan years
beginning on or after January 1, 2014, a group health plan or health
insurance issuer offering group health insurance coverage may not apply
any waiting period that exceeds 90 days. Section 2704(b)(4) of the PHS
Act, section 701(b)(4) of ERISA, and section 9801(b)(4) define a
waiting period to be the period that must pass with respect to an
individual before the individual is eligible to be covered for benefits
under the terms of the plan. Section 2708 of the PHS Act does not
require the employer to offer coverage to any particular employee or
class of employees, but prevents an otherwise eligible employee (or
dependent) from waiting more than 90 days before coverage becomes
effective.
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\4\ The Affordable Care Act adds section 9815(a)(1) to the Code
and section 715(a)(1) to the Employee Retirement Income Security Act
(ERISA) to incorporate the provisions of part A of title XXVII of
the PHS Act into the Code and ERISA, and to make them applicable to
group health plans and health insurance issuers providing health
insurance coverage in connection with group health plans. The PHS
Act sections incorporated by these references are sections 2701
through 2728.
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Notice 2012-59 (2012-41 IRB 443), and parallel guidance issued by
the Department of Labor (DOL) and HHS,\5\ provide temporary guidance on
compliance with section 2708 of the PHS Act and provide that this
temporary guidance remains in effect at least through the end of 2014.
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\5\ See Department of Labor Technical Release 2012-02 and HHS
FAQs issued August 31, 2012.
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On March 21, 2013, the Treasury Department, DOL, and HHS (the
Departments) issued a notice of proposed rulemaking (REG-122706-12, 78
FR 17313) providing guidance under section 2708 of the PHS Act. In the
preamble to the proposed regulations under section 2708 of the PHS Act,
the Departments state that, in their view, the proposed regulations are
consistent with, and no more restrictive on employers than Notice 2012-
59 (and the parallel guidance issued by DOL and HHS) and further state
that the Departments will consider compliance with the proposed
regulations as compliance with section 2708 of the PHS Act at least
through the end of 2014.
Under the section 4980H final regulations, there are times when an
employer will not be subject to an assessable payment with respect to
an employee although the employer does not offer coverage to that
employee during that time. However, the fact that an employer will not
owe an assessable payment under section 4980H for failure to offer
coverage during certain periods of time does not, by itself, constitute
compliance with section 2708 of the PHS Act during that same period.\6\
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\6\ The Departments expect to issue final regulations in the
near future with respect to section 2708 of the PHS Act. As stated
in the proposed rules, the Departments will consider compliance with
the proposed regulations under section 2708 of the PHS Act as
compliance with section 2708 of the PHS Act through at least 2014
and, to the extent final regulations are more restrictive on plans
and issuers, the final regulations will not be effective prior to
January 1, 2015. 78 FR 17317 (March 21, 2013).
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Explanation and Summary of Comments

V. Determination of Status as an Applicable Large Employer

A. In General

Section 4980H applies only to employers that are applicable large
employers. Section 4980H(c)(2)(A) provides that the term applicable
large employer means, with respect to a calendar year, an employer that
employed an average of at least 50 full-time employees on business days
during the preceding calendar year. Section 4980H(c)(2)(E) provides
that solely for purposes of determining whether an employer is an
applicable large employer, an employer shall, in addition to the number
of full-time employees for any month otherwise determined, include for
such month a number of employees determined by dividing the aggregate
number of hours of service of employees who are not full-time employees
for the month by 120. For purposes of the proposed regulations and
these final regulations, these additions to the number of full-time
employees made solely for the determination of status as an applicable
large employer are referred to as full-time equivalent employees
(FTEs).
An applicable large employer may consist of multiple related
entities (such as corporations) due to the application of the
aggregation rules. Each such entity is referred to in this preamble and
the final regulations as an applicable large employer member.
Commenters requested that the threshold for status as an applicable
large employer be increased to various numbers of full-time employees
(including FTEs) greater than 50. The final regulations do not adopt
this suggestion as a permanent rule because it is inconsistent with the
statutory definition of applicable large employer

[[Page 8547]]

in section 4980H(c)(2). But see section XV.D.6 of this preamble for
2015 transition relief for certain applicable large employers with
fewer than 100 full-time employees (including FTEs). Additional
comments received on the definition of applicable large employer and
modifications to the rules related to the determination of status as an
applicable large employer contained in the proposed regulations are
described in this section V of the preamble.

B. Rules for Employers Not in Existence in Preceding Year

Section 4980H(c)(2)(C)(ii) provides that in the case of an employer
that was not in existence throughout the preceding calendar year, the
determination of whether such employer is an applicable large employer
for the current calendar year is based on the average number of
employees that it is reasonably expected such employer will employ on
business days in the current calendar year.
The final regulations clarify that an employer is treated as not
having been in existence throughout the prior calendar year only if the
employer was not in existence on any business day in the prior calendar
year. For example, if an employer comes into existence on May 1 of Year
1, during Year 1 the employer's status as an applicable large employer
is determined based on the average number of employees that it is
reasonably expected such employer will employ on business days in the
current calendar year (Year 1). To determine the employer's status as
an applicable large employer for Year 2, the employer's status as an
applicable large employer is determined based on the number of
employees that it employed on business days from May 1 through December
31 of Year 1 (rather than relying on the employer's reasonable
expectations).
Commenters requested that an employer not in existence in the prior
calendar year be granted a safe harbor under which an employer would
not be an applicable large employer until a certain period of time has
passed after the employer begins operations or until a certain period
of time has passed after a new employer employs at least a specified
number of full-time employees. One commenter opposed the adoption of a
safe harbor that would delay the applicable large employer
determination for new employers. The final regulations do not adopt
such a safe harbor.
However, other aspects of section 4980H and the final regulations
may address the concern raised by commenters that new employers will
have difficulty establishing a group health plan in the first months of
operation. In particular, under the final regulations, the
determination of whether a new employer is an applicable large employer
during its first calendar year is based on the employer's reasonable
expectations at the time the business comes into existence, even if
subsequent events cause the actual number of full-time employees
(including FTEs) to exceed that reasonable expectation. Section
54.4980H-2(b)(3). Also, for purposes of the liability calculation under
section 4980H(a), with respect to a calendar month, the number of full-
time employees of an applicable large employer member is reduced by
that member's allocable share of 30. Section 54.4980H-4(e). This
reduction could be particularly significant for a new employer with a
number of full-time employees that does not exceed 30 by a large number
for certain calendar months (and that for some calendar months may be
below 30), circumstances which the Treasury Department and the IRS
anticipate would characterize many new employers. Also, under the look-
back measurement method if an employee is reasonably expected at his or
her start date to be a full-time employee (and is not a seasonal
employee) and is otherwise eligible for an offer of coverage, an
employer that sponsors a group health plan that offers coverage to the
employee by the first day of the calendar month immediately following
the conclusion of the employee's initial three full calendar months of
employment will not be subject to an assessable payment under section
4980H(a) (and section 4980H(b) if the coverage offered provides MV) for
those three calendar months by reason of its failure to offer coverage
to the employee for the initial three full calendar months of
employment. Section 54.4980H-3(d)(2)(iii). See also Sec. 54.4980H-
3(c)(2) for a similar rule under the monthly measurement method that
applies based on when an employee first becomes otherwise eligible for
an offer of coverage. An employer is also not subject to an assessable
payment under section 4980H with respect to an employee for the first
calendar month of the employee's employment if the employee's start
date is other than the first day of the calendar month. See Sec.
54.4980H-4(c) and Sec. 54.4980H-5(c).

C. Seasonal Workers

Section 4980H(c)(2)(B) provides that an employer is not considered
to employ more than 50 full-time employees if (1) the employer's
workforce exceeds 50 full-time employees for 120 days or fewer during
the calendar year, and (2) the employees in excess of 50 employed
during such 120-day period are seasonal workers. For this purpose, the
proposed regulations define the term seasonal worker as a worker who
performs labor or services on a seasonal basis as defined by the
Secretary of Labor, including (but not limited to) workers covered by
29 CFR 500.20(s)(1) and retail workers employed exclusively during
holiday seasons. The proposed regulations further provide that
employers may apply a reasonable, good faith interpretation of the term
seasonal worker and a reasonable good faith interpretation of 29 CFR
500.20(s)(1) (including as applied by analogy to workers and employment
positions not otherwise covered under 29 CFR 500.20(s)(1)).
Commenters requested that other employees with seasonal employment
who are not excluded under the seasonal worker exception nonetheless be
excluded for purposes of determining applicable large employer status.
However, given the specific statutory reference to seasonal workers as
part of a more limited exception, there is no statutory authority for
such a broad exclusion. Accordingly, the final regulations adopt the
provisions of the proposed regulations with certain clarifications in
response to comments.
With respect to the reference to retail workers employed
exclusively during the holiday seasons, commenters requested
clarification of the specific events or periods of time that would be
treated as holiday seasons. The final regulations do not indicate
specific holidays or the length of any holiday season for this purpose,
as these will differ for different employers. Retail workers employed
exclusively during holiday seasons often are seasonal workers and
therefore are generally excludible on that basis, if the employer
otherwise meets the conditions of the seasonal worker exception.
The proposed regulations apply the seasonal worker exception set
forth in section 4980H(c)(2) based on the prior calendar year. One
commenter requested that the seasonal worker exception apply to new
employers. The final regulations adopt this suggestion, so that in the
case of an employer that was not in existence on any business day
during the preceding calendar year, the seasonal worker exception
applies so that the employer will not be treated as an applicable large
employer if it reasonably expects (1) its workforce to exceed 50 full-
time employees (including FTEs) for 120 days or fewer during the
current calendar year, and (2)

[[Page 8548]]

the employees in excess of 50 employed during such 120-day period to be
seasonal workers.

D. Application of Employer Aggregation Rules to Determination of Status
as an Applicable Large Employer

Section 4980H(c)(2)(C)(i) provides that, for purposes of
determining whether an employer is an applicable large employer, all
persons treated as a single employer under section 414(b), (c), (m) or
(o) are treated as one employer. Comments were received both in favor
of and opposed to this aggregation rule; however, the rule is
explicitly set forth in the statute and is thus retained. While the
final regulations therefore incorporate this rule, they also provide,
consistent with the proposed regulations, that the determination of any
potential assessable payment under section 4980H(a) or (b) is made
separately for each entity (referred to as an applicable large employer
member) that together with other entities is treated as the applicable
large employer. For a discussion of the determination of any potential
liability under section 4980H, see section X of this preamble.
The final regulations continue to reserve on the application of the
employer aggregation rules under section 414(b), (c), (m) and (o) to
government entities, as well as to churches or conventions or
associations of churches (as defined in Sec. 1.170A-9(b)). Until
further guidance is issued, those entities may apply a reasonable, good
faith interpretation of section 414(b), (c), (m) and (o) in determining
their status as an applicable large employer.

E. Predecessor Employers

Section 4980H(c)(2)(C)(iii) provides that, for purposes of
determining whether an employer is an applicable large employer, any
reference to an employer includes a reference to any predecessor of the
employer. As with the proposed regulations, the final regulations
reserve with respect to specific rules for identifying a predecessor
employer (or the corresponding successor employer). The Treasury
Department and the IRS continue to consider development of rules for
identifying a predecessor employer (or the corresponding successor
employer), and until further guidance is issued, taxpayers may rely
upon a reasonable, good faith interpretation of the statutory provision
on predecessor (and successor) employers for purposes of the applicable
large employer determination. For this purpose, use of the rules
developed in the employment tax context for determining when wages paid
by a predecessor employer may be considered as having been paid by the
successor employer (see Sec. 31.3121(a)(1)-1(b)) is deemed reasonable.

F. Administrative Period

As set forth in section XV.D.3 of this preamble, the Treasury
Department and the IRS have concluded that transition relief for the
2015 applicable large employer determination is appropriate because
employers will be becoming familiar with the applicable large employer
determination method and applying it for the first time with respect to
2014 (to determine their status for 2015).
In addition, commenters suggested that section 4980H should not
apply to employers for a period of time after the end of the calendar
year so that employers that are close to the 50 full-time employee
(plus FTE) threshold, whose status may be affected by data from the
final calendar months of the calendar year, have time to respond to
becoming an applicable large employer. To address this concern, the
final regulations provide, with respect to an employee who was not
offered coverage at any point in the prior calendar year, that if the
applicable large employer offers coverage on or before April 1 of the
first year in which the employer is an applicable large employer, the
employer will not be subject to an assessable payment (for January
through March of the first year the employer is an applicable large
employer) under section 4980H(a) by reason of its failure to offer
coverage to the employee for January through March of that year, and
the employer will not be subject to an assessable payment (for January
through March of the first year the employer is an applicable large
employer) under section 4980H(b) if the coverage offered provides MV.
However, if the employer does not offer coverage to the employee by
April 1, the employer may be subject to a section 4980H(a) assessable
payment for those initial calendar months in addition to any subsequent
calendar months for which coverage is not offered, and if the employer
offers coverage by April 1 but the coverage does not provide MV, the
employer may be subject to a section 4980H(b) assessable payment for
those initial calendar months (in addition to any subsequent calendar
months for which coverage does not provide MV or is not affordable).
This rule applies only during the first year for which an employer is
an applicable large employer (even if the employer falls below the 50
full-time employee plus FTE threshold for a subsequent year and then
expands and becomes an applicable large employer again).

G. Full-Time Equivalent Employees

Full-time equivalent employees are included in the applicable large
employer determination. See Sec. 54.4980H-2(c). A commenter suggested
that the final regulations provide rounding rules for the monthly FTE
calculation. The number of FTEs for each calendar month in the
preceding calendar year is determined by calculating the aggregate
number of hours of service for that calendar month for employees who
were not full-time employees (but not more than 120 hours of service
for any employee) and dividing that number by 120. The proposed
regulations and these final regulations provide that in determining the
number of FTEs for each calendar month, fractions are taken into
account. In response to a request for a rounding rule, the final
regulations provide, as an option, that an employer may round the
resulting monthly FTE calculation to the nearest one hundredth. For
example, an employer with a calculation of 30.544 FTEs for a calendar
month may round that number to 30.54 FTEs.

H. Application of Employment Break Period Rules and Special Unpaid
Leave Rules to Determination of Applicable Large Employer Status

The proposed regulations and these final regulations provide a
method for determining full-time employee status, referred to as the
look-back measurement method, under which employers may determine the
status of an employee as a full-time employee during a subsequent
period (referred to as the stability period), based upon the hours of
service of the employee in a prior period (referred to as the
measurement period). See Sec. 54.4980H-3(d). The proposed regulations
and these final regulations also provide a method under which special
unpaid leave and employment break periods during a measurement period
are not treated as a period during which zero hours of service are
credited when applying the look-back measurement method. See Sec.
54.4980H-3(d)(6). Commenters suggested that these rules be extended to
the applicable large employer determination calculation so that periods
during which an employee experiences special unpaid leave or an
employment break period would not be counted as periods of zero hours
of service, as counting those periods in that manner brings down the
average hours of service for the employee (which will reduce the full-
time

[[Page 8549]]

employee and FTE counts). Because the statute explicitly provides the
method for determining applicable large employer status, including
counting employees who do not average 30 hours of service per week, the
final regulations do not adopt this suggestion.

VI. Hours of Service

The identification of an employer's full-time employees and FTEs
for purposes of determining its status as an applicable large employer,
and of an employer's full-time employees for purposes of determining
any potential liability under section 4980H, is based on each
employee's hours of service. The following section discusses the rules
for determining an employee's hours of service.
The final regulations adopt the general definition of hours of
service set forth in the proposed regulations. However, as discussed in
sections VI.B and VI.C of this preamble, the final regulations include
further rules to clarify or modify the application of the rules for
crediting hours of service to address various situations raised in the
comments.

A. General Definition of Hours of Service

Section 4980H(c)(4)(B) provides that the Secretary of the Treasury,
in consultation with the Secretary of Labor, will prescribe such
regulations, rules and guidance as may be necessary to determine the
hours of service of an employee, including rules for the application of
section 4980H to employees who are not compensated on an hourly basis.
In consultation with the Secretary of Labor, the Treasury Department
and the IRS formulated rules set forth in the proposed regulations that
generally were based on the definition of the term hour of service for
purposes of the rules related to the crediting of hours of service
under a qualified retirement plan (see 29 CFR 2530.200b-2(a)), with
certain modifications.
Specifically, the proposed regulations define an hour of service to
mean each hour for which an employee is paid, or entitled to payment,
for the performance of duties for the employer, and each hour for which
an employee is paid, or entitled to payment by the employer for 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 (as defined in 29 CFR 2530.200b-
2(a)).
For employees paid on an hourly basis, an employer is required to
calculate actual hours of service from records of hours worked and
hours for which payment is made or due. For employees paid on a non-
hourly basis (such as salaried employees), an employer may calculate
the actual hours of service using the same method as for hourly
employees, or use a days-worked equivalency crediting the employee with
eight hours of service for each day for which the employee would be
required to be credited with at least one hour of service, or a weeks-
worked equivalency whereby an employee would be credited with 40 hours
of service for each week for which the employee would be required to be
credited with at least one hour of service. The proposed regulations
prohibit use of these equivalencies, however, in circumstances in which
their use would result in a substantial understatement of an employee's
hours of service in a manner that would cause that employee not to be
treated as a full-time employee.
Comments were received on the days-worked and weeks-worked
equivalency methods. Commenters requested that the number of hours of
service credited under the equivalency methods be increased from eight
hours per day or 40 hours per week to 10 hours per day or 45 hours per
week, consistent with equivalency methods contained in regulations
issued by DOL. See 29 CFR 2530.200b-3(e). The higher equivalency
amounts under the DOL regulations are intended to provide an expansive
standard for the number of hours an employee is credited with for
purposes of eligibility, vesting and accrual of benefits in a pension
plan. In the context of section 4980H, an equivalency of eight hours
per day or 40 hours per week is more appropriate.
Commenters requested clarification of the circumstances under which
an employee must be credited with service under the equivalency
methods. Specifically, commenters asked whether an employee must have
actually worked one hour of service in a day or week to be credited
with eight or 40 hours of service respectively for that period. The
equivalency methods contained in the proposed regulations provide that
hours must be credited for any day or week in which the employee would
otherwise be required to be credited with one hour of service if
treated as an hourly employee. As described previously in this section
VI.A, under the service crediting method applicable to hourly
employees, an hourly employee must be credited with hours of service
for certain hours in which no services are performed but with respect
to which payment is made or owed by the employer (such as certain hours
of paid leave). Accordingly, the equivalency methods do not require
that an employee have actually worked an hour of service in a day or
week to be credited with eight or 40 hours of service with respect to
that day or week. This approach is the same as the equivalency rule for
crediting hours of service under an employee pension benefit plan under
DOL regulations at 29 CFR 2530.200b-3(e).
The preamble to the proposed regulations states that an employer
may change the method of calculating non-hourly employees' hours of
service for each calendar year. At one commenter's request, this rule
has been added to the text of the final regulations. As set forth in
the proposed and final regulations, an employer is not required to use
the same method of calculating a non-hourly employee's hours of service
for all non-hourly employees, and may apply different methods of
calculating a non-hourly employee's hours of service for different
categories of non-hourly employees, provided that the categories are
reasonable and consistently applied. An employer may change the method
of calculating a non-hourly employee's hours of service for one or more
categories of non-hourly employees for each calendar year as well.
One commenter asked whether an employer is required to calculate
hours of service using all three hours of service calculation methods
provided for non-hourly employees (actual hours and two equivalencies),
and if an employer is required to classify the employee as a full-time
employee if the employee would have such status under any of the
methods. The regulations indicate that the equivalency methods are
optional, and that an employer choosing to use equivalencies may
determine hours of service using one of the equivalency methods.
Accordingly, employers are not required to use more than one method of
determining hours of service for any particular employee.
Commenters requested that the equivalency methods be expanded to
include employees who are compensated on an hourly basis. Because
employers are required to maintain records of hours worked in the case
of employees who are compensated on an hourly basis, and because use of
the equivalency methods could in some cases understate or overstate the
number of hours actually worked by such employees, the final
regulations do not adopt this suggestion.
One commenter requested that the anti-abuse rule prohibiting the
use of an equivalency method if the result is to substantially
understate an employee's hours of service in a manner that would cause
the employee not to be treated as

[[Page 8550]]

a full-time employee be expanded to also prohibit the use of an
equivalency method if the result is to understate hours of service for
a substantial number of employees (even if no given employee's hours of
service are understated substantially and even if the understatement
would not cause the employee to not be treated as a full-time
employee). This expanded rule could affect the calculation of FTEs as
part of the applicable large employer determination. For example, if an
employer had 100 non-hourly employees who each worked two days per week
for 10 hours each day, the employer could not use the days-worked
equivalency because that would result in 400 fewer hours of service
being included in the FTE calculation for each week, even though the
understatement would not affect the employees' treatment as full-time
employees (because these employees are not full-time employees,
regardless of the use of equivalencies). The final regulations adopt
this suggestion.

B. Exclusions From Definition of Hour of Service

Commenters requested that hours of service performed in certain
capacities not be counted as an hour of service. The final regulations
adopt the following changes in response to these comments.\7\
---------------------------------------------------------------------------

\7\ Commenters also raised issues related to the application of
the hour of service definition to certain categories of employees
whose hours of service are particularly challenging to identify or
track or for whom the final regulations' general rules for
determining hours of service may present special difficulties. See
section VI.C of this preamble.
---------------------------------------------------------------------------

1. Volunteer Employees
Commenters requested that hours of service performed in the
capacity of a volunteer for a government entity or tax-exempt
organization not be counted as hours of service for purposes of section
4980H. Under the definition of hour of service outlined in these
regulations, an hour of service is generally defined as an hour for
which an employee is paid or entitled to payment. Accordingly, hours
worked by a volunteer who does not receive (and is not entitled to
receive) compensation in exchange for the performance of services are
not treated as hours of service for purposes of section 4980H.
Commenters noted, however, that some volunteers receive
compensation in the form of expense reimbursements, stipends,
contributions to employee benefit plans, or nominal wages. Local
governments, for instance, noted that many volunteer firefighters or
other emergency responders are paid a salary or an hourly wage,
generally at a rate lower than the rate paid to non-volunteers
performing services in a similar capacity. Other volunteer firefighters
or emergency responders may receive expense reimbursements or other
fees each time they respond to a call. Commenters generally expressed
concern that volunteer service would be discouraged if volunteer hours
were required to be counted when determining whether the individual is
a full-time employee for purposes of section 4980H.
In response to these concerns, the final regulations provide that
hours of service do not include hours worked as a ``bona fide
volunteer.'' For this purpose, the definition of ``bona fide
volunteer'' is generally based on the definition of that term for
purposes of section 457(e)(11)(B)(i), which provides special rules for
length of service awards offered to certain volunteer firefighters and
emergency medical providers under a municipal deferred compensation
plan. For purposes of section 4980H, however, bona fide volunteers are
not limited to volunteer firefighters and emergency medical providers.
Rather, bona fide volunteers include any volunteer who is an employee
of a government entity or an organization described in section 501(c)
that is exempt from taxation under section 501(a) whose only
compensation from that entity or organization is in the form of (i)
reimbursement for (or reasonable allowance for) reasonable expenses
incurred in the performance of services by volunteers, or (ii)
reasonable benefits (including length of service awards), and nominal
fees, customarily paid by similar entities in connection with the
performance of services by volunteers.
2. Student Employees
Commenters from educational organizations requested that special
rules apply for determining the hours of service of employees who are
also students of an educational organization. These comments generally
fell into two categories. First, commenters expressed concern about the
impact of section 4980H on federal work study programs under which a
student receives financial aid in the form of a federally subsidized
work assignment. Commenters posited that if educational organizations
were required to aggregate hours of service performed by the student
employee in the context of the work study program with hours of service
performed by the student employee for the educational organization in
other capacities (for example, a non-work study position with the
campus bookstore) in determining whether the student is a full-time
employee for purposes of section 4980H, it could discourage educational
organizations from hiring students in other capacities in addition to
their work study positions. Second, commenters requested that hours of
service performed for an outside employer by students through an
internship or externship program sponsored by an educational
organization not be counted as hours of service for the outside
employer for section 4980H purposes. The commenters suggested that,
without such an exception, outside employers would be discouraged from
offering internships or externships to students, which could have a
detrimental impact on the educational system.
The federal work study program, as a federally subsidized financial
aid program, is distinct from traditional employment in that its
primary purpose is to advance education. See 34 CFR part 675. To avoid
having the application of section 4980H interfere with the attainment
of that goal, the final regulations provide that hours of service for
section 4980H purposes do not include hours of service performed by
students in positions subsidized through the federal work study program
or a substantially similar program of a State or political subdivision
thereof. However, the final regulations do not include a general
exception for student employees. All hours of service for which a
student employee of an educational organization (or of an outside
employer) is paid or entitled to payment in a capacity other than
through the federal work study program (or a State or local
government's equivalent) are required to be counted as hours of service
for section 4980H purposes.
With respect to internships and externships, services by an intern
or extern would not count as hours of service for section 4980H
purposes under the general definition of hours of service contained in
the regulations to the extent that the student does not receive, and is
not entitled to, payment in connection with those hours. However,
excluding hours of service for which interns or externs receive, or are
entitled to receive, compensation from the employer from the definition
of hours of service for section 4980H purposes would be subject to
potential misuse through labeling positions as internships or
externships to avoid application of section 4980H. The final
regulations do not adopt a special rule for student employees working
as

[[Page 8551]]

interns or externs for an outside employer, and, therefore, the general
rules apply, including the option to use the look-back measurement
method, as appropriate, or the monthly measurement method.
3. Members of Religious Orders
A commenter requested clarification about whether members of
religious orders must be treated as full-time employees of their orders
for purposes of section 4980H. As noted in section VI.C of this
preamble, the Treasury Department and the IRS continue to consider
additional rules for the determination of hours of service for purposes
of section 4980H with respect to certain categories of employees whose
hours of service are particularly challenging to identify or track or
for whom the final regulations' general rules for determining hours of
service may present special difficulties, including hours worked by
members of religious orders for the orders to which they belong. Until
further guidance is issued, a religious order is permitted, for
purposes of determining whether an employee is a full-time employee
under section 4980H, to not count as an hour of service any work
performed by an individual who is subject to a vow of poverty as a
member of that order when the work is in the performance of tasks
usually required (and to the extent usually required) of an active
member of the order.

C. Application of Hours of Service to Certain Employees

Commenters requested guidance on the application of the hours of
service definition to certain categories of employees whose hours of
service are particularly challenging to identify or track or for whom
the final regulations' general rules for determining hours of service
may present special difficulties.
The Treasury Department and the IRS continue to consider additional
rules for the determination of hours of service for purposes of section
4980H with respect to certain categories of employees (including
adjunct faculty, commissioned salespeople, and airline employees), and
certain categories of hours associated with work by employees
(including layover hours (for example, for airline employees) and on-
call hours). The regulation authorizes the promulgation of such rules
through additional guidance, published in the Internal Revenue Bulletin
(see Sec. 601.601(d)(2)(ii)(b)).
Until further guidance is issued, employers of adjunct faculty,
employers of employees with layover hours, including the airline
industry, and employers of employees with on-call hours, as described
in sections VI.C.1 through VI.C.3 of this preamble, respectively, are
required to use a reasonable method of crediting hours of service that
is consistent with section 4980H. Further, employers of other employees
whose hours of service are particularly challenging to identify or
track or for whom the final regulations' general rules for determining
hours of service may present special difficulties, such as commissioned
salespeople, are required to use a reasonable method of crediting hours
of service that is consistent with section 4980H.
A method of crediting hours is not reasonable if it takes into
account only a portion of an employee's hours of service with the
effect of characterizing, as a non-full-time employee, an employee in a
position that traditionally involves at least 30 hours of service per
week. For example, it is not a reasonable method of crediting hours to
fail to take into account travel time for a travelling salesperson
compensated on a commission basis. Paragraphs C.1 through C.3 of this
section VI of the preamble describe methods of crediting hours of
service that are (or are not) reasonable to use with respect to adjunct
faculty, layover hours, including for airline industry employees, and
on-call hours. The examples of reasonable methods provided are not
intended to constitute the only reasonable methods of crediting hours
of service. Whether another method of crediting hours of service in
these situations is reasonable is based on the relevant facts and
circumstances.
1. Adjunct Faculty
Commenters raised issues relating to adjunct faculty who receive
compensation for teaching a certain number of classes (or credits) and
whose compensation is not based on the actual time spent on non-
classroom activities such as class preparation, grading papers and
exams, and counseling students. Comments from employers generally
suggested that the hours of service equivalencies for non-hourly
employees (eight hours per day or 40 hours per week) were too high for
this purpose, but that counting actual hours would be administratively
burdensome. These commenters suggested various methods for permitting
assumptions for hours of service that would be applied for each task
completed, for example, a set number of hours of service per week per
class or credit taught by an adjunct faculty member. Comments from
employees and their representatives included two very different types
of suggestions. Some suggested that any assumption be set sufficiently
high and be subject to robust periodic review so as not to fail to
attribute adequate hours of service for the work performed. Others
suggested that the assumption be set at a relatively moderate level
that would avoid giving undue incentives for institutions to reduce
adjunct faculty members' teaching assignments to avoid full-time
employee status.
In addition, comments from adjunct faculty members and educational
organizations requested the adoption of a method whereby an adjunct
faculty member would be treated as a full-time employee for purposes of
section 4980H only if the faculty member were assigned a course load
that was equivalent to (or, as requested in some comments, at least 75
percent of) the average course load assigned to faculty members who are
treated as full-time employees by the particular educational
organization or academic department. The course loads assigned to other
faculty members may be a relevant factor in an employer's determination
of the number of hours of service to be credited to an adjunct faculty
member. However, the course loads of faculty treated as full-time
employees may vary considerably, making implementation of the proposed
approach very difficult to administer.
Until further guidance is issued, employers of adjunct faculty (and
of employees in other positions that raise analogous issues with
respect to the crediting of hours of service) are required to use a
reasonable method for crediting hours of service with respect to those
employees that is consistent with section 4980H. With respect to
adjunct faculty members of an educational organization who are
compensated on the basis of the number of courses or credit hours
assigned, the commenters noted that a wide variation of work patterns,
duties, and circumstances apply in different institutions, academic
disciplines, and departments, and apply to different courses and
individuals, and that this might factor into the reasonableness of a
particular method of crediting hours of service in particular
circumstances.
Various commenters also suggested, however, that, in the interest
of predictability and ease of administration in crediting hours of
service for purposes of section 4980H, regulations specify a multiple
that might be applied to credit additional hours of service for each
credit hour or hour of classroom time assigned to the adjunct faculty
member. Commenters suggested a number of possible multiples that might
be used for this purpose. After

[[Page 8552]]

reviewing these comments, the Treasury Department and the IRS have
determined that, until further guidance is issued, one (but not the
only) method that is reasonable for this purpose would credit an
adjunct faculty member of an institution of higher education with (a)
2\1/4\ hours of service (representing a combination of teaching or
classroom time and time performing related tasks such as class
preparation and grading of examinations or papers) per week for each
hour of teaching or classroom time (in other words, in addition to
crediting an hour of service for each hour teaching in the classroom,
this method would credit an additional 1\1/4\ hours for activities such
as class preparation and grading) and, separately, (b) an hour of
service per week for each additional hour outside of the classroom the
faculty member spends performing duties he or she is required to
perform (such as required office hours or required attendance at
faculty meetings).
Although further guidance may be issued regarding these matters,
the method described in the preceding paragraph may be relied upon at
least through the end of 2015. To the extent any future guidance
modifies an employer's ability to rely on that method, the period of
reliance will not end earlier than January 1 of the calendar year
beginning at least six months after the date of issuance of the
guidance (but in no event earlier than January 1, 2016). This extended
period of reliance is provided so that if the method described in the
preceding paragraph is modified or replaced, employers will have
sufficient time to make necessary adjustments. Of course, employers may
credit more hours of service than would result under the method
described in the preceding paragraph and also may offer coverage to
additional employees beyond those identified as full-time employees
under that method.
2. Layover Hours for Airline Industry Employees and Others
Commenters noted that pilots and flight attendants often are
required, as a practical matter, to remain overnight between flights at
a location other than their residence. The Treasury Department and the
IRS continue to consider additional rules for the determination of
hours of service, including layover hours, for purposes of section
4980H with respect to certain categories of employees whose hours of
service are particularly challenging to identify or track or for whom
the final regulations' general rules for determining hours of service
may present special difficulties. Until further guidance is issued,
with respect to categories of employees whose hours of service are
particularly challenging to identify or track or for whom the final
regulations' general rules for determining hours of service may present
special difficulties, employers are required to use a reasonable method
for crediting hours of service that is consistent with section 4980H.
With respect to layover hours, it is not reasonable for an employer
to not credit a layover hour as an hour of service if the employee
receives compensation for the layover hour beyond any compensation that
the employee would have received without regard to the layover hour or
if the layover hour is counted by the employer towards the required
hours of service for the employee to earn his or her regular
compensation. For example, if an employer requires that an employee
perform services for 40 hours per week to earn full salary, and credits
``layover hours'' towards the 40 hours, then it would not be reasonable
for the employer to fail to credit the layover hours as hours of
service.
For layover hours for which an employee does not receive additional
compensation and that are not counted by the employer towards required
hours of service, it would be reasonable for an employer to credit an
employee in the airline industry with 8 hours of service for each day
on which an employee is required, as a practical matter, to stay away
from home overnight for business purposes (that is, 8 hours each day
(or 16 hours total) for the two days encompassing the overnight stay).
The employee must be credited with the employee's actual hours of
service for a day if crediting 8 hours of service substantially
understates the employee's actual hours of service for the day
(including layover hours for which an employee receives compensation or
that are counted by the employer towards required hours of service).
Other methods of counting hours of service may also be reasonable,
depending on the relevant facts and circumstances.
3. On-Call Hours
Commenters requested that ``on-call'' hours, for which an employee
has been directed by the employer to remain available to work, not be
treated as hours of service unless the employee is directed to perform
services. The commenters noted that a variety of compensation
structures may apply to on-call hours. In some cases, employees are
paid a reduced hourly wage for on-call hours. In other cases, employees
are not paid additional compensation for on-call hours but are required
to remain on call periodically as a condition of employment.
The Treasury Department and the IRS continue to consider additional
rules for determining hours of service for purposes of section 4980H
with respect to certain work arrangements, including on-call hours, or
categories of employees whose hours of service are particularly
challenging to identify or track or for whom the final regulations'
general rules for determining hours of service may present special
difficulties. Until further guidance is issued, employers of employees
who have on-call hours are required to use a reasonable method for
crediting hours of service that is consistent with section 4980H. It is
not reasonable for an employer to fail to credit an employee with an
hour of service for any on-call hour for which payment is made or due
by the employer, for which the employee is required to remain on-call
on the employer's premises, or for which the employee's activities
while remaining on-call are subject to substantial restrictions that
prevent the employee from using the time effectively for the employee's
own purposes.

VII. Identification of Full-Time Employees

A. In General

Section 4980H(c)(4) defines the term full-time employee to mean,
with respect to any month, an employee who is employed on average at
least 30 hours of service per week. The final regulations provide two
methods for determining full-time employee status--the monthly
measurement method (described in section VII.B of this preamble) and
the look-back measurement method (described in section VII.C of this
preamble).
The final regulations reiterate that the requirements for use of
the look-back measurement method and the monthly measurement method
prescribe minimum standards for the identification of full-time
employees. Employers may always treat additional employees as eligible
for coverage, or otherwise offer coverage more expansively than would
be required to avoid an assessable payment under section 4980H, subject
to compliance with any nondiscrimination or other applicable
requirements.
1. Thirty-Hour Threshold
Commenters requested that the 30 hours of service per week
threshold be increased as part of the final regulations, either
generally or as applied with

[[Page 8553]]

respect to certain positions or industries. Because the statute is
explicit that the threshold for status as a full-time employee is an
average of 30 hours of service per week, the final regulations do not
adopt these suggestions.
Other commenters pointed to employees whose hours of service are
restricted by federal or other law, arguing that in such cases a lower
threshold should be applied to determine whether the employee is a
full-time employee. In particular, airline pilots explained that
federal aviation law restricts the number of hours that a pilot may
fly, resulting in many pilots averaging fewer than 30 hours of service
per week despite having what may be considered a full-time position
within the standards of the industry. However, section 4980H contains
no exceptions from the requirement that an employee average at least 30
hours of service per week to be a full-time employee. Accordingly, the
30 hours of service threshold is not adjusted for any particular
industry or position of employment in the final regulations. However,
see the discussion of the application of hours of service to certain
employees at section VI.C of this preamble.
2. Monthly Equivalency
The proposed regulations provide that, for purposes of determining
full-time employee status, 130 hours of service in a calendar month is
treated as the monthly equivalent of at least 30 hours of service per
week, provided that the employer applies this equivalency rule on a
reasonable and consistent basis. This monthly standard takes into
account that the average month consists of more than four weeks.
Commenters suggested that the 130 hours of service monthly standard is
not an appropriate proxy for 30 hours of service per week during
certain shorter calendar months. However, the 130 hours of service
monthly standard may also be lower than an average of 30 hours of
service per week during other longer months of the calendar year (for
example, the seven calendar months that consist of 31 days). Under the
look-back measurement method in particular, any effect of this
approximation will balance out over the calendar year (for example,
over a 12-month measurement period, over two successive six-month
measurement periods, or over four successive three-month measurement
periods).
In developing the final regulations, the Treasury Department and
the IRS considered whether the 130 hours of service monthly equivalency
standard should apply to the monthly measurement method, described in
section VII.B of this preamble, under which the determination of full-
time employee status is based on each calendar month. A standard was
considered that would prorate any additional days beyond the minimum 28
days in a calendar month, so that, for example, the months of January,
March, May, July, August, October, and December would be treated as
requiring 133 hours of service for full-time employee status (equal to
4 3/7 weeks multiplied by 30 hours of service per week). However, that
standard would result in no less than three different monthly
equivalencies (one for February, one for the four calendar months with
30 days, and one for the seven calendar months with 31 days). In
addition, a calendar month may start on any day of the week, and there
is no standard workweek for all employees so that some employees may,
for example, perform services on weekends or for longer or varying
shifts rather than set hours Monday through Friday. For these reasons,
different standards for each calendar month would not only be an
additional burden for employers, but also do little to address the
variation in treatment that may occur, for example, between an employee
generally performing hours of service on the weekend and an employee
performing services on business days, solely due to the day of the week
upon which a calendar month begins. Accordingly, the final regulations
adopt a standard of 130 hours of service per calendar month for
determining whether an employee is a full-time employee under both the
look-back measurement method and the monthly measurement method. The
130 hours of service standard is equal to 30 hours of service per week
multiplied by 52 weeks and divided by 12 calendar months.
3. Aggregation of Hours of Service Across Applicable Large Employer
Members
The proposed regulations provide that, for purposes of identifying
a full-time employee, hours of service must be counted across all
applicable large employer members. For example, an employee who for a
calendar month averaged 25 hours of service per week at one applicable
large employer member and 15 hours of service per week at another
applicable large employer member of the same applicable large employer
would be a full-time employee for that calendar month.
Commenters requested that an employee's status as a full-time
employee be determined separately for each applicable large employer
member based upon the employee's hours of service at each particular
applicable large employer member. The final regulations do not adopt
such a rule because it would often produce inequitable results by
classifying an employee performing at least 30 hours of service per
week for closely related applicable large employer members (for
example, two corporations that are wholly-owned by another entity or
individual) as not a full-time employee while classifying other
employees working the same number of hours of service for one of those
entities as full-time employees. For a discussion of how any assessable
payment under section 4980H for a calendar month would be allocated
among applicable large employer members if a full-time employee
performed services for two or more applicable large employer members
during the same calendar month, see section X of this preamble. For a
discussion of how one applicable large employer member's offer of
coverage applies to other applicable large employer members in the same
applicable large employer, see section IX of this preamble.

B. Monthly Measurement Method

Commenters requested further information about the identification
of full-time employees by employers electing not to use the look-back
measurement method. Pursuant to the statute, these full-time employees
would be identified based on the hours of service for each calendar
month; accordingly, these regulations refer to this method of
identifying full-time employees as the monthly measurement method.
Under the look-back measurement method set forth in the proposed
regulations, if an employee is reasonably expected at his or her start
date to be a full-time employee, an employer that sponsors a group
health plan that offers coverage to the employee at or before the
conclusion of the employee's initial three full calendar months of
employment will not be subject to an assessable payment under section
4980H by reason of its failure to offer coverage to the employee for up
to the initial three full calendar months of employment. See section
VII.D of this preamble for a discussion of clarifications made to this
rule in the final regulations. In developing the final regulations, the
Treasury Department and the IRS considered whether a similar rule
should be provided under the monthly measurement method.

[[Page 8554]]

Under the monthly measurement method in the final regulations, an
employer will not be subject to an assessable payment under section
4980H(a) with respect to an employee because of a failure to offer
coverage to that employee before the end of the period of three full
calendar months beginning with the first full calendar month in which
the employee is otherwise eligible for an offer of coverage under a
group health plan of the employer if the employee is offered coverage
no later than the day after the end of that three-month period. If the
coverage for which the employee is otherwise eligible provides MV, the
employer also will not be subject to an assessable payment under
section 4980H(b) during that three-month period. For this purpose, an
employee is otherwise eligible for an offer of coverage in a month if
the employee meets all conditions to be offered coverage under the plan
other than the completion of a waiting period, within the meaning of
Sec. 54.9801-2.\8\ This rule applies only once per period of
employment of an employee and applies with respect to each of the three
full calendar months for which the employee is otherwise eligible for
an offer of coverage under a group health plan of the employer.
Accordingly, the relief may be available even if the employee
terminates before that date (and before coverage is offered).
---------------------------------------------------------------------------

\8\ Section 54.9801-2 provides definitions for terms used in
chapter 100 of the Code (sections 9801 through 9834). Currently the
definition of the term waiting period at Sec. 54.9801-2 contains a
cross reference to the definition of the term waiting period at
Sec. 54.9801-3(a)(3)(iii). Proposed regulations published March 21,
2013, 78 FR 17313, would amend that cross reference to refer to
Sec. 54.9815-2708(b) and to remove the definition at Sec. 54.9801-
3(a)(3)(iii), and would add Sec. 54.9815-2708 which would include a
definition of the term waiting period at Sec. 54.9815-2708(b).
Thus, Sec. 54.9801-2 provides the relevant definition of the term
waiting period, and will continue to provide the relevant definition
if revised as proposed.
---------------------------------------------------------------------------

To avoid inequitable application of the rule that applies to
employees who are first otherwise eligible for an offer of coverage by
characterizing former employees as rehired employees after a short
period of absence, the final regulations clarify that under the monthly
measurement method, an employee must be treated as a continuing
employee, rather than a new hire, unless the employee has had a period
of at least 13 weeks during which no hours of service were credited (26
weeks for an employee of an employer that is an educational
organization). At the employer's option, the employee may be treated as
a new hire if the employee is not credited with any hours of service
during a period that is both at least four consecutive weeks' duration
and longer than the employee's immediately preceding period of
employment. For a description of the rehire rules, see section VII.E of
this preamble.
In determining how an employer should treat periods during which an
employee is not credited with hours of service, the final regulations
clarify that under the monthly measurement method, the special unpaid
leave and employment break period rules do not apply. That is because
determinations under the monthly measurement method are based on hours
of service during that particular calendar month and are not based on
averaging over a prior measurement period. For a description of the
special unpaid leave and employment break period rules see section
VII.E.2 of this preamble.
Commenters requested that the monthly measurement method be applied
in a manner that approximated or otherwise took into account payroll
periods. To provide additional flexibility and reduce administrative
burden on employers, the final regulations allow an employer to
determine an employee's full-time employee status for a calendar month
under the monthly measurement method based on the hours of service over
successive one-week periods. Under this optional method, referred to as
the weekly rule, full-time employee status for certain calendar months
is based on hours of service over four-week periods and for certain
other calendar months on hours of service over five-week periods. In
general, the period measured for the month must contain either the week
that includes the first day of the month or the week that includes the
last day of the month, but not both. For this purpose, week means any
period of seven consecutive calendar days applied consistently by the
applicable large employer member for each calendar month of the year.
For calendar months calculated using four week periods, an employee
with at least 120 hours of service is a full-time employee, and for
calendar months calculated using five week periods, an employee with at
least 150 hours of service is a full-time employee. However, for
purposes of coordination with both the premium tax credit and the
section 5000A individual shared responsibility provisions, which are
applied on a calendar month basis, an applicable large employer member
is only treated as having offered coverage under section 4980H for a
calendar month if it offers coverage to a full-time employee for the
entire calendar month, regardless of whether the employer uses the
weekly rule.

C. Look-Back Measurement Method

1. In General
The proposed regulations provide a method, referred to as the look-
back measurement method, under which employers may determine the status
of an employee as a full-time employee during a future period (referred
to as the stability period), based upon the hours of service of the
employee in a prior period (referred to as the measurement period). The
look-back measurement method for identifying full-time employees is
available only for purposes of determining and computing liability
under section 4980H and not for purposes of determining status as an
applicable large employer.
Under the look-back measurement method for ongoing employees, an
applicable large employer member determines each ongoing employee's
full-time employee status by looking back at a standard measurement
period of at least three months but not more than 12 months, as
determined by the employer. The applicable large employer member
determines the months in which the standard measurement period starts
and ends, provided that the determination must be made on a uniform and
consistent basis for all employees in the same category. If the
applicable large employer member determines that an employee was
employed on average at least 30 hours of service per week during the
standard measurement period, then the applicable large employer member
treats the employee as a full-time employee during a subsequent
stability period, regardless of the employee's number of hours of
service during the stability period, so long as the worker remains an
employee.
The proposed regulations also provide look-back measurement method
rules for new employees, including rules for employees who are
reasonably expected to be full-time employees at the start date, and
those who are variable hour employees or seasonal employees. A variable
hour employee or seasonal employee will have his or her status as a
full-time employee determined after an initial measurement period. The
proposed regulations then provide transition guidance under which a new
employee transitions into having his or her status as a full-time
employee determined under the look-back measurement method rules
applicable to ongoing employees.
Although some commenters suggested that the look-back measurement
method

[[Page 8555]]

of identifying full-time employees be eliminated, other commenters
requested that it be retained. The look-back measurement method is
intended as a method of crediting employees with hours of service they
earn (during a measurement period) while also providing employers
predictability in being able to identify full-time employees before the
beginning of a potential coverage period (during a stability period).
After reviewing the comments, the Treasury Department and the IRS have
concluded that this method provides a practical and fair method for
determining average hours of service that will facilitate compliance
with section 4980H. Accordingly, the final regulations continue to
permit a look-back measurement method as an optional method for
identifying full-time employees.
2. Reasonable Expectations With Respect to a New Employee
Under both the proposed regulations and the final regulations, the
application of the look-back measurement method to a new employee
depends on the employer's reasonable expectations with respect to the
status of the new employee at his or her start date. Under the final
regulations, if a new employee who is reasonably expected to be a full-
time employee at his or her start date is offered coverage by the first
day of the month immediately following the conclusion of the employee's
initial three full calendar months of employment (and if the employee
was otherwise eligible for an offer of coverage during those three
months), the employer is not subject to a section 4980H assessable
payment for those initial three full calendar months of employment (or
for the period prior to the initial three full calendar months of
employment), provided that to avoid liability under section 4980H(b)
for the initial three full calendar months, the coverage offered after
the initial three full calendar months of employment must provide MV.
Otherwise, with respect to a new employee who is reasonably expected to
be a full-time employee at his or her start date, the employer may be
subject to a section 4980H assessable payment beginning with the first
full calendar month in which an employee is a full-time employee.
Commenters requested further guidance on the circumstances under
which an employer may reasonably expect a new hire to be a full-time
employee. In response to these comments, the final regulations provide
that whether an employer's determination that a new hire is not a full-
time employee (or is a full-time employee) is reasonable is based on
the facts and circumstances. Factors to consider include, but are not
limited to, whether the employee is replacing an employee who was or
was not a full-time employee, the extent to which employees in the same
or comparable positions are or are not full-time employees, and whether
the job was advertised, or otherwise communicated to the new hire or
otherwise documented (for example, through a contract or job
description), as requiring hours of service that would average 30 (or
more) hours of service per week or less than 30 hours of service per
week.
Commenters also requested that employers that are educational
organizations be prohibited from taking potential employment break
periods into account in determining their expectations of future hours
of service. For a description of the employment break period rule, see
section VII.E.2 of this preamble. The final regulations clarify that
educational organization employers cannot take into account the
potential for, or likelihood of, an employment break period in
determining their expectations of future hours of service.
3. Administrative Period
Under the proposed and final regulations, an applicable large
employer member using the look-back measurement method may, at its
option, elect to add an administrative period of no longer than 90 days
between the measurement period and the stability period. Under the
proposed regulations, the term administrative period is defined as an
optional period, selected by an applicable large employer member, of no
longer than 90 days beginning immediately following the end of a
measurement period and ending immediately before the start of the
associated stability period. However, the proposed regulations also
provide that the period between a variable hour or seasonal employee's
start date and the beginning of the initial measurement period must be
taken into account in determining the administrative period. The
definition of administrative period in the final regulations is revised
to reflect that it also includes periods before the initial measurement
period. Thus, the combined length of the period before the start of the
initial measurement period and the period beginning immediately after
the end of the initial measurement period and ending immediately before
the beginning of the associated stability period is subject to an
overall limit of 90 days.
Commenters requested that the maximum permissible administrative
period be extended from 90 days to three full calendar months. The
proposed regulations regarding the administrative period in these
circumstances were intended to allow employers to structure their plans
to coordinate with section 2708 of the PHS Act (relating to the
application of the 90-day limitation on waiting periods) in all
circumstances. For this reason, the final regulations do not adopt this
suggestion.
4. Rules for Full-Time Employee's Stability Periods That Are Longer
Than the Associated Measurement Periods
In general, under the proposed regulations, the minimum length of a
measurement period is three months but the minimum length of a
stability period for an employee who is a full-time employee based on
hours of service in a measurement period is six months. Commenters
requested that a three-month stability period be permitted if the
employer uses a three-month measurement period and the employee is
determined to be a full-time employee during the measurement period.
The Treasury Department and the IRS remain concerned that permitting
stability periods as short as three months for employees who are full-
time employees based on hours of service in the measurement period
could lead to employees moving in and out of employer coverage (and
potentially Exchange coverage) multiple times during the year, which
would be undesirable from both the employee's and employer's
perspective, and could also create administrative challenges for the
Exchanges. Accordingly, this suggestion is not adopted.
Commenters also asked for clarification of the measurement period
that may be used for the subsequent six-month stability period in cases
in which a less-than-six month measurement period is used (such as a
three-month measurement period) and the employee averages at least 30
hours of service per week during the measurement period, so that a
stability period of at least six months must be applied. The final
regulations clarify that the stability period refers to the period
immediately following the measurement period and any associated
administrative period. Therefore, for employees who average at least 30
hours of service per week during a measurement period, who thus must be
treated as full-time employees during an associated six-month stability
period, the next measurement period

[[Page 8556]]

begins at a date during the stability period that is the latest date
that will not result in any period between the end of that stability
period and the beginning of the next stability period associated with
the next measurement period. For example, suppose an employer uses a
three-month measurement period consisting of January through March of
Year 1, followed by a one month administrative period consisting of
April of Year 1. In this example, employees who average 30 hours of
service per week during the measurement period consisting of January
through March of Year 1 must be treated as full-time employees during a
six-month stability period consisting of May through October of Year 1.
Under the final regulations, the next measurement period would be July
through September of Year 1, the associated administrative period would
be October of Year 1, and the next associated stability period would
begin immediately at the end of the administrative period. Thus, the
stability period for employees determined to be full-time employees
during the measurement period consisting of July through September of
Year 1 would consist of November of Year 1 through April of Year 2 and
there would be no period between the end of the first stability period
(October 31 of Year 1) and the beginning of the next stability period
(November 1 of Year 1). For ongoing employees that do not average at
least 30 hours of service per week during a measurement period, the
length of the stability period cannot exceed the length of the
measurement period.
5. Employee Categories To Which Different Measurement and Stability
Periods May Be Applied
The proposed regulations permit an employer to use measurement
periods and stability periods that differ either in length or in their
starting and ending dates for different categories of employees
specified in the regulations, provided that the employees within each
category are treated consistently. The categories specified in the
proposed regulations are salaried employees and hourly employees,
employees whose primary places of employment are in different states,
collectively bargained employees and non-collectively bargained
employees, and each group of collectively bargained employees covered
by a separate collective bargaining arrangement. Commenters requested
that these categories be expanded to, for example, any category
established in good faith and consistent with business practices, any
category of hourly employees based on payroll classifications, any
category of employees of employers in an industry that demonstrates
higher turnover than other industries, and any category of employees
with turnover that is higher than other categories. The final
regulations do not adopt these requests because of the associated
administrative difficulties.
Notice 2012-58 had also included employees of different entities as
a separate category of employees. The preamble to the proposed
regulations provides that because section 4980H generally is applied on
an applicable large employer member-by-member basis, including the
method of identifying full-time employees, there is no need for a
distinct category for employees of different entities, as each such
member is a separate entity. However, comments to the proposed
regulations requested that the final regulations confirm that different
applicable large employer members may use different starting and ending
dates and lengths of measurement and stability periods. In response,
the final regulations include this confirmation as well as confirmation
that different applicable large employer members may use different
measurement methods (the look-back measurement method or the monthly
measurement method).
6. Variable Hour Employees
As described in the preamble to the proposed regulations, with
respect to certain positions of employment, employers have indicated
that they could not determine at the start date whether the employee
would be a full-time employee because an employee's hours of service in
that position may vary significantly. Particularly in the hospitality
and retail industries, employers requested that they be permitted to
determine full-time employee status for employees whose hours may vary
significantly by first considering hours of service for a period of
time after the start date. In response to these comments made to the
notices published before the proposed regulations, the proposed
regulations generally provide that with respect to these employees,
referred to as variable hour employees, an employer could use an
initial measurement period, in combination with any administrative
period, that did not extend beyond the last day of the first calendar
month beginning on or after the first anniversary of the employee's
start date. The proposed regulations treat an employee as a variable
hour employee if, based on the facts and circumstances at the
employee's start date, the applicable large employer member cannot
determine whether the employee is reasonably expected to be employed on
average at least 30 hours of service per week during the initial
measurement period because the employee's hours of service are variable
or otherwise uncertain. For this purpose, the applicable large employer
member may not take into account the likelihood that the employee may
terminate employment with the applicable large employer (including any
member of the applicable large employer) before the end of the initial
measurement period. See proposed Sec. 54.4980H-1(a)(43).
Commenters, generally representing employee organizations,
suggested that the treatment provided to variable hour employees be
removed. In general, these commenters suggested that employers would
categorize an excessive number of employees as variable hour employees
in order to take advantage of the ability to avoid section 4980H
liability while not offering coverage during the first year of
employment. These final regulations retain the treatment of variable
hour employees because with respect to certain positions of employment
involving variable hours, it is not reasonable to require that an
employer assume what those hours will be. In response to the comments,
however, the final regulations explicitly set forth certain factors to
take into account in determining whether the employer, at the
employee's start date, could not determine whether the employee was
reasonably expected to be employed on average at least 30 hours of
service per week during the initial measurement period. These factors
are described in section VII.C.2 of this preamble and are set forth at
Sec. 54.4980H-1(a)(49).
7. Temporary Staffing Firms
The preamble to the proposed regulations notes that the application
of section 4980H may be particularly challenging for temporary staffing
firms and requested comments on certain specific areas relevant to
temporary staffing firms, including whether new employees of a
temporary staffing firm should be deemed or presumed to be variable
hour employees for purposes of the look-back measurement method as well
as whether special rules should apply to temporary staffing firms for
purposes of determining when an employee has separated from service and
the application of the rehire rules when an employee returns after a
break in service. See section VII.E of the preamble for a discussion of
the rehire rules.

[[Page 8557]]

Some commenters requested that new employees of a temporary
staffing firm be deemed, or alternatively presumed, to be variable hour
employees rather than full-time employees for purposes of the look-back
measurement method. Other commenters opposed the use of any presumption
that employees of temporary staffing firms are variable hour employees,
arguing that some of these employees will work predictable schedules
averaging at least 30 hours of service per week. Temporary staffing
firms vary widely in the types of assignments they fill for their
clients and in the anticipated assignments that a new employee will be
offered. Accordingly, the final regulations do not adopt a generally
applicable presumption.
To accommodate these variations and provide additional guidance,
the final regulations set forth additional factors relevant to the
determination of whether a new employee of a temporary staffing firm
intended to be placed on temporary assignments at client organizations
is a variable hour employee. These factors generally relate to the
typical experience of an employee in the position with the temporary
staffing firm that hires the new employee (assuming the temporary
staffing firm employer has no reason to anticipate that the new
employee's experience will differ) and include whether employees in the
same position with the temporary staffing firm retain as part of their
continuing employment the right to reject temporary placements that the
employer temporary staffing firm offers the employee, whether employees
in the same position with the temporary staffing firm typically have
periods during which no offer of temporary placement is made, whether
employees in the same position with the temporary staffing firm
typically are offered temporary placements for differing periods of
time, and whether employees in the same position with the temporary
staffing firm typically are offered temporary placements that do not
extend beyond 13 weeks. As demonstrated in the modified and additional
examples related to temporary staffing firms, no factor is
determinative. In addition, the determination of whether an employee is
a variable hour employee is made on the basis of the temporary staffing
firm's reasonable expectations at the start date. An employee may
accordingly be classified as a variable hour employee if this
categorization was appropriate based on the employer's reasonable
expectations at the start date, even if the employee in fact averages
30 or more hours of service per week over the initial measurement
period.
Commenters suggested that the rehire rules should be adjusted for
employees of temporary staffing firms by reducing the length of the
break in service required before an employee can be treated as a new
hire from 26 weeks to 4 weeks or some other duration. The final
regulations do not adopt this suggestion in part because the adoption
of such a rule may encourage employers to use temporary staffing firms
to provide firm employees to perform certain services in order to
attempt to improperly avoid offering coverage or incurring liability
for assessable payments under section 4980H. For a discussion of the
reduction of the break-in-service period under the rehire rules from 26
weeks to 13 weeks for all employers that are not educational
organizations see section VII.E of this preamble.
Commenters requested additional guidance on when a temporary
staffing firm may treat an employee who is not working on assignments
as having separated from service with the firm. Separation from service
is relevant in a number of contexts beyond section 4980H, such as
eligibility to receive a distribution from a qualified plan (see, for
example, section 401(k)(2)(B)(i)(l)) and the requirement to provide a
notice of continuation coverage under COBRA (see section 4980B), and
temporary staffing firm employers generally have developed various
means of determining when an employee has separated from service with
the firm for these purposes. Accordingly, until further guidance is
issued, temporary staffing firms, like all employers generally, may
determine when an employee has separated from service by considering
all available facts and circumstances and by using a reasonable method
that is consistent with the employer's general practices for other
purposes, such as the qualified plan rules, COBRA, and applicable State
law. For a discussion of the rehire rules that apply under section
4980H, see section VII.E of this preamble.
Section II.D.3 of the preamble to the proposed regulations
addresses two arrangements under which a client employer may use a
temporary staffing firm to attempt to evade application of section
4980H. In one arrangement, the client employer purports to employ an
employee for only part of a week, such as 20 hours, and to hire that
same individual through a temporary staffing firm for the remaining
hours of the week, and then claim that the individual was not a full-
time employee of either the client employer or the temporary staffing
firm. In the other arrangement, one temporary staffing firm purports to
supply a client an individual as a worker for only part of a week, such
as 20 hours, while a second temporary staffing firm purports to supply
the same client the same individual for the remainder of the week, and
then claim that the individual was not a full-time employee of the
client or either of the temporary staffing firms. For these reasons and
the reasons set forth in section II.D.3 of the preamble to the proposed
regulations, the Treasury Department and the IRS continue to be
concerned about these arrangements and anticipate that future guidance
of general applicability, published in the Internal Revenue Bulletin
(see Sec. 601.601(d)(2)(ii)(b)), will address them.
8. Seasonal Employees
Under the proposed and final regulations, the look-back measurement
method, including the use of the initial measurement period for a newly
hired employee, may be applied by an employer to its seasonal employees
in the same manner in which the rules apply to variable hour employees.
The proposed regulations do not provide a definition of the term
seasonal employee but rather reserve on the issue. Section II.C.2.b of
the preamble to the proposed regulations indicates that employers are
permitted through 2014 to use a reasonable, good faith interpretation
of the term seasonal employee for purposes of section 4980H. The
preamble further states that the Treasury Department and the IRS
contemplated that the final regulations would add to the definition of
seasonal employee a specific time limit in the form of a defined
period, citing the final sentence of Sec. 1.105-11(c)(2)(iii)(C) as an
example that could be adapted for purposes of section 4980H. The
Treasury Department and the IRS specifically requested comments on this
approach.
Commenters generally supported the proposed treatment of seasonal
employees, but had varying notions of the appropriate time limit for a
recurring period of service for a seasonal employee, ranging from 45
days to ten months. Consistent with the proposed regulations, the final
regulations continue to provide for seasonal employees to be treated
under the same rules applicable to variable hour employees. For this
purpose, the final regulations provide that a seasonal employee means
an employee in a position for which the customary annual employment is
six months or less. The reference to customary means

[[Page 8558]]

that by the nature of the position an employee in this position
typically works for a period of six months or less, and that period
should begin each calendar year in approximately the same part of the
year, such as summer or winter. In certain unusual instances, the
employee can still be considered a seasonal employee even if the
seasonal employment is extended in a particular year beyond its
customary duration (regardless of whether the customary duration is six
months or is less than six months). For example, if ski instructors at
a resort have a customary period of annual employment of six months,
but are asked in a particular year to work an additional month because
of an unusually long or heavy snow season, they would still be
considered seasonal employees.
An employee in a seasonal position might be promoted or transferred
to a permanent position. For example, a ski instructor might be moved
to the position of grounds manager, which is anticipated to work year
round. Under the final regulations, in general, if a seasonal employee
experiences a change in employment status before the end of the initial
measurement period in such a way that, if the employee had begun
employment in the new position or status, the employee would not have
been a seasonal employee (and would have reasonably been expected to be
employed on average at least 30 hours of service per week), the
employer has until the first day of the fourth month following the
change in employment status, or, if earlier, the first day of the first
month following the end of the initial measurement period (plus any
applicable administrative period) if the employee averaged 30 hours of
service per week or more during the initial measurement period, to
treat the employee as a full-time employee.
9. Modification of Measurement Periods or Stability Periods To
Consolidate Coverage Entry Dates
Commenters requested that the initial measurement period be
modified to account for plan designs that consolidate employees into
particular entry dates, such as the first day of a pay period, the
first day of the month, etc. Specifically these commenters requested
that the initial measurement period be permitted to begin on the
employee's start date in a period, such as a calendar quarter, but end
on a common date, such as 12 months after the beginning of the calendar
quarter, and employers be allowed to couple this approach with a
uniform stability period. This proposed structure would often result in
a stability period significantly longer than the associated measurement
period. In this example, all employees starting during the calendar
quarter would have a 12 month stability period, whether they started in
the first month of the quarter or the last month of the quarter. With
respect to an employee who does not have sufficient hours of service to
be classified as a full-time employee, the Treasury Department and the
IRS have consistently stated that it is not appropriate to apply that
status for a longer period than the measurement period. In addition,
the proposed approach would add considerable complexity to the rules
governing the look-back measurement method. However, consistent with
the proposed regulations, the final regulations provide that the
initial measurement period for a new variable hour employee or new
seasonal employee may begin on the employee's start date or any date
after that up to and including the first day of the first calendar
month following the employee's start date (or, if later, as of the
first day of the first payroll period beginning on or after the
employee's start date). Effectively, this allows employers to group new
hires into 12 groups throughout the year for purposes of determining
the initial measurement period. For these reasons, the final
regulations retain the rule in the proposed regulations and do not
adopt the commenters' suggestion.
10. Change in Employment Status
The proposed regulations for the look-back measurement method
contain a change in employment status rule for a variable hour or
seasonal employee who experiences a change in employment status during
the initial measurement period such that, if the employee had begun
employment in the new position or status, the employee would have
reasonably been expected to be employed on average at least 30 hours of
service per week. With respect to such an employee, in general, the
employer will not be subject to an assessable payment for such an
employee until the first day of the fourth full calendar month
following the change in employment status if the employer provides
coverage at the end of that period (and to avoid liability under
section 4980H(b) the coverage provides MV) or, if earlier and the
employee is a full-time employee based on the initial measurement
period, the first day of the first month following the end of the
initial measurement period (including any optional administrative
period associated with the initial measurement period). Under the final
regulations, this rule is revised to also apply to an employee who has
a change in employment status from part-time employee to full-time
employee during the initial measurement period. For a description of
the requirement that the employee be otherwise eligible for an offer of
coverage during the period described in this paragraph, see section
VII.D of this preamble.
Commenters to the proposed regulations requested additional rules
for how the look-back measurement method applies when an employee
experiences various changes in employment status. As described in this
section VII.C.10 of the preamble, the final regulations revise the
change in employment status rule that applies during the initial
measurement period for new employees who experience a change in
employment status resulting in full-time employee status. The final
regulations also provide a special rule, discussed in section VII.G of
this preamble, that applies when an employee experiences a change in
employment status from full-time employee status to part-time employee
status; the employer is allowed to apply the monthly measurement method
to such an employee within three months of the change if the employee
actually averages less than 30 hours of service per week for each of
the three months following the change in employment status and if the
employer has offered the employee continuous coverage that provides MV
from at least the fourth month of the employee's employment. Otherwise,
under the look-back measurement method, full-time employee status in a
stability period is based on hours of service in the prior applicable
measurement period, regardless of whether the employee experiences a
change in employment status either during the measurement period or
during the stability period. Under the look-back measurement method,
each employee's hours of service are measured (not just variable hour
employees and seasonal employees) during the measurement period. In
general, under the look-back measurement method, if the change in
employment status results in a change in hours of service, that change
is captured in a subsequent stability period. For a description of the
rules regarding the use of the look-back measurement method for only
some of an employer's employees, see section VII.G of this preamble.
11. New Employees Who Are Neither Variable Hour Employees nor Seasonal
Employees
Under the proposed and final regulations, an ongoing employee is an

[[Page 8559]]

employee who has been employed by an applicable large employer member
for at least one complete standard measurement period. The proposed
regulations provide rules for application of the look-back measurement
method to new employees who are variable hour employees and seasonal
employees but the proposed rules do not fully explain how full-time
employee status is determined for other new employees. The final
regulations clarify how an applicable large employer member determines
full-time employee status of its new employees who are not variable
hour employees or seasonal employees, for the period before the rules
for ongoing employees apply (that is, for the period before the
employee has been employed for a complete standard measurement period).
In general, before becoming an ongoing employee, full-time employee
status for a new employee who is reasonably expected at the employee's
start date to be a full-time employee (and who is not a seasonal
employee) is based on that employee's hours of service each calendar
month (but note that an employer will not be subject to a section
4980H(a) assessable payment for the initial three full months of
employment if the employee is otherwise eligible for an offer of
coverage during those three months and is offered coverage by the first
day following those three months (and the employer will not be subject
to a section 4980H(b) assessable payment for those months if the
coverage offered provides MV).
A definition of part-time employee is added to the final
regulations for a new employee who is reasonably expected at the
employee's start date not to be a full-time employee (and who is not a
variable hour employee or a seasonal employee). The same rules that
apply to new variable hour employees and new seasonal employees apply
to new part-time employees. In the normal case, an employer's
categorization of a new employee as a part-time employee or variable
hour employee does not affect the way the look-back measurement method
applies (because the initial measurement period is available to both
types of employees).
12. Clarifications Regarding the Initial Measurement Period
The final regulations clarify that an applicable large employer
member may apply the payroll period rule set forth in Sec. 54.4980H-
3(d)(1)(ii) for purposes of determining an initial measurement period,
provided that an initial measurement period must begin on the start
date or any date between the start date and the later of the first day
of the first calendar month following the employee's start date and the
first day of the first payroll period that starts after the employee's
start date.
The proposed regulations define the initial measurement period, in
part, as a period of at least three consecutive calendar months but not
more than 12 consecutive calendar months. The final regulations clarify
that the initial measurement period need not be based on calendar
months but instead may be based on months, defined as either a calendar
month or as the period that begins on any date following the first day
of the calendar month and that ends on the immediately preceding date
in the immediately following calendar month (for example, from March 15
to April 14). In contrast, a stability period must be based on calendar
months. The final regulations, consistent with the proposed
regulations, also allow an employer to base measurement periods on one
week, two week, or semi-monthly payroll periods.
13. Periods of Time Between Stability Periods
Commenters noted that, in certain circumstances, there may be a
period of time between the stability period associated with the initial
measurement period and the stability period associated with the first
full standard measurement period during which a variable hour employee
or seasonal employee has been employed. This generally may occur in
cases in which a new employee begins providing services a short period
after the beginning of the standard measurement period that would apply
to the employee if the employee were an ongoing employee.
For example, suppose an employer uses 12-month measurement and
stability periods for both its new variable hour employees and its
ongoing employees, with the standard measurement period for ongoing
employees running from October 15 of one year to the following October
14, the administrative period for ongoing employees running from
October 15 through December 31 and with the calendar year as the
stability period for ongoing employees. If a new variable hour
employee, Employee A, is hired on October 25, 2015, and the employer
chooses to begin the initial measurement period for new variable hour
employees on the first day of the first calendar month beginning after
the start date, the initial measurement period for Employee A will run
from November 1, 2015, through October 31, 2016. If Employee A averages
at least 30 hours of service per week during the initial measurement
period, the employer must treat Employee A as a full-time employee for
a period of at least 12 months beginning no later than December 1, 2016
(the first day of the 14th calendar month after hire). If that period
begins on December 1, 2016, the period for which Employee A must be
treated as a full-time employee will end no earlier than November 30,
2017.
The first standard measurement period applicable to Employee A is
the period from October 15, 2016, through October 14, 2017. If Employee
A averages 30 hours of service per week during this standard
measurement period, the employer must treat Employee A as a full-time
employee for the stability period that is co-extensive with the 2018
calendar year. However, this would leave a period of time between the
end of the stability period associated with Employee A's initial
measurement period (November 30, 2017) and the beginning of the
stability period associated with the first standard measurement period
applicable to Employee A (January 1, 2018).
The final regulations clarify that in circumstances in which there
is a period of time between the stability period associated with the
initial measurement period and the stability period associated with the
first full standard measurement period during which a new employee is
employed, the treatment as a full-time employee or not full-time
employee that applies during the stability period associated with the
initial measurement period continues to apply until the beginning of
the stability period associated with the first full standard
measurement period during which the employee is employed. If the
employee is being treated as a full-time employee during the initial
stability period, that treatment must be extended until the first day
of the stability period associated with the first full standard
measurement period during which the employee is employed, and if the
employee is being treated as not a full-time employee during the
initial stability period, that treatment may be extended until the
first day of the stability period associated with the first full
standard measurement period during which the employee is employed.
Thus, in the example in the preceding paragraphs, Employee A is a full-
time employee for the month of December 2017.
Further, the final regulations also clarify that for a variable
hour employee or seasonal employee who does not average at least 30
hours of service per week during the initial measurement period, the
maximum length for a

[[Page 8560]]

stability period associated with the initial measurement period is the
end of the first full standard measurement period (plus any associated
administrative period) during which the new employee was employed
(rather than at the end of the standard measurement period (plus any
associated administrative period) in which the initial measurement
period ends), which was the rule contained in the proposed regulations.

D. Clarification of Periods During Which Section 4980H Liability Does
Not Apply

In various circumstances, the final regulations provide that an
employer will not be subject to an assessable payment under section
4980H for a certain period of time and the term limited non-assessment
period for certain employees is added to the final regulations to
describe these periods. In particular, the final regulations provide,
consistent with the proposed regulations, that section 4980H liability
does not apply with respect to an employee who is in the initial
measurement period (or the associated administrative period), for a
period of time after an employee experiences a change to full-time
employee status during the initial measurement period, or with respect
to a new employee who is reasonably expected to be a full-time employee
and to whom coverage is offered on the first of the month following the
employee's initial three full calendar months of employment. The final
regulations add a rule under the monthly measurement method under which
an employer will not be subject to a section 4980H assessable payment
with respect to an employee for the first full calendar month in which
an employee is first otherwise eligible for an offer of coverage and
the immediately subsequent two calendar months. Further, the final
regulations provide that with respect to an employee who was not
offered coverage by the employer at any point during the prior calendar
year, if an employee is offered coverage by an applicable large
employer, for the first time, on or before April 1 of the first
calendar year for which the employer is an applicable large employer,
the employer will not be subject to an assessable payment under section
4980H by reason of its failure to offer coverage to the employee for
January through March of that year.
The final regulations clarify that each of these rules is only
available if the employee is offered coverage by the first day of the
month following the end of the applicable period, and for an employer
to not be subject to an assessable payment under section 4980H(b) the
employer must offer coverage that provides MV at the end of the period.
In addition, the final regulations clarify that these rules only
apply with respect to a calendar month if during the calendar month
during the relevant period the employee is otherwise eligible for an
offer of coverage (except that this rule does not apply with respect to
the rule regarding an employer that is an applicable large employer for
the first time, as described in section V.F of this preamble). For
purposes of these rules, an employee is otherwise eligible to be
offered coverage under a group health plan for a calendar month if,
pursuant to the terms of the plan as in effect for that calendar month,
the employee meets all conditions to be offered coverage under the plan
for that calendar month, other than the completion of a waiting period,
within the meaning of Sec. 54.9801-2.
The final regulations also clarify that an employer will not be
subject to an assessable payment with respect to an employee for the
first month of an employee's employment with the employer, if the
employee's first day of employment is a day other than the first day of
the calendar month.
Note that the relief from the section 4980H assessable payment
provided by the rules described in this section does not affect an
employee's eligibility for a premium tax credit. For example, an
employee or related individual is not eligible for coverage under the
employer's plan (and therefore may be eligible for a premium tax credit
or cost-sharing reduction through an Exchange) during any period when
coverage is not actually offered to the employee by the employer,
including any measurement period or administrative period, even if the
employer is not subject to an assessable payment under section 4980H
for this period.

E. Rehire Rules and Break-in-Service Rules for Continuing Employees

1. Rehire Rules
The proposed regulations provide that, solely for purposes of
section 4980H, an employee who resumes providing service to an
applicable large employer after a period during which the employee was
not credited with any hours of service may be treated as having
terminated employment and having been rehired, and therefore may be
treated as a new employee upon the resumption of services, only if the
employee did not have an hour of service for the applicable large
employer for a period of at least 26 consecutive weeks immediately
preceding the resumption of services.
In addition, the proposed regulations permit an employer to apply a
parity rule, under which an employee may be treated as rehired after a
shorter period of at least four consecutive weeks during which no hours
of service were credited if that period exceeded the number of weeks of
that employee's period of employment with the applicable large employer
immediately preceding the period during which the employee was not
credited with any hours of service. For example, if an employee started
employment and worked for six weeks, then had a period of eight weeks
during which no hours of service were credited, the employer could
treat the employee as a rehired employee, subject to the rules for new
employees under these regulations, if the employee resumed providing
services after the eight-week break.
Comments were received on these rehire rules. Several employers and
employer groups commented that the rehire rules in general, and the
rule of parity in particular, are difficult to implement because they
require the employer to maintain records of service of former employees
across the employer's controlled group (the group of applicable large
employer members that together are treated as an applicable large
employer). Commenters requested that employers be permitted to
determine, using any reasonable good-faith method, whether an employee
resuming services after a break in service constitutes a new employee
or a continuing employee. Other commenters requested that the length of
the break in service required before a returning employee may be
treated as a new employee be reduced from 26 weeks to some shorter
length, such as four or ten weeks.
The Treasury Department and the IRS believe that it would be
inequitable to employees who had become eligible for coverage prior to
the break in service to be subjected to a new period of exclusion from
the plan (which can be over a year for variable hour employees) based
upon a brief break in service. The Treasury Department and the IRS also
remain concerned that without an objective standard for determining
when an employee who returns after a break in service may be treated as
a new employee, there is a potential for an employer to attempt to
evade the requirements of section 4980H through a pattern of
terminating and rehiring employees and then treating the returning
employees as new employees. However, the Treasury Department and the
IRS agree with the commenters

[[Page 8561]]

suggesting that a break-in-service period shorter than 26 weeks would
be sufficient to curtail the potential for abuse. Accordingly, the
final regulations retain the rehire rules contained in the proposed
regulations but reduce the length of the break in service required
before a returning employee may be treated as a new employee from 26
weeks to 13 weeks (except for educational organization employers as
described in this section of the preamble). This break-in-service
period applies for both the look-back measurement method and the
monthly measurement method.
To avoid the treatment of employees of educational organizations as
new employees resuming services after a scheduled academic break,
however, the final regulations provide that for employees of
educational organizations, the 26-week break-in-service period under
the rehire rules provided in the proposed regulations continues to
apply.
The final regulations also retain the rule of parity, which, as
under the proposed regulations, is optional on the part of the employer
and need not be used if the employer does not maintain sufficient
records of the periods of service of former employees or prefers not to
use it for other reasons.
2. Break-in-Service Rules for Continuing Employees (Special Unpaid
Leave Rule and Employment Break Period Rule)
For purposes of applying the look-back measurement method to a
returning employee not treated as a new employee, the proposed
regulations provide an averaging method for special unpaid leave that
is applicable to all employers choosing to use the look-back
measurement method. For this purpose special unpaid leave is unpaid
leave subject to the Family and Medical Leave Act of 1993 (FMLA),
Public Law 103-3, 29 U.S.C. 2601 et seq., or to the Uniformed Services
Employment and Reemployment Rights Act of 1994 (USERRA), Public Law
103-353, 38 U.S.C. 4301 et seq., or on account of jury duty. Comments
were received on the averaging rules for special unpaid leave, and
those comments generally favored the approach provided in the proposed
regulations.
The proposed regulations also provide an averaging method for
employment break periods that is applicable to educational
organizations that use the look-back measurement method. For this
purpose, an employment break period is a period of at least four
consecutive weeks (disregarding special unpaid leave), measured in
weeks, during which an employee is not credited with hours of service.
Under the proposed averaging method, in the case of an employee
returning from absence who would be treated as a continuing employee
(that is, an employee whose break in service was shorter than one
resulting in treatment as a rehired employee), the employer would
determine the employee's average hours of service for a measurement
period by computing the average after excluding any special unpaid
leave (and in the case of an educational organization, also excluding
any employment break period) during that measurement period and by
using that average as the average for the entire measurement period.
Alternatively, the employer could treat the employee as credited with
hours of service for any periods of special unpaid leave (and, in the
case of an educational organization, any employment break period)
during that measurement period at a rate equal to the average weekly
rate at which the employee was credited with hours of service during
the weeks in the measurement period that are not part of a period of
special unpaid leave (or, in the case of an educational organization,
an employment break period). The two alternative methods were intended
to be different expressions of an equivalent calculation, therefore
having the same results. In no case, however, would the employer be
required to exclude (or credit) more than 501 hours of service during
employment break periods in a calendar year (however no such limit
applies for special unpaid leave).
In the preamble to the proposed regulations, the Treasury
Department and the IRS specifically requested comments on whether the
employment break period rules should be applied to all employers,
including employers that were not educational organizations. With
respect to the averaging rules for employment break periods, commenters
differed in their responses to the proposed regulations. Some employers
stated that the rules should be eliminated because they were
complicated and required administrative recordkeeping that employers do
not currently undertake. Some employers and employer groups also
requested that the employment break period rules not be extended to
employers that are not educational organizations. Other commenters
requested clarification on whether the employment break period rules
apply to employers that are not educational organizations but that
provide services to educational organizations, such as school bus
operators. In contrast, some employee organizations supported the
employment break period rule, stating that it more accurately reflected
positions intended to be full-time employee positions and assisted in
curbing potential employer actions to prevent employees from attaining
full-time employee status. However, some employers and employees also
suggested that the employment break period rule would not result in an
expansion of coverage to employees not currently offered coverage, but
rather in limiting hours to ensure that those employees were not
classified as full-time employees.
The final regulations retain the averaging rules for special unpaid
leave and employment break periods as provided in the proposed
regulations (that is, for purposes of applying the look-back
measurement method to an employee who is not treated as a new employee
under the rehire rules described in section VII.E.1 of this preamble).
The commenters did not identify a compelling reason to extend the
employment break period rule to employers that are not educational
organizations. However, the final regulations provide that with respect
to the determination of full-time employee status, the Commissioner may
prescribe additional guidance of general applicability, published in
the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b)), which
may include extension of the employment break period to other
industries. In addition, the reduction in the break-in-service period
under the rehire rule from 26 to 13 weeks in the final regulations (for
employers that are not educational organizations) shortens the periods
for which an individual may be credited with no hours of service that
can be included in a measurement period (thereby lowering the average
hours of service per week), addressing in part the issue that the
employment break period also is intended to address. The employment
break period rule continues to apply only to educational organizations,
and the break-in-service period for employees of educational
organizations continues to be 26 weeks.
Neither the special unpaid leave rule nor the employment break
period rule apply under the monthly measurement method, regardless of
whether the employer is an educational organization.

F. Short-Term and High-Turnover Employees

1. Short-Term Employees
In the preamble to the proposed regulations, the Treasury
Department and the IRS requested comments on the

[[Page 8562]]

treatment of short-term employees, meaning employees who are reasonably
expected to average at least 30 hours of service per week and are hired
into positions expected to continue for less than 12 months (but not
including seasonal employees, who are employees in positions that also
last a certain limited period but are expected to recur on an annual
basis). A short-term employee with a tenure of under three months
generally should not raise issues under section 4980H as the employer
generally would not be subject to liability under section 4980H with
respect to those employees provided the employer sponsors a group
health plan for which the employee would have been eligible had the
employee continued working beyond the three months. The Treasury
Department and the IRS continue to be concerned about the potential for
abuse of any exception for short-term employees through the use of
initial training period positions or other methods intended to
artificially divide the tenure of an employee into one or more short-
term employment positions in order to avoid application of section
4980H. For these reasons, the final regulations do not adopt any
special provisions applicable to short-term employees.
2. Employees in High-Turnover Positions
In the proposed regulations, the Treasury Department and the IRS
requested comments on the treatment of employees in high-turnover
positions, meaning positions in which a significant percentage of
employees can be expected to terminate employment over a reasonably
short period of time (for example, over a six-month period). Two
categories of potentially high-turnover employees are already addressed
in the final regulations. First, failure to offer coverage to full-time
employees who do not continue in employment through the first day of
the fourth month following the start date generally will not result in
a potential payment under section 4980H if coverage would have been
offered no later than the first day of the fourth month of employment.
See Sec. 54.4980H-3(c)(2) and Sec. 54.4980H-3(d)(2)(iii). Second,
failure to offer coverage to employees that are variable hour employees
generally will not result in a section 4980H assessable payment under
the look-back measurement method until after the last day of the first
calendar month beginning on or after the first anniversary of the
employee's start date, though the likelihood of the employee failing to
continue employment through the initial measurement period may not be
taken into account in determining whether the employee is a variable
hour employee. See Sec. 54.4980H-3(d)(3)(iii). This leaves at issue
positions in which employees are reasonably expected to average 30
hours of service or more per week, and in which a significant portion
of new hires are expected to continue in employment beyond three months
but not for a significant period beyond three months.
As discussed in the preamble to the proposed regulations, the
Treasury Department and the IRS have concerns about the formulation and
application of a special rule in this area. Specifically, the
discussion in section II.C.6 of the preamble to the proposed
regulations noted that ``high-turnover'' is a category that would
require a complex definition that could be subject to manipulation. In
addition, any special treatment that is provided for employees hired
into a high-turnover position could provide an incentive for employers
to terminate employees to ensure that the position remains a high-
turnover position under whatever standard was used to make that
determination. Because many high-turnover positions may also be filled
by variable hour employees for whom the rules governing variable hour
employees would address the churning concerns, and because of the
concerns regarding the complexity and potential manipulation of any
special rules in this area, the final regulations do not adopt any
special provisions addressing high-turnover positions.

G. Employers Using Different Methods of Identifying Full-Time Employees
for Different Categories of Employees

Commenters requested clarification as to whether an employer must
use the look-back measurement method for all employees if it chooses to
use it for some employees or if an employer may use the look-back
measurement method for some employees and the monthly measurement
method for other employees. Commenters requested that employers have
the ability to use the look-back measurement method for employees with
variable work schedules and the monthly measurement method for
employees with more predictable work schedules. According to these
commenters, an employer's use of the look-back measurement method for
its employees with fixed-hour schedules will produce the result that
the employer is required to treat an employee as a full-time employee
for a stability period if the fixed-hour full-time employee changes to
a fixed-hour non-full-time schedule. They noted that such an employee
may have been hired as a full-time employee and may have been provided
coverage upon hire (or within three months), unlike variable hour
employees for whom the employer generally has until the end of the
first calendar month after the first anniversary of the employee's
start date to offer coverage.
The final regulations clarify that with respect to each of the
enumerated categories of employees for which an employer may use
measurement and stability periods that differ either in length or in
their starting and ending dates, the employer may apply either the
look-back measurement method or the monthly measurement method. See
section VII.C.5 of this preamble regarding the permissible employee
category rule. The final regulations neither expand the number of
categories of employees nor permit employers to develop their own
customized categories. In particular, the final regulations do not
permit an employer to adopt the look-back measurement method for
variable hour and seasonal employees while using the monthly
measurement method for employees with more predictable hours of
service. Under the look-back measurement method, the identification of
a variable hour employee at the start date is based upon the employer's
reasonable expectations. If classified as a variable hour employee, the
employer is permitted to wait through the initial measurement period to
determine whether the employee is a full-time employee; however, for
every subsequent year of that employee's employment the identification
of whether the employee is a full-time employee is based upon the
employee's hours of service in the prior measurement period, without
any application of the employer's reasonable expectations. If employers
were permitted to subdivide the permitted categories between variable
hour employees and non-variable hour employees (for example, applying
the look-back measurement method to variable hour salaried employees
and the monthly measurement method to non-variable hour salaried
employees), the employer would be required to apply its reasonable
expectations at the beginning of every measurement period to determine
whether a salaried employee was a variable hour employee. While the
treatment of a new hire who does not have previous hours of service is
necessary to address how to determine whether a new variable hour
employee is a full-time employee, the Treasury Department and the IRS
have determined that permitting employees

[[Page 8563]]

in the same objective category to move between measurement methods
based solely on the employer's reasonable expectations brings an
excessive level of subjectivity into the determination of an employee's
classification as a full-time employee that is not warranted by any
lack of information.
The final regulations also provide rules addressing an employee who
experiences a change in employment status from a position for which the
look-back measurement method is used to a position for which the
monthly measurement method is used (or vice versa). In general, these
rules are intended to protect an employee's status as a full-time
employee during the transition period. Accordingly, these rules require
that an employee transferring from a position for which the employer is
using the look-back measurement method to a position for which the
employer is using the monthly measurement method and who at the date of
transfer is in a stability period during which the employee is treated
as a full-time employee must continue to be treated as a full-time
employee during the remainder of the stability period. If the employee
is in a stability period for which the employee is not treated as a
full-time employee, the employer may continue to treat the employee as
not a full-time employee during the remainder of the stability period.
With respect to the stability period that immediately follows the
stability period during which the employee transferred, the employee
must be treated as a full-time employee for any calendar month during
which the employee would be a full-time employee under either the
previously applicable look-back measurement method (and thus not lose
the hours of service accumulated during the measurement period during
which the transfer occurs) or the applicable monthly measurement
method. After that immediately following stability period, the employer
may determine the employee's status solely through application of the
monthly measurement method.
For an employee transferring from a category of employment to which
the monthly measurement method applies to a position to which the look-
back measurement method applies, the rules generally require that the
employer recreate the stability periods that would apply based upon the
employee's hours of service before the transfer. However, consistent
with the previously described rules, for the stability period
immediately subsequent to the transfer, the employee must be treated as
a full-time employee for any calendar month that the employee would be
a full-time employee under either the previously applicable monthly
measurement method or the applicable look-back measurement method. The
final regulations provide several examples to illustrate the
application of these rules.
In addition, the final regulations allow an employer, in certain
limited circumstances, to begin applying the monthly measurement method
to an employee to whom the look-back measurement method has been
applied sooner than required under the standard rules governing changes
in methods. This rule is intended to address the concern raised by
commenters that employers that offer coverage to an employee
continuously from within three months of an employee's start date
should not be required to continue to treat that employee as a full-
time employee for many months after that employee experiences a change
in employment status to a position in which the employee will average
less than 30 hours of service per week. Examples include a circumstance
in which an employee who has been a full-time employee for ten years,
and who was offered coverage within three months of the start date,
changes from a position of employment to another position requiring
fewer hours of service either as part of a phased-retirement program or
to care for a family member. The final regulations allow an applicable
large employer member to begin to apply the monthly measurement method
in lieu of the otherwise applicable stability period beginning on the
first day of the fourth full calendar month following the change in
employment status. This rule applies only with respect to an employee
to whom the applicable large employer member offered MV coverage from
at least the first day of the month following the employee's initial
three full calendar months of employment through the month in which the
change in employment status occurs, and this rule applies only if
during each of the three full calendar months following the change in
employment status the employee has on average less than 30 hours of
service per week. Under this rule, an employer may apply the monthly
measurement method to an employee even if the employer does not apply
the monthly measurement method to employees in the same category (for
example, an employer could apply the monthly measurement method to an
hourly employee, even if the employer uses the look-back measurement
method to determine full-time employee status of all other hourly
employees). The employer may continue to apply the monthly measurement
method through the end of the first full measurement period (and any
associated administrative period) that would have applied had the
employee remained under the applicable look-back measurement method.
The Treasury Department and the IRS anticipate that the rules with
respect to a transfer from a position to which one look-back
measurement method applies to a position to which another look-back
measurement method applies will require complex rules because the
methods may differ not only in the length of the applicable measurement
and stability periods, but also the starting dates of the measurement
periods (for example, the use of a calendar year for one measurement
period but a non-calendar year period for another measurement period).
To provide for these rules in the most comprehensible format, as well
as to ensure flexibility to address situations that arise that have not
currently been contemplated, the final regulations provide that with
respect to the determination of full-time employee status, the
Commissioner may prescribe additional guidance of general
applicability, published in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(b)).

VIII. Affordability and Affordability Safe Harbors

A. Affordability Safe Harbors

Liability under section 4980H only arises if at least one full-time
employee of the applicable large employer member receives a premium tax
credit. Even if the applicable large employer member offers coverage to
95 percent or more of its full-time employees (and their dependents),
thereby avoiding liability under section 4980H(a), the applicable large
employer member may be subject to an assessable payment under section
4980H(b) if one or more full-time employees obtain a premium tax
credit. See section X of this preamble for a description of rules
regarding liability under section 4980H. For an employee who is offered
coverage by an employer to be eligible to receive a premium tax credit
if the employee enrolls in coverage on an Exchange, the coverage
offered to the employee by the employer must either fail to provide MV,
or fail to be affordable to that employee, or both. Affordability under
section 36B is determined by reference to the taxpayer's household
income. Because an employer generally will not know the

[[Page 8564]]

taxpayer employee's household income, the proposed regulations under
section 4980H set forth three separate safe harbors under which an
employer could determine affordability based on information that is
readily available to the employer. These three safe harbors are (1) the
Form W-2 wages safe harbor, (2) the rate of pay safe harbor, and (3)
the federal poverty line safe harbor. If an employer meets the
requirements of the safe harbor, the offer of coverage is deemed
affordable for purposes of section 4980H(b) regardless of whether it is
affordable to the employee under section 36B. Subject to the
modifications described in this section, the final regulations adopt
these affordability safe harbors.
These safe harbors are all optional. An employer may choose to use
one or more of these safe harbors for all of its employees or for any
reasonable category of employees, provided it does so on a uniform and
consistent basis for all employees in a category. In response to a
comment, the final regulations clarify that reasonable categories
generally include specified job categories, nature of compensation (for
example, salaried or hourly), geographic location, and similar bona
fide business criteria. However, an enumeration of employees by name
would not be considered a reasonable category.

B. Form W-2 Wages Safe Harbor

Under the Form W-2 wages safe harbor, the employer may calculate
the affordability of the coverage based solely on the wages paid to the
employee by that employer (and any other member of the same applicable
large employer that also pays wages to that employee), as reported in
Box 1 of the Form(s) W-2 (``Wage and Tax Statement''). Consistent with
the proposed regulations, the final regulations provide rules for
addressing partial years due to the employee beginning or ending
employment in the middle of a calendar year. Commenters requested that
reductions in Form W-2 wages due to salary reduction elections under a
section 401(k) plan or a cafeteria plan under section 125 be
disregarded for purposes of the safe harbor. To be consistent with
section 36B, under which an employee's household income (and thus the
affordability of an offer of coverage) is determined without adding
back those reductions, this suggestion is not adopted in the final
regulations under section 4980H.
Commenters also requested that employers be permitted to use the
wages from the prior year Form W-2 instead of the current year for
purposes of determining affordability. The final regulations do not
adopt this comment because it would create a greater disconnect between
the premium tax credit and the section 4980H assessable payment. Also,
use of prior year wages would not be available with respect to new
employees who were not employed by the employer in the prior year.
Finally, one commenter requested that employers be permitted to impute
full Form W-2 wages during periods of unpaid leave for purposes of
applying the safe harbor. The final regulations do not adopt this
comment; however, instead of the Form W-2 wages safe harbor, employers
can use the rate of pay or federal poverty line safe harbor, both of
which use a calculation that is based on an assumed wage amount that is
not affected by unpaid leave.

C. Rate of Pay Safe Harbor

Under the rate of pay safe harbor in the final regulations, an
applicable large employer member's offer of coverage to an hourly
employee is treated as affordable for a calendar month if the
employee's required contribution for the calendar month for the lowest
cost self-only coverage that provides MV does not exceed 9.5 percent of
an amount equal to 130 hours multiplied by the lower of the employee's
hourly rate of pay as of the first day of the coverage period
(generally the first day of the plan year) or the employee's lowest
hourly rate of pay during the calendar month. Under the same safe
harbor, an applicable large employer member's offer of coverage to a
non-hourly employee is treated as affordable for a calendar month if
the employee's required contribution for the calendar month for the
lowest cost self-only coverage that provides MV does not exceed 9.5
percent of the employee's monthly salary, as of the first day of the
coverage period (instead of 130 multiplied by the hourly rate of pay);
provided that if the monthly salary is reduced, including due to a
reduction in work hours, the safe harbor is not available.
The rate of pay safe harbor provides employers with a design-based
method for satisfying affordability without having to analyze each
employee's wages and hours. Under this safe harbor, for an hourly
employee, the employer uses an assumed rate of 130 hours per calendar
month multiplied by an hourly employee's rate of pay, regardless of
whether the employee actually works more or less than 130 hours during
a calendar month. The affordability calculation under the rate of pay
safe harbor is not altered by a leave of absence or reduction in hours
worked. Thus, for example, under the rate of pay safe harbor, if an
hourly employee treated as a full-time employee earns $10 per hour in a
calendar month (and earned at least $10 per hour as of the first day of
the coverage period) but has one or more calendar months in which the
employee has a significant amount of unpaid leave or otherwise reduced
hours, the employer may still require an employee contribution of up to
9.5 percent of $10 multiplied by 130 hours ($123.50).
The final regulations, unlike the proposed regulations, permit an
employer to use the rate of pay safe harbor even if an hourly
employee's hourly rate of pay is reduced during the year. The proposed
regulations provide that the rate of pay safe harbor cannot be used if
the employer reduces an employee's hourly rate of pay during the year,
because otherwise employers could set an artificially high rate of pay
at the beginning of the coverage period resulting in an artificially
high required employee contribution, and then the employer could reduce
the employee's rate of pay for the remainder of the coverage period.
One commenter noted that there are instances in which an employer
adjusts an employee's rate of pay depending on, for example, whether
minimum sales goals are satisfied. Commenters also noted that the rate
of pay may be reduced for bona fide reasons, such as a transfer of
position, and requested that the rate of pay safe harbor be available
in this circumstance as long as the premium was reduced to reflect the
reduction in the rate of pay.
In response to these comments, the final regulations permit an
employer to apply the rate of pay safe harbor to an hourly employee
even if the employee's rate of pay is reduced during the year. In this
situation, the rate of pay is applied separately to each calendar
month, rather than to the entire year and the employee's required
contribution may be treated as affordable if it is affordable based on
the lowest rate of pay for the calendar month multiplied by 130 hours.
The final regulations adopt these changes because they result in lower
employee required contributions in situations in which an employee's
hourly rate of pay is reduced during the year.
Commenters noted that the rate of pay safe harbor cannot be used,
as a practical matter, for tipped employees or for employees who are
compensated solely on the basis of commissions. While this is correct,
employers can use the two other affordability safe harbors, Form W-2
wages and federal poverty line, for determining affordability for

[[Page 8565]]

employees whose compensation is not based on a rate of pay.

D. Federal Poverty Line Safe Harbor

Under the federal poverty line safe harbor, an applicable large
employer member's offer of coverage to an employee is treated as
affordable if the employee's required contribution for the calendar
month for the lowest cost self-only coverage that provides MV does not
exceed 9.5 percent of a monthly amount determined as the federal
poverty line for a single individual for the applicable calendar year,
divided by 12. This safe harbor is intended to provide employers a
predetermined maximum amount of employee contribution that in all cases
will result in the coverage being deemed affordable.
The proposed regulations provide that, in the interest of
administrative convenience, employers may use the most recently
published poverty guidelines as of the first day of the plan year of
the applicable large employer member's health plan. One commenter
requested that employers be permitted to use the guidelines in effect
six months prior to the beginning of the plan year, so as to provide
employers with adequate time to establish premium amounts in advance of
the plan's open enrollment period. The final regulations adopt this
comment.

IX. Offers of Coverage

A. In General

For an employee to be treated as having been offered coverage for a
month (or any day in that month), the coverage offered, if accepted,
must be applicable for that month (or that day).
For purposes of section 4980H(a), the proposed and final
regulations provide that an applicable large employer member is treated
as offering coverage to its full-time employees (and their dependents)
for a calendar month if, for that month, it offers coverage to all but
five percent or, if greater, five of its full-time employees (provided
that an employee is treated as having been offered coverage only if the
employer also offered coverage to that employee's dependents as
applicable). This relief applies to a failure to offer coverage to the
specified number or percentage of employees (and their dependents),
regardless of whether the failure to offer was inadvertent. The
alternative margin of five full-time employees (and their dependents),
if greater than five percent of full-time employees (and their
dependents), is designed to accommodate relatively small applicable
large employer members because a failure to offer coverage to a few
full-time employees (and their dependents) might exceed five percent of
the applicable large employer member's full-time employees. Commenters
requested that this margin be adjusted based on the size of the
employer so that large employers are not allowed to exclude large
numbers of employees. This comment is not adopted because use of a
uniform percentage reduces complexity and is easier for employers to
apply. See section XV.D.7 of this preamble for limited 2015 transition
relief under section 4980H(a) for certain employers that offer coverage
to at least 70 percent of their full-time employees (and their
dependents), and see section XV.D.5 of this preamble for transition
relief regarding offers of coverage to dependents.
The final regulations do not apply any specific rules for
demonstrating that an offer of coverage was made. The otherwise
generally applicable substantiation and recordkeeping requirements in
section 6001 apply, including Rev. Proc. 98-25 (1998-1 CB 689). In
addition, the offer generally can be made electronically. See Sec.
1.401(a)-21 for a safe harbor method for use of electronic media.
Consistent with the proposed regulations, the final regulations
provide that if an employee has not been offered an effective
opportunity to accept or decline coverage, the employee will not be
treated as having been offered the coverage for purposes of section
4980H. In response to comments, the final regulations provide that an
effective opportunity to decline is not required for an offer of
coverage that provides MV and is offered either at no cost to the
employee or at a cost, for any calendar month, of no more than 9.5
percent of a monthly amount determined as the federal poverty line for
a single individual for the applicable calendar year, divided by 12.\9\
Thus, an employer may not render an employee ineligible for a premium
tax credit by providing an employee with mandatory coverage (that is,
coverage which the employee is not offered an effective opportunity to
decline) that does not meet MV or that may not be affordable. See the
section entitled ``Background'' of the preamble to the proposed
regulations regarding minimum value of eligible employer-sponsored
plans and other rules regarding the health insurance premium tax credit
for a discussion of concerns raised by an arrangement under which
employees are required, as a condition of employment or otherwise, to
be enrolled in an employer-sponsored plan that does not provide MV or
is unaffordable, at 78 FR 25909, 25910 (May 3, 2013).
---------------------------------------------------------------------------

\9\ For an employee offered coverage for all 12 calendar months
of the year, the total cost for the year will be no more than 9.5
percent of the federal poverty line for a single individual. Thus,
regardless of the size of the employee's household or the level of
other income or loss of any member of the employee's household,
either the employer's coverage will be affordable for purposes of
the premium tax credit or the employee's household income will be
less than 100 percent of the federal poverty line and the employee
will not be eligible for a premium tax credit.
---------------------------------------------------------------------------

The final regulations also provide guidance on an offer of coverage
for an employee who is employed by more than one applicable large
employer member for a calendar month. The final regulations provide
that an offer of coverage by one applicable large employer member to an
employee for a calendar month is treated as an offer of coverage by all
applicable large employer members for that calendar month. Thus, if one
applicable large employer member offers coverage to the employee for a
calendar month, every other member of the same applicable large
employer is considered to have made the same offer of coverage to that
employee for purposes of determining the liability under section 4980H,
if any, of each applicable large employer member. For example, in the
case of a group of applicable large employer members operating a single
plan intended to offer coverage to employees of all the applicable
large employer members, any employee offered coverage under the plan
would be treated as receiving an offer of that coverage from each
applicable large employer member. For a discussion of how any
assessable payment under section 4980H for a calendar month would be
allocated among applicable large employer members if a full-time
employee performs services for two or more applicable large employer
members during the same calendar month, see section X of this preamble.
Commenters requested that employers not be subject to an assessable
payment for failure to offer coverage to full-time employees who have
coverage from other sources, such as Medicare, Medicaid or a spouse's
employer. The final regulations do not adopt this comment because it is
not consistent with section 4980H and would require that the employer
verify alternative coverage in a manner not contemplated by the statute
(for example, obligating an employer to question its employees as to
Medicaid eligibility or a spouse's eligibility for and purchase of
employer-sponsored coverage). However, an employee who is eligible for
Medicare or Medicaid is not eligible for a

[[Page 8566]]

premium tax credit, and in cases in which no full-time employee
receives a premium tax credit (for example, because all of an
employer's full-time employees are eligible for Medicare or Medicaid),
the employer will not be subject to an assessable payment under section
4980H.\10\ In addition, for an employer that satisfies the requirements
to avoid a payment under section 4980H(a), the employer will not be
subject to a payment under section 4980H(b) with respect to those
employees (because they are not eligible for a premium tax credit).
---------------------------------------------------------------------------

\10\ For rules on when an individual is treated as eligible for
Medicare or Medicaid, see Sec. 1.36B-2(c).
---------------------------------------------------------------------------

The final regulations clarify that an employee's election of
coverage from a prior year that continues for every succeeding plan
year unless the employee affirmatively elects to opt out of the plan
constitutes an offer of coverage for purposes of section 4980H.
Commenters expressed concern about potential liability under
section 4980H in the case of an applicable large employer that cannot
obtain or maintain coverage for its employees because the employer
cannot satisfy a health insurance issuer's minimum participation
requirements. In the large group market, a minimum participation
requirement cannot be used to deny guaranteed issue. For small
employers, such as relatively small applicable large employers, final
regulations issued by HHS provide that an issuer must guarantee issue
coverage to a small employer during an annual, month-long open
enrollment period regardless of whether the small employer satisfies
any minimum participation requirement. See 45 CFR 147.104(b)(1). HHS
regulations generally define a small employer as one that has at least
one, but not more than 100, employees. For plan years beginning before
January 1, 2016, states may set the upper limit at 50 employees.
Commenters requested that the final regulations treat an offer of
coverage made by the employer during the collective bargaining process
between an employer and a union that is not accepted by the union as an
offer of coverage to all employees covered by the collective bargaining
agreement. However, even where an offer to the union has been made and
rejected, the affected employee has never been provided a chance to
accept an offer of coverage in these circumstances. Accordingly, the
final regulations do not adopt this suggestion.

B. Application to Multiemployer and Single Employer Taft-Hartley Plans,
Multiple Employer Welfare Arrangements (MEWAs) and Other Similar
Arrangements

Commenters requested clarification of whether an offer of coverage
under a multiemployer or single employer Taft-Hartley plan, if the
employer contributed to the plan on behalf of the employee, constitutes
an offer of coverage by the employer for purposes of section 4980H. The
final regulations clarify that for purposes of section 4980H, an offer
of coverage includes an offer of coverage made on behalf of an
employer, and that this would include an offer made by a multiemployer
or single employer Taft-Hartley plan or a MEWA to an employee on behalf
of a contributing employer of that employee. See section XV.E of this
preamble for interim guidance on the application of section 4980H to
multiemployer plans.
Under this same reasoning, if certain conditions are met, an offer
of coverage to an employee performing services for an employer that is
a client of a professional employer organization or other staffing firm
(in the typical case in which the professional employer organization or
staffing firm is not the common law employer of the individual)
(referred to in this section IX.B of the preamble as a ``staffing
firm'') made by the staffing firm on behalf of the client employer
under a plan established or maintained by the staffing firm, is treated
as an offer of coverage made by the client employer for purposes of
section 4980H. For this purpose, an offer of coverage is treated as
made on behalf of a client employer only if the fee the client employer
would pay to the staffing firm for an employee enrolled in health
coverage under the plan is higher than the fee the client employer
would pay to the staffing firm for the same employee if the employee
did not enroll in health coverage under the plan.

X. Assessment and Payment of Section 4980H Liability

Under the proposed and final regulations, each applicable large
employer member is liable for its section 4980H assessable payment, and
is not liable for the section 4980H assessable payment of any other
entity in the controlled group comprising the applicable large
employer. Any assessable payment under section 4980H is payable upon
notice and demand and is assessed and collected in the same manner as
an assessable penalty under subchapter B of chapter 68 of the Code. The
IRS will adopt procedures that ensure employers receive certification,
pursuant to regulations issued by HHS, that one or more employees have
received a premium tax credit or cost-sharing reduction. 45 CFR
155.310(i). The IRS will contact employers to inform them of their
potential liability and provide them an opportunity to respond before
any liability is assessed or notice and demand for payment is made. It
is anticipated that additional guidance of general applicability,
published in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(b)), will provide that the contact for a given
calendar year will not occur until after employees' individual tax
returns are due for that year claiming premium tax credits and after
the due date for employers that meet the 50 full-time employee (plus
FTE) threshold to file the information returns identifying their full-
time employees and describing the coverage that was offered (if any).
Commenters requested that employers be permitted to aggregate
applicable large employer members within an applicable large employer
for purposes of determining section 4980H liability. For example,
commenters requested that an applicable large employer member offering
coverage to all of its full-time employees be permitted to aggregate
with one or more applicable large employer members so that the
aggregated group would be treated as having offered coverage to at
least 95 percent of its full-time employees (and their dependents) to
avoid a payment under section 4980H(a). Due to concerns regarding
increased administrative complexity and potential for abuse, the final
regulations do not adopt this request.
With respect to a full-time employee who performs services for two
or more applicable large employer members during the same calendar
month, the final regulations provide that the member for whom the
employee has the greatest number of hours of service for that calendar
month is the member that treats that employee as a full-time employee
for purposes of assessable payment determinations under section
4980H(a) and (b). This rule modifies the rule in the proposed
regulations, which provides an allocation rule only for purposes of the
section 4980H(b) assessable payment liability and which allocated the
payment amount among the different members in accordance with the
number of hours of service the employee had from each such member for
that calendar month. For any calendar month in which the employee has
the same number of hours of service for two or more applicable large

[[Page 8567]]

employer members, the final regulations provide that the members can
treat one of the members for which the employee performs services as
the employer of that employee for that calendar month for purposes of
the assessable payment determination. The Treasury Department and the
IRS anticipate that the member who is treated as the employer of that
employee would report that employee as its full-time employee on the
member's section 6056 information return, and if the employee is not
included in any applicable large employer member's section 6056
information return, the IRS will select a member to be treated as the
employer of that employee for purposes of the assessable payment
determination.
In complying with section 4980H, applicable large employer members
are responsible for ensuring that they comply with the recordkeeping
requirements in section 6001, including Rev. Proc. 98-25 (1998-1 CB
689) (see Sec. 601.601(d)(2)(ii)(b)).
Pursuant to section 275(a)(6) regarding the nondeductibility of
certain excise taxes, including those under chapter 43, an assessable
payment imposed under section 4980H is not deductible.

XI. Definition of Dependent

A. In General

Section 4980H provides that in order to avoid a potential
assessable payment under section 4980H, an applicable large employer
must offer coverage to its full-time employees and the full-time
employees' dependents. For this purpose, the proposed regulations
define the term dependent to mean a child (as defined in section
152(f)(1)) of an employee who has not attained age 26. For this
purpose, a dependent does not include the spouse of an employee. This
definition of dependent applies only for purposes of section 4980H. See
section XV.D.5 of this preamble for transition relief regarding offers
of coverage to dependents.
Commenters requested that the definition of dependent be expanded
to include grandchildren and qualifying relatives (within the meaning
of section 152). The final regulations do not expand the definition of
dependent to include these categories because such a definition would
be inconsistent with the typical coverage provided by employer-
sponsored plans.
Some commenters requested that the definition of dependent be
expanded to include spouses, and other commenters supported the
proposal to exclude spouses from the definition of dependent. The
definition of dependent in the final regulations, consistent with the
definition in the proposed regulations, excludes spouses.

B. Foster Children and Stepchildren

By incorporating section 152(f)(1), the definition of dependent in
the proposed regulations includes biological children, stepchildren,
adopted children, and foster children. Commenters requested that foster
children and stepchildren be removed from the definition of dependent
for purposes of section 4980H. With respect to foster children,
commenters noted that the government entities responsible for a foster
system typically provide health benefits for the foster child, so that
employer-provided coverage would be duplicative and difficult to
administer. With respect to stepchildren, commenters noted that in the
case of a stepchild, the child in most cases will have two parents who
are not stepparents both of whom potentially would be able to provide
for the child's coverage and both of whose employers potentially could
be subject to section 4980H for failing to offer coverage to that
child. These commenters suggested that applying section 4980H to an
employee's stepchildren would in many cases be duplicative and that,
for this reason, many employers currently do not extend offers of
coverage to stepchildren of an employee. In light of these
considerations, the final regulations exclude both foster children and
stepchildren from the definition of dependent for purposes of section
4980H only.

C. Treatment During Month in Which Dependent Attains Age 26

A commenter requested clarification of the application of section
4980H to an employee's child for the month in which the child attains
age 26. In response, the final regulations clarify that for purposes of
section 4980H, a child is a dependent for the entire calendar month
during which he or she attains age 26.

D. Citizens or Nationals of Other Countries

The definition of dependent under the proposed regulations includes
children who are not citizens or residents of the United States.
Section 152(b)(3), which is not incorporated in the definition of
dependent under the proposed regulations, provides that the term
dependent does not include an individual who is not a citizen or
national of the United States unless such individual is a resident of
the United States or a country contiguous to the United States (certain
adopted children are excepted from this rule). Based on a commenter's
concerns about offering coverage to the children of an employee who
works for an applicable large employer in the United States but whose
children are not U.S. citizens and who do not reside in the United
States, the final regulations modify the definition of dependent to
incorporate the rules under section 152(b)(3). Accordingly, the final
regulations exclude a child who is not a U.S. citizen or national from
the definition of dependent, unless that child is a resident of a
country contiguous to the United States or is within the exception for
adopted children described in section 152(b)(3)(B).

XII. Worker Classification and Section 4980H

Consistent with the proposed regulations, these final regulations
define an employee for purposes of section 4980H as an individual who
is an employee under the common law standard, and as not including a
leased employee (as defined in section 414(n)(2)), a sole proprietor, a
partner in a partnership, a 2-percent S corporation shareholder, or a
worker described in section 3508 (this last category is added to the
list of exclusions in the final regulations). Commenters expressed
concerns about the consequences under section 4980H of an IRS
examination in which workers providing services to a service recipient
entity are reclassified as employees of that entity. Specifically,
commenters pointed out that if a worker who was not treated as an
employee by the service recipient and was not offered health coverage
by the service recipient is reclassified as an employee of the service
recipient for past periods, and that worker had sufficient hours of
service to be a full-time employee for such past periods, the
reclassification may impact whether the service recipient employer had
offered coverage to no less than 95 percent of its full-time employees
for a particular calendar month (and therefore whether an assessable
amount was payable under section 4980H(a)). In addition, one commenter
noted that, even if the reclassification did not result in liability
for an assessable payment under section 4980H(a), the service recipient
could still be liable for an assessable payment under section 4980H(b)
if the reclassified full-time employee had received a premium tax
credit.
Commenters discussed the applicability of section 530 of the
Revenue Act of 1978 (referred to in this preamble as ``Section 530'')
for purposes of section 4980H. Section 530, which is not incorporated
into the Code, provides that ``if (A) for purposes of employment

[[Page 8568]]

taxes, the taxpayer did not treat an individual as an employee for any
period, and (B) in the case of periods after December 31, 1978, all
Federal tax returns (including information returns) required to be
filed by the taxpayer with respect to such individual for such period
are filed on a basis consistent with the taxpayer's treatment of such
individual as not being an employee, then, for purposes of applying
such taxes for such period with respect to the taxpayer, the individual
shall be deemed not to be an employee unless the taxpayer had no
reasonable basis for not treating such individual as an employee.''
However, the relief under Section 530 applies solely for purposes of
the employment tax provisions of the Code, and therefore does not apply
to potential liabilities under section 4980H.
In response to the limitation on the relief under Section 530,
commenters requested that the Treasury Department and the IRS formulate
a similar provision in these final regulations applicable to potential
liabilities under section 4980H. The Treasury Department and the IRS
are concerned that the relief requested would serve to increase the
potential for worker misclassification by significantly increasing the
benefit of having an employee treated as an independent contractor.
Accordingly, the final regulations do not adopt this suggestion.

XIII. Particular Positions of Employment

A. Home Care Workers

Commenters on behalf of the home care industry, as well as other
industries, stated that the additional expense of providing coverage or
paying the assessable payment under section 4980H could cause an
employer financial difficulties. The Treasury Department and the IRS
understand that in certain instances the additional expense may be a
burden for an employer; however, section 4980H applies to all
applicable large employers and does not provide an exception, either
for employers in a particular industry such as the home care industry,
or for employers with more difficulty adjusting revenue streams.
Accordingly, the final regulations do not provide for these types of
exceptions.
Section 4980H applies, however, only with respect to an applicable
large employer, and in some circumstances the service recipient rather
than a home care agency may be the common law employer of the health
care provider. For example, if the service recipient has the right to
direct and control the home care provider as to how they perform the
services, including the ability to choose the home care provider,
select the services to be performed, and set the hours of the home care
provider, these facts would indicate that the service recipient is the
employer under the common law standard. In that case, the agency that
placed the home care provider would not be subject to section 4980H
with respect to that particular provider, and the service recipient
employer generally would not be subject to section 4980H with respect
to any employee because the service recipient is unlikely to employ 50
full-time employees (including FTEs).

B. Section 3508 Employees

Commenters requested clarification on whether the categories of
workers identified in section 3508 (that is, real estate agents and
direct sellers) are treated as employees for purposes of section 4980H.
Because section 3508 provides that the identified categories of workers
are not treated as employees for any purpose of the Code, the final
regulations clarify that workers identified in section 3508 do not
constitute employees for purposes of section 4980H (and, therefore, do
not constitute full-time employees for any purpose, and their hours of
service are not taken into account in determining the number of an
employer's FTEs).

XIV. International Issues

A. Foreign States and International Organizations

One commenter requested that the Treasury Department and the IRS
consider the effect of U.S. laws and treaty obligations on the
applicability of section 4980H to certain operations of foreign states
and certain international organizations in the United States. Due to
these applicable U.S. laws and treaty obligations, certain operations
of foreign states and certain international organizations would not be
subject to assessable payments under section 4980H. Accordingly, the
final regulations do not explicitly address this matter. See section
894(a)(1).

B. Employees Holding H-2A and H-2B Visas

Commenters, generally representing employers in the agricultural
industry, requested that holders of H-2A and H-2B visas be exempted
from the definition of employee for purposes of section 4980H. The
commenters suggested that such employees are generally seasonal
workers, but that the exemption for certain seasonal workers for
purposes of the definition of an applicable large employer, which
excludes only those seasonal workers employed for a period of no more
than 120 days, does not adequately address these workers because many
of these individuals work more than 120 days due to serial growing
seasons. However, the statutory provisions related to seasonal workers
are explicit that seasonal workers are employees and that seasonal
workers may be disregarded for purposes of the determination of whether
an employer is an applicable large employer only if the seasonal
workers cause the employer to exceed 50 full-time employees for a
period of no more than 120 days. Furthermore, no justification was
provided for exempting holders of H-2B visas, which cover non-
agricultural workers. For these reasons, the final regulations do not
adopt the suggestion that holders of H-2A and H-2B visas be generally
exempted from the definition of employee for purposes of section 4980H.
The final regulations also do not adopt a special rule with respect
to these workers' status as seasonal employees. The definition of
seasonal employee is different from the definition of seasonal worker,
and is relevant to the determination of a worker's status as a full-
time employee for reasons other than the entity's determination of
status as an applicable large employer. In applying the definition of
seasonal employee, whether the employee holds any particular visa is
not relevant. See section VII.C.8 of this preamble for a discussion of
the definition of a seasonal employee.

C. Employees Performing Services on Cruise Ships

Representatives of the cruise ship industry requested that services
performed on a cruise ship be treated as services performed outside the
United States, meaning that those services would not count as hours of
service for purposes of identifying an employer as an applicable large
employer, or an employee as a full-time employee. However, that
treatment would be inconsistent with the longstanding rules in section
863(c) that apply to transportation income derived from personal
services and treat some such income as income from sources within the
United States. Under the general rules for determining hours of service
under both the proposed and the final regulations, hours of service do
not include hours for which an employee receives compensation that is
taxed as income from sources outside the United States. The final
regulations clarify that

[[Page 8569]]

this rule applies to transportation employees such as employees of
cruise ships by specifically stating that hours of service do not
include hours of service to the extent the compensation for such hours
of service constitutes income from sources without the United States as
determined under section 863.
The commenter also requested that cruise ship employers not be
subject to section 4980H if they comply with the requirements of the
Maritime Labor Convention of 2006 and provide employees certain
coverage while they are on board the vessel. Regardless of whether that
coverage constitutes MEC under section 5000A, if an offer of coverage
is not extended to an employee's dependent children, it would fail to
meet the requirements of an offer under section 4980H (but note that,
as described in section XI.D of this preamble, the final regulations
exclude a child who is not a U.S. citizen or national from the
definition of dependent, unless that child is a resident of a country
contiguous to the United States or is within the exception for adopted
children described in section 152(b)(3)(B)). The final regulations do
not adopt this suggestion.

D. Modifications to the Definition of Hours of Service

Consistent with the proposed regulations, the final regulations
exclude from the definition of hours of service those hours the
compensation for which constitutes income from sources without the
United States (within the meaning of sections 861 through 863 and the
regulations thereunder). For this purpose, the term United States means
United States as defined in section 7701(a)(9), which includes only the
States and the District of Columbia and does not include the U.S.
territories. In response to comments, the heading to this provision
(Sec. 54.4980H-1(a)(24)(ii)(C)) removes the reference to nonresident
alien individuals, because the application of the provision does not
depend upon the residency or citizenship status of the employee. In
addition, the reference to section 862(a)(3) in the proposed
regulations has been expanded to reference sections 861 through 863,
and the regulations thereunder, to incorporate all of the special rules
applicable to the identification of the source of compensation income.

E. Employees Transferring From a Domestic Applicable Large Employer
Member to a Foreign Applicable Large Employer Member (or Vice Versa)

One commenter asked whether an employee transferred from a foreign
entity to a U.S. entity in cases in which the two entities are treated
as a single employer could be treated as a new hire (and whether an
employee transferred from a U.S. entity to a foreign entity in the same
organization could be treated as a terminated employee). The commenter
pointed out that treatment of the employee as a continuing employee in
such circumstances may result in certain anomalies, especially in the
case of an employer using the look-back measurement method. For
example, if a full-time employee who transferred from a domestic
corporation to a foreign corporation were treated as a continuing
employee, the commenter asked whether this means that the stability
period must continue so that the employee must be offered coverage
while employed at the foreign corporation to avoid any potential
liability under section 4980H. In contrast, an employee performing
services at a foreign corporation generally will have no hours of
service if compensation for those services is not treated as U.S.
source income, so if transferred to a domestic corporation and treated
as a continuing employee such an employee would not have any hours of
service before the U.S. transfer as part of the measurement period
utilized by the domestic corporation.
To avoid these anomalies, the final regulations provide that, for
both the look-back measurement method and the monthly measurement
method, an employee who transfers employment from a domestic applicable
large employer member to a foreign applicable large employer member may
be treated as having terminated employment, but only if the position is
anticipated to continue indefinitely or for at least 12 months and if
substantially all of the compensation received following the transfer
is treated as foreign-source income.
With respect to an employee who transfers from a foreign applicable
large employer member at which the employee's services had not resulted
in hours of service to a domestic applicable large employer member, if
the employee had no prior hours of service with the applicable large
employer (because, for example, the employee had only received non-U.S.
source income in connection with services performed for the foreign
applicable large employer member), the employee is treated as a newly
hired employee by the domestic applicable large employer member. If the
same transfer occurs with respect to an employee who had prior hours of
service with the applicable large employer, the period at the foreign
applicable large employer member may be treated as a period for which
no hours of service are earned under the rehire rules (if the employee
did not receive U.S. source income with respect to that period), so
that if that period is at least 13 weeks in length, the employee is
treated as a newly hired employee of the domestic applicable large
employer member. See section VII.E of this preamble for a description
of the rehire rules.

XV. Transition Relief and Interim Guidance

A. Transition Guidance in the Preamble to the Proposed Regulations

The preamble to the proposed regulations includes transition
guidance addressing (1) the application of section 4980H to applicable
large employers with non-calendar year plans,\11\ (2) salary reduction
elections for accident and health plans provided through cafeteria
plans with non-calendar year plan years beginning in 2013, (3) for
purposes of determining full-time employee status, measurement periods
for stability periods starting in 2014, (4) the application of section
4980H to applicable large employer members participating in
multiemployer plans, (5) the determination of applicable large employer
status for 2014, (6) the application of section 4980H to an offer of
coverage to a full-time employee's dependents, and (7) for purposes of
determining full-time employee status, the variable hour employee
definition. See 78 FR 218, 236-239. The transition guidance for
applicable large employer members participating in multiemployer plans
was clarified in the correction to the proposed regulations. See 78 FR
16445, 16445-16446. The transition guidance in the preamble to the
proposed regulations, as corrected, generally applies for 2014 or for
the plan year beginning in 2014 (but additional broader transition
relief was provided after the issuance of the proposed regulations; see
discussion in section XV.B of this preamble.)
---------------------------------------------------------------------------

\11\ The preamble to the proposed regulations refers to plans
with plan years other than the calendar year as fiscal year plans.
To avoid confusion, this preamble refers to these plans as non-
calendar year plans.
---------------------------------------------------------------------------

B. Transition Guidance for 2014--Notice 2013-45

Section 1513(d) of the Affordable Care Act provides that section
4980H applies to months after December 31, 2013; however, Notice 2013-
45, issued on July 9, 2013, provides as transition relief that no
assessable payments under section 4980H will apply for 2014.

[[Page 8570]]

(Transition relief was also provided for the section 6056 information
reporting requirements for applicable large employers and the section
6055 information reporting requirements for issuers of MEC.) Notice
2013-45 provides that the employer shared responsibility provisions
under section 4980H (and the information reporting provisions) will
become effective for 2015.\12\
---------------------------------------------------------------------------

\12\ Also, the preamble to the proposed regulations on MV of
eligible employer-sponsored plans and other rules regarding the
health insurance premium tax credit provide transition guidance
under section 4980H for determining affordability and MV as related
to wellness programs for plan years of an employer's group health
plan beginning before January 1, 2015. See 78 FR 25909, 25911-25912
(May 3, 2013).
---------------------------------------------------------------------------

C. Section 125 Non-Calendar Year Guidance

The preamble to the proposed regulations provides transition relief
that allows flexibility for individuals to make changes in salary
reduction elections for accident and health plans provided through
section 125 cafeteria plans for non-calendar cafeteria plan years
beginning in 2013. The scope of this transition relief was clarified in
section VI of Notice 2013-71, issued on October 31, 2013. Generally,
the rules allowing employees to change their employer health plan
elections under a section 125 cafeteria plan do not allow midyear
changes, see Sec. 1.125-4. Temporary relief was needed because
generally the section 5000A requirement to maintain coverage is first
effective on January 1, 2014, and enrollment in qualified health plans
on an Exchange is first available for 2014. The relief allowed
employers to amend their plans to permit employees who had not enrolled
in an employer's plan with a non-calendar plan year that began in 2013
to enroll in the middle of the plan year in order for the employees to
maintain coverage for 2014 or if the employees wished to enroll in an
Exchange plan, to drop enrollment in the employer's plan with a non-
calendar plan year that began in 2013 in the middle of the plan year.
Both the implementation of section 5000A and the initial availability
of the qualified health plans on an Exchange were one-time events at
the beginning of 2014 only affecting employee decisions during 2013
non-calendar plan years. Consequently, these rules are not extended for
non-calendar cafeteria plan years beginning in 2014.

D. Transition Guidance for 2015

1. Non-Calendar Year Plans
Section IX.A of the preamble to the proposed regulations provides
transition guidance for the period prior to the first day of the plan
year beginning in 2014 for employers sponsoring non-calendar year
plans. 78 FR 218, 236.
The following three pieces of transition guidance apply for the
period before the first day of the first non-calendar year plan year
beginning in 2015 (the 2015 plan year) for employers that maintained
non-calendar year plans as of December 27, 2012, if the plan year was
not modified after December 27, 2012, to begin at a later calendar
date. The first two pieces (pre-2015 eligibility transition guidance
and significant percentage transition guidance (all employees)) are
extensions of the rules provided in section IX.A of the preamble to the
proposed regulations. A new option (significant percentage transition
guidance (full-time employees)) is added in this preamble.
In essence, this guidance provides transition relief for the period
before the first day of the 2015 plan year with respect to all
employees who, under the eligibility terms of the plan as in effect on
February 9, 2014, are eligible as of the first day of the 2015 plan
year for coverage under a non-calendar year plan, and who are offered,
no later than the first day of the 2015 plan year, affordable coverage
that provides MV. Also, in general, unless the employees described in
the preceding sentence comprise an insufficient percentage of all the
employer's employees, this guidance also provides relief with respect
to all other employees of the employer who are offered affordable
coverage that provides MV as of the first day of the 2015 plan year.
This exception reflects that the need for transition relief enabling
employers to begin offering coverage to employees who are not currently
offered coverage at the beginning of a non-calendar year plan year, in
order to coincide with the program for employees currently offered
coverage, is not as compelling if the number of existing employees
eligible for coverage under a non-calendar year plan is a relatively
small portion of the employer's total work force.
a. Pre-2015 Eligibility Transition Guidance
If an applicable large employer member maintained a non-calendar
year plan as of December 27, 2012, and the plan year was not modified
after December 27, 2012 to begin at a later calendar date, this rule
applies with respect to employees of the applicable large employer
member (whenever hired) who would be eligible for coverage effective
beginning on the first day of the 2015 plan year under the eligibility
terms of the plan as in effect on February 9, 2014. If an employee
described in the preceding sentence is offered affordable coverage that
provides MV no later than the first day of the 2015 plan year, no
section 4980H assessable payment will be due with respect to that
employee for the period prior to the first day of the 2015 plan year.
To provide relief with respect to employees who are not offered
coverage during one or more calendar months in 2015 solely because they
terminate employment before the beginning of the 2015 plan year, this
relief also applies with respect to an employee who would be eligible
for coverage effective beginning on the first day of the 2015 plan year
under the eligibility terms of the plan as in effect on February 9,
2014, but for the fact that the employee terminated employment (and was
not rehired) prior to the first day of the 2015 plan year. This relief
only applies with respect to employees who would not have been eligible
for coverage under any group health plan maintained by an applicable
large employer member as of February 9, 2014, that has a calendar year
plan year.
Notwithstanding the foregoing, an applicable large employer member
may be subject to an assessable payment under section 4980H(a) if it
does not offer coverage to all but five percent (or, if greater, five)
of its full-time employees (and their dependents) (or, if the
transition relief set forth in section XV.D.7 of this preamble applies,
if it does not offer coverage to all but 30 percent of its full-time
employees (and their dependents)) as of the first day of the 2015 plan
year. If an applicable large employer member does not do so, an
assessable payment under section 4980H(a) may be due for any calendar
month in 2015 under the section 4980H(a) rules as applied without
regard to the relief set forth in this section XV.D.1.a of the
preamble. See section XV.D.5 of this preamble for transition relief
regarding offers of coverage to dependents.
As an illustration of the application of this rule, assume Employer
Z has 600 employees, all of whom are full-time employees within the
meaning of the final regulations, and Employer Z maintained a plan with
an April 1 plan year as of December 27, 2012 (Plan P). Plan P's plan
year was not modified after December 27, 2012, and all of Employer Z's
employees are eligible for coverage under Plan P under the eligibility
terms as in effect on February

[[Page 8571]]

9, 2014, however coverage offered prior to the 2015 plan year is not
affordable. All of Employer Z's employees are offered affordable
coverage that provides MV effective no later than April 1, 2015. In
this case, no section 4980H assessable payment will be due with respect
to any employee of Employer Z for the period before April 1, 2015. The
same transition relief would apply to those 600 employees even if
Employer Z also had a calendar year plan (Plan Q) and had a total of
1,000 full-time employees, 600 of whom were described above (and were
not eligible for coverage under Plan Q) and 400 of whom were eligible
for coverage under Plan Q as of January 1, 2015. However, the same
transition relief would not apply to those 600 employees if as of April
1, 2015, the 400 other employees were not offered coverage (because as
of that date Employer Z would not have offered coverage to all but five
percent (or, if greater, five) of its full-time employees (and their
dependents)) (and if the transition relief set forth in section XV.D.7
of this preamble applied, as of that date Employer Z would not have
offered coverage to all but 30 percent of its full-time employees (and
their dependents)).
b. Significant Percentage Transition Guidance (All Employees)
Additional transition guidance is also provided for employers that
maintained a non-calendar year plan as of December 27, 2012 (or that
maintained two or more non-calendar year plans that have the same plan
year as of December 27, 2012), if the plan year of the non-calendar
year plan was not modified to begin after December 27, 2012, at a later
calendar date after December 27, 2012, and that either--(1) had, as of
any date in the 12 months ending on February 9, 2014, at least one
quarter of its employees covered under those non-calendar year plans,
or (2) offered coverage under those plans to one third or more of its
employees during the open enrollment period that ended most recently
before February 9, 2014. Under the additional transition guidance in
this section, no assessable payment under section 4980H will be due for
any month prior to the first day of the 2015 plan year with respect to
employees who (1) are offered affordable coverage that provides MV no
later than the first day of the 2015 plan year, and (2) would not have
been eligible for coverage under any group health plan maintained by
the applicable large employer member as of February 9, 2014, that has a
calendar year plan year. Notwithstanding the foregoing, if an
applicable large employer member does not offer coverage to all but
five percent (or, if greater, five) of its full-time employees (and
their dependents) (or, if the transition relief set forth in section
XV.D.7 of this preamble applies, if it does not offer coverage to all
but 30 percent of its full-time employees (and their dependents)) as of
the first day of the 2015 plan year, an assessable payment under
section 4980H(a) may be due for any calendar month in 2015 under the
section 4980H(a) rules as applied without regard to the relief set
forth in this section XV.D.1.b of the preamble. See section XV.D.5 of
this preamble for transition relief regarding offers of coverage to
dependents.
For example, assume Employer Y has 1,100 employees. One thousand of
Employer Y's employees are full-time employees and 100 of Employer Y's
employees are not full-time employees. Employer Y maintained a plan
with a July 1 plan year (Plan M) as of December 27, 2012. Plan M's plan
year was not modified after December 27, 2012, to begin at a later
calendar date. Employer Y does not offer any coverage other than Plan
M.
For purposes of applying the significant percentage transition
guidance (all employees), Employer Y chooses December 1, 2013, as the
date in the 12 months ending on February 9, 2014, to measure the number
of employees it covered under Plan M. On December 1, 2013, Plan M
covered 23 percent of Employer Y's employees (253 out of 1,100). During
the open enrollment period that ended most recently before February 9,
2014, Employer Y offered coverage under Plan M to 45 percent of its
employees (495 out of 1,100). As of the first day of the 2015 plan year
(July 1, 2015), Employer Y offers affordable coverage that provides MV
under Plan M to all full-time employees. Employer Y does not offer
coverage to employees who are not full-time employees.
Under the significant percentage transition guidance (all
employees), no section 4980H assessable payment will be due with
respect to any of the full-time employees of Employer Y for the period
before July 1, 2015, because Employer Y offered coverage to 45 percent
(which exceeds one third) of its employees during the open enrollment
period that ended most recently before February 9, 2014, and the full-
time employees of Employer Y are offered affordable coverage that
provides MV no later than the first day of the 2015 plan year (July 1,
2015).
Relief is not provided under the significant percentage transition
guidance (all employees) with respect to the 100 employees who are not
full-time employees and to whom coverage is not offered as of July 1,
2015, but no relief is necessary for these employees because an
employer is not liable for an assessable payment under section 4980H
for failure to offer coverage to an employee who is not a full-time
employee; however, nothing in section 4980H precludes an employer from
providing coverage to employees who are not full-time employees.
c. Significant Percentage Transition Guidance (Full-Time Employees)
Commenters noted that because the significant percentage transition
guidance (all employees), as set forth in section IX.A of the preamble
to the proposed regulations and generally extended in section XV.D.1.b
of this preamble, applies based on the total number of employees,
including seasonal and part-time employees, employers with large
numbers of seasonal or part-time employees might not be able to meet
the requirements of the significant percentage transition guidance (all
employees), regardless of the percentage of full-time employees
eligible for or enrolled in health care coverage. Commenters requested
that the significant percentage transition guidance (all employees)
take into account only full-time employees (within the meaning of
section 4980H).
Additional transition guidance is provided for employers that, as
of December 27, 2012, maintained a non-calendar year plan (or two or
more such plans that, as of that date, have the same plan year) if the
plan year was not modified to begin after that date to begin at a later
calendar date, and if the employer either--(1) had, as of any date in
the 12 months ending on February 9, 2014, at least one third of its
full-time employees covered under those non-calendar year plans, or (2)
offered coverage under those plans to one half or more of its full-time
employees during the open enrollment period that ended most recently
before February 9, 2014. Under the additional transition guidance in
this section XV.D.1.c of the preamble, no payment under section 4980H
will be due for any month prior to the first day of the 2015 plan year
with respect to full-time employees who (1) are offered affordable
coverage that provides MV no later than the first day of the 2015 plan
year, and (2) would not have been eligible for coverage under any group
health plan maintained by the applicable large employer member as of
February 9, 2014, that has a calendar year plan year. Notwithstanding
the foregoing, if an applicable large employer member does not offer
coverage to all but five percent

[[Page 8572]]

(or, if greater, five) of its full-time employees (and their
dependents) (or, if the transition relief set forth in section XV.D.7
of this preamble applies, if it does not offer coverage to all but 30
percent of its full-time employees (and their dependents)) as of the
first day of the 2015 plan year, an assessable payment under section
4980H(a) may be due for any calendar month in 2015 under the section
4980H(a) rules as applied without regard to the relief set forth in
this section XV.D.1.c of the preamble. See section XV.D.5 of this
preamble for transition relief regarding offers of coverage to
dependents.
For example, assume Employer W has 2,000 employees, of whom 500 are
full-time employees and 1,500 are not full-time employees. Employer W
maintained a plan with a July 1 plan year (Plan N) as of December 27,
2012. Plan N's plan year was not modified after December 27, 2012.
Employer W does not offer any coverage other than Plan N.
For purposes of applying the significant percentage transition
guidance (full-time employees), Employer W chooses December 1, 2013, as
the date in the 12 months ending on February 9, 2014, to count the
number of full-time employees it covered under Plan N. On December 1,
2013, Plan N covered 20 percent of Employer W's full-time employees
(100 of 500).
During the open enrollment period that ended most recently before
February 9, 2014, Employer W offered coverage under Plan N to 60
percent of its full-time employees (that is, 300 of 500). As of the
first day of the 2015 plan year (July 1, 2015), Employer W offers
affordable coverage that provides MV under Plan N to all full-time
employees. Employer W does not offer coverage to employees who are not
full-time employees.
Under the significant percentage transition guidance (full-time
employees), no section 4980H assessable payment will be due with
respect to Employer W's full-time employees for the period before July
1, 2015, because Employer W offered coverage to at least one half of
its full-time employees during the open enrollment period that ended
most recently before February 9, 2014, and the full-time employees of
Employer W are offered affordable coverage that provides MV no later
than the first day of the 2015 plan year (July 1, 2015).
Relief is not provided under the significant percentage transition
guidance (full-time employees) with respect to Employer W's employees
that are not full-time employees, but no relief is necessary for these
employees because an employer is not liable for an assessable payment
under section 4980H for failure to offer coverage to an employee who is
not a full-time employee; however, nothing in section 4980H precludes
an employer from providing coverage to employees who are not full-time
employees.
d. Requirement of No Change to Plan Year
The transition guidance for applicable large employer members
sponsoring non-calendar year plans set forth in section XV.D.1 of this
preamble are available for a non-calendar year plan only if that plan's
plan year was not modified after December 27, 2012, to begin at a later
calendar date. For example, if, as of December 27, 2012, an applicable
large employer member sponsored a non-calendar year plan with a plan
year starting on July 1 and later changed the start of the plan year to
December 1, the transition guidance for applicable large employer
members sponsoring non-calendar year plans set forth in section XV.D.1
of this preamble would not apply.
e. Section 6056 Reporting for 2015 Transition Period for Non-Calendar
Year Plans
Employers eligible for the transition guidance for plans with non-
calendar year plan years remain subject to the reporting requirements
under section 6056 for the entire 2015 calendar year. Because no
section 4980H liability applies whether or not a full-time employee is
offered coverage during the portion of the 2014 plan year falling in
2015, the applicable large employer may determine the full-time
employees for that period for purposes of the section 6056 reporting
requirements after the period has ended, using actual service data or
using the look-back measurement method, and use those determinations
for the reporting required for the period during 2015 that precedes the
start of the 2015 plan year. In addition, the employer should be able
to determine whether the coverage offered provides MV and the employee
portion of the applicable premium in time to complete the required
reporting for 2015 (that is, for section 6056 returns furnished to
employees and filed with the IRS in 2016). Because this reporting is
needed by the employee and the IRS for the administration of the
premium tax credit, applicable large employers are required to report
this information for the entire 2015 calendar year, even if during some
calendar months in 2015 section 4980H liability will not apply by
reason of the transition guidance for non-calendar year plan years. The
section 6056 return instructions will provide additional information on
how to report for 2015.
2. Shorter Measurement Periods Permitted for Stability Period Starting
During 2015
For purposes of section 4980H, the term full-time employee means,
with respect to any month, an employee who is employed on average at
least 30 hours of service per week with an employer. Section
4980H(c)(4)(A). Like the proposed regulations, the final regulations
include an optional alternative method to determine full-time employee
status (for purposes other than determining applicable large employer
status) referred to as the look-back measurement method. See section
VII.C of this preamble for a description of the look-back measurement
method.
As an extension of guidance provided in section IX.C of the
preamble to the proposed regulations, for purposes of stability periods
beginning in 2015,\13\ employers may adopt a transition measurement
period that is shorter than 12 consecutive months but that is no less
than 6 consecutive months and that begins no later than July 1, 2014,
and ends no earlier than 90 days before the first day of the plan year
beginning on or after January 1, 2015 (90 days being the maximum
permissible administrative period). For example, an employer with a
calendar year plan may use a measurement period from April 15, 2014,
through October 14, 2014 (six months), followed by an administrative
period ending on December 31, 2014.
---------------------------------------------------------------------------

\13\ An employer may continue to rely on the transition relief
in section IX.C of the preamble to the proposed regulations if the
employer applies that transition relief to a stability period that
begins in 2014 and ends in 2015.
---------------------------------------------------------------------------

As a further example, an employer with a plan year beginning April
1 that also elected to implement a 90-day administrative period may use
a measurement period from July 1, 2014, through December 31, 2014 (six
months), followed by an administrative period ending on March 31, 2015.
However, an employer with a plan year beginning on July 1 must use a
measurement period that is longer than 6 months to comply with the
requirement that the measurement period begin no later than July 1,
2014, and end no earlier than 90 days before the stability period. For
example, the employer may have a 10-month measurement period from June
15, 2014, through April 14, 2015, followed by an administrative period
from April 15, 2015, through June 30, 2015.
This transition guidance applies to a stability period beginning in
2015

[[Page 8573]]

through the end of that stability period (including any portion of the
stability period falling in 2016), and applies to individuals who are
employees as of the first day of the transition measurement period. For
employees hired during or after the transition measurement period
described in this section XV.D.2 of the preamble, the general rules for
new employees under the look-back measurement method set forth in Sec.
54.4980H-3(d) apply.
3. Shorter Period Permitted for Determining Applicable Large Employer
Status for 2015
An applicable large employer is, with respect to a calendar year,
an employer that employed an average of at least 50 full-time employees
(including FTEs) on business days during the preceding calendar year.
See section 4980H(c)(2); Sec. 54.4980H-2.
Similar to the transition guidance provided in section IX.E of the
preamble to the proposed regulations, for the 2015 calendar year, an
employer may determine its status as an applicable large employer by
reference to a period of at least six consecutive calendar months, as
chosen by the employer, during the 2014 calendar year (rather than the
entire 2014 calendar year). Thus, an employer may determine whether it
is an applicable large employer for 2015 by determining whether it
employed an average of at least 50 full-time employees (including FTEs)
on business days during any consecutive six-month period in 2014.
Whether an employer meets the requirements of the seasonal worker
exception, as described in section V.C of this preamble, for purposes
of determining applicable large employer status for 2015 is based on
the calendar year, rather than on the calendar months chosen by the
employer under the 2015 applicable large employer transition guidance,
if applicable. See section V of this preamble for a discussion of the
determination of status as an applicable large employer.
This guidance allows employers to choose to use either a period to
prepare to count their employees or a period afterward to ascertain and
implement the results of the determination, or both. For example, an
employer could use at least six months through August 2014 to determine
its applicable large employer status and, if it is an applicable large
employer, the period from September through December 2014 to make any
needed adjustments to its plan (or to establish a plan).
Commenters noted that, under the transition guidance for applicable
large employer status in 2014, the hours of service (or lack of hours
of service) during the summer season could be taken into account by
schools in determining applicable large employer status even though,
during the summer, employees may provide no formal, in-school service.
These commenters expressed concern that this would affect the
educational employer's total number of full-time employees and status
as an applicable large employer by overweighting the summer period in
relation to the non-summer academic year. The Treasury Department and
the IRS understand this concern and have considered various options for
addressing these comments in developing this transition guidance, but
have concluded that the options for addressing this concern (such as
basing the rule on non-consecutive months or applying an employee-by-
employee rule such as the employment break period rule set forth in
Sec. 54.4980H-3(d)(6)(ii)(B)) would add more complexity and
administrative burden than is justified for a rule that applies only
for 2015.
Also note that in addition to this transition rule, as described in
section V.F of this preamble, the final regulations provide with
respect to an employee who was not offered coverage at any point in the
prior calendar year, if an employer that is an applicable large
employer for the first time offers the employee coverage at or before
April 1 of the first year in which the employer is an applicable large
employer, the employer will not be subject to an assessable payment
under section 4980H by reason of its failure to offer coverage to the
employee for January through March of that year, provided that in order
to avoid an assessable payment under section 4980H(b), the coverage
offered on or before April 1 provides MV.
In addition, section XV.D.6 of this preamble provides 2015
transition relief for certain applicable large employers with fewer
than 100 full-time employees (including FTEs). The rule described in
this section XV.D.3 of the preamble may be used by an applicable large
employer to determine its number of full-time employees (including
FTEs) for purposes of the transition rule set forth in section XV.D.6
of this preamble.
4. Offer of Coverage for January 2015
The final regulations provide, in general, that if an applicable
large employer member fails to offer coverage to a full-time employee
for any day of a calendar month, that employee is treated as not
offered coverage during that entire month. See Sec. 54.4980H-4(c).
The Treasury Department and the IRS understand that many employers
offer coverage for a new year effective as of the first day of the
first pay period beginning on or after the first day of the year, and
that questions have arisen as to whether a full-time employee will be
treated as having been offered coverage for the first month to which
section 4980H applies if the offer of coverage applies no later than
the first day of the first payroll period that begins in that month.
Solely for purposes of January 2015, if an applicable large
employer member offers coverage to a full-time employee no later than
the first day of the first payroll period that begins in January 2015,
the employee will be treated as having been offered coverage for
January 2015. This transition guidance, which was not contained in the
preamble to the proposed regulations, applies only for January 2015.
5. Coverage for Dependents
In order to avoid a potential assessable payment under section
4980H, an applicable large employer member must offer coverage to its
full-time employees and the full-time employees' dependents. To provide
employers sufficient time to expand their health plans to add dependent
coverage, section IX.F of the preamble to the proposed regulations
provides that any employer that takes steps during its plan year that
begins in 2014 (2014 plan year) toward satisfying the section 4980H
provisions relating to offering coverage to full-time employees'
dependents will not be liable for any assessable payment under section
4980H solely on account of a failure to offer coverage to the
dependents for that plan year.
This relief is extended to plan years that begin in 2015 (2015 plan
years). It applies to employers for the 2015 plan year with respect to
plans under which (1) dependent coverage is not offered, (2) dependent
coverage that does not constitute MEC is offered, or (3) dependent
coverage is offered for some, but not all, dependents.
The relief is not available to the extent the employer offered
dependent coverage during either the plan year that begins in 2013
(2013 plan year) or the 2014 plan year (meaning the relief is not
available to the extent the employer had offered dependent coverage
during either of those plan years and subsequently dropped that offer
of coverage). If coverage was offered to some, but not all, dependents
during the 2013 or 2014 plan year, the relief as extended applies only
with respect to dependents who were not offered

[[Page 8574]]

coverage at any time during the 2013 or 2014 plan year (in other words,
the relief as extended applies only with respect to dependents who were
without an offer of coverage from the employer in both the 2013 and
2014 plan years). In addition, the relief is available only if the
employer takes steps during the 2014 or 2015 plan year (or both) to
extend coverage under the plan to dependents not offered coverage
during the 2013 or 2014 plan year (or both). References in this section
XV.D.5 of the preamble to dependents refer to dependents of the
employer's full-time employees, and references to coverage (other than
specific references to coverage that does not constitute MEC) refer to
MEC. For a discussion of the definition of dependent under the final
regulations, including the treatment of stepchildren and foster
children, see section XI of this preamble.
6. 2015 Transition Relief for Applicable Large Employers With Fewer
Than 100 Full-Time Employees (Including FTEs)
The Treasury Department and the IRS understand that application of
section 4980H will involve changes for applicable large employers that
did not previously offer coverage, or that did not offer affordable,
minimum value coverage. A large percentage of those employers are in
the smaller size range, such as those with fewer than 100 full-time
employees (including FTEs). To assist these employers in transitioning
into compliance with section 4980H, the transition relief described
below is provided for all of 2015 plus, in the case of any non-calendar
plan year that begins in 2015 (2015 plan year), the portion of that
2015 plan year that falls in 2016. For employers eligible for the
transition relief described in this section XV.D.6, no assessable
payment under section 4980H(a) or (b) will apply for any calendar month
during 2015 or any calendar month during the portion of the 2015 plan
year that falls in 2016.
a. Eligibility Conditions for Transition Relief
An employer is eligible for the transition relief described in this
section XV.D.6 if it satisfies the following conditions:
(1) Limited Workforce Size. The employer employs on average at
least 50 full-time employees (including FTEs) but fewer than 100 full-
time employees (including FTEs) on business days during 2014. For this
purpose, the determination of the number of full-time employees
(including FTEs) is made in accordance with the otherwise applicable
rules for determining status as an applicable large employer.\14\
---------------------------------------------------------------------------

\14\ The rules for determining status as an applicable large
employer include application of the aggregation rules under section
414 (see Sec. 54.4980H-1(a)(16)), the rule regarding employers
whose workforce exceeds the applicable threshold (which for this
purpose is 99) for 120 days or fewer during the calendar year due to
the employment of seasonal workers (see Sec. 54.4980H-2(b)(2)), and
the transition relief permitting the use of any consecutive month
period during 2014 of at least six months in lieu of the entire
calendar year as provided in section XV.D.3 of this preamble.
---------------------------------------------------------------------------

(2) Maintenance of Workforce and Aggregate Hours of Service. During
the period beginning on February 9, 2014, and ending on December 31,
2014, the employer does not reduce the size of its workforce or the
overall hours of service of its employees in order to satisfy the
workforce size condition set forth in paragraph (1) of this section
XV.D.6. A reduction in workforce size or overall hours of service for
bona fide business reasons will not be considered to have been made in
order to satisfy the workforce size condition. For example, reductions
of workforce size or overall hours of service because of business
activity such as the sale of a division, changes in the economic
marketplace in which the employer operates, terminations of employment
for poor performance, or other similar changes unrelated to eligibility
for the transition relief provided in this section XV.D.6 are for bona
fide business reasons and will not affect eligibility for that
transition relief.
(3) Maintenance of Previously Offered Health Coverage. Except as
otherwise provided in this paragraph (3), during the coverage
maintenance period the employer does not eliminate or materially reduce
the health coverage, if any, it offered as of February 9, 2014. For
purposes of this paragraph (3), in no event will an employer be treated
as eliminating or materially reducing health coverage if (i) it
continues to offer each employee who is eligible for coverage during
the coverage maintenance period an employer contribution toward the
cost of employee-only coverage that either (A) is at least 95 percent
of the dollar amount of the contribution toward such coverage that the
employer was offering on February 9, 2014, or (B) is the same (or a
higher) percentage of the cost of coverage that the employer was
offering to contribute toward coverage on February 9, 2014; (ii) in the
event there is a change in benefits under the employee-only coverage
offered, that coverage provides minimum value after the change; and
(iii) the employer does not alter the terms of its group health plans
to narrow or reduce the class or classes of employees (or the
employees' dependents) to whom coverage under those plans was offered
on February 9, 2014. For purposes of this paragraph, the term coverage
maintenance period means (1) for an employer with a calendar year plan,
the period beginning on February 9, 2014, and ending on December 31,
2015, and (2) for an employer with a non-calendar year plan, the period
beginning on February 9, 2014, and ending on the last day of the plan
year that begins in 2015.
For example, if on February 9, 2014, an employer was contributing
$300 per month for coverage that costs $400 per month for employee-only
coverage, and the employer continues to offer to contribute $300 per
month after the cost of employee-only coverage increases to $425 per
month for the plan year beginning on July 1, 2014, the increase in cost
to the employee will not be treated for this purpose as an elimination
or material reduction of health coverage offered.
(4) Certification of Eligibility for Transition Relief. The
applicable large employer certifies on a prescribed form that it meets
the eligibility requirements set forth in paragraphs (1) through (3).
The forthcoming final regulations under section 6056 are expected to
provide that an applicable large employer, or an applicable large
employer member, that otherwise qualifies for the transition relief
described in this section XV.D.6 will provide this certification as
part of the transmittal form it is required to file with the IRS under
the section 6056 regulations, in accordance with the instructions to
that transmittal form. See section III of the preamble regarding
section 6056.
b. Application of Transition Relief to Non-Calendar Year Plans
The transition relief described in this section XV.D.6 applies to
all calendar months of 2015 plus any calendar months of 2016 that fall
within the 2015 plan year. It is not available for an employer that
modifies the plan year of its plan after February 9, 2014, to begin on
a later calendar date (for example, changing the start date of the plan
year from January 1 to December 1). Notwithstanding paragraph (a)(3) of
this section XV.D.6, an employer with a non-calendar year plan meeting
the coverage maintenance period requirements for 2015 may be eligible
for the relief for 2015 even if the employer does not meet the coverage
maintenance period requirements later (during the portion of the 2015
plan year falling in 2016).

[[Page 8575]]

c. Application of Transition Relief to New Employers
As described in section V.B of this preamble, an employer that was
not in existence on any day of the previous calendar year may be an
applicable large employer for the current calendar year if the employer
is reasonably expected to employ an average of at least 50 full-time
employees (including FTEs) on business days during the current calendar
year and it actually employs an average of at least 50 full-time
employees (including FTEs) on business days during the calendar year.
For employers first coming into existence in 2015 that are applicable
large employers under the standard in the preceding sentence, the
relief described in this section XV.D.6 applies if (1) the employer
reasonably expects to employ and actually employs fewer than 100 full-
time employees (including FTEs) on business days during 2015, (2) the
employer reasonably expects to meet and actually meets the maintenance
standards described in paragraphs (2) and (3) above, as measured from
the date the employer is first in existence, and (3) the employer
certifies in the manner described in paragraph (4) above.
d. Coordination With Other Transition Relief
For periods on or after January 1, 2016 (or, if applicable, for any
period after the last day of the 2015 plan year), the transition relief
set forth in section XV.D.1 (non-calendar plan years), section XV.D.2
(shorter measurement periods permitted for stability period starting
during 2015), section XV.D.4 (offer of coverage for January 2015),
section XV.D.5 (coverage for dependents), and section XV.D.7 (limited
2015 section 4980H(a) transition relief) of the preamble will not be
available. The transition relief listed in the prior sentence is
available only with respect to 2015 or, if applicable, the 2015 plan
year and does not apply to an applicable large employer that is
eligible for the relief described in this section XV.D.6 because that
eligible employer will first become subject to a potential assessable
payment under section 4980H after 2015 or, if applicable, after the
2015 plan year and, accordingly, already will have had the benefit of
an extra year to plan for and implement changes. However, an employer
may use the rule set forth in section XV.D.3 of the preamble (shorter
period in 2014 permitted for determining applicable large employer
status for 2015) in determining applicable large employer status and
full-time employee count for 2015 (but not for any subsequent
year).\15\
---------------------------------------------------------------------------

\15\ Section 54.4980H-2(b)(5) of the final regulations provides
a transition rule for an employer's first year as an applicable
large employer, subject to certain conditions. Because an employer
qualifies for the relief set forth in Sec. 54.4980H-2(b)(5) only
for the first year that the employer is an applicable large
employer, the relief set forth in Sec. 54.4980H-2(b)(5) will not be
available to an applicable large employer that is eligible for the
relief described in this section XV.D.6 for the first year for which
the employer may be subject to an assessable payment under section
4980H (generally 2016).
---------------------------------------------------------------------------

e. Example
The following example illustrates the transition relief described
in this section XV.D.6 of the preamble:
(i) Facts. As of February 9, 2014, Employer A sponsors a group
health plan with a calendar year plan year under which 40 of its full-
time employees are offered coverage with an employer contribution of
$300 per month for employee-only coverage. The offer of coverage is
affordable with respect to some, but not all, of Employer A's full-time
employees. During the period from February 9, 2014, through December
31, 2014, two of Employer A's employees voluntarily terminate
employment and Employer A terminates three employees because of the
non-renewal of a customer contract but does not otherwise reduce the
size of its workforce or reduce any employee's hours of service. Had
those five employees continued in employment throughout 2014, the
employer would have had an average of 100 full-time employees
(including FTEs) on business days in 2014. However, as a result of the
terminations, it had an average of only 97 full-time employees
(including FTEs) for business days in 2014. During the coverage
maintenance period, Employer A does not change the eligibility
requirements for the group health plan (including not amending it to
eliminate its existing health coverage for dependents) and continues to
make an employer contribution of $300 per month toward the cost of
employee-only coverage that provides minimum valve. Employer A
certifies in a timely manner as to its eligibility for the transition
relief.
(ii) Conclusion. Employer A will not be subject to an assessable
payment under section 4980H(a) or (b) for 2015.
7. Limited 2015 Section 4980H(a) Transition Relief
a. Offers of Coverage to at Least 70 Percent (Rather Than 95 Percent)
of Full-Time Employees (and Their Dependents)
For purposes of section 4980H(a), the final regulations provide
that an applicable large employer member is treated as offering
coverage to its full-time employees (and their dependents) for a month
if, for that month, it offers coverage to all but five percent or, if
greater, five, of its full-time employees. As provided in Sec.
54.4980H-4(a), an employee is treated as having been offered coverage
only if the employer also offered coverage to that employee's
dependents. But see section XV.D.5 of this preamble for transition
relief for a failure to offer coverage to dependents for the 2015 plan
year.
As further transition relief, for each calendar month during 2015
and any calendar months during the 2015 plan year that fall in 2016, an
applicable large employer member that offers coverage to at least 70
percent (or that fails to offer to no more than 30 percent) of its
full-time employees (and, to the extent required under Sec. 54.4980H-
4(a) and the transition relief in section XV.D.5 of this preamble,
their dependents) will not be subject to an assessable payment under
section 4980H(a). Applicable large employer members qualifying for the
transition relief set forth in this section XV.D.7.a continue to be
subject to a potential assessable payment under section 4980H(b).
b. Calculation of Assessable Payments Under Section 4980H(a) for
Applicable Large Employers With 100 or More Full-Time Employees
(Including FTEs) for 2015
In general, an assessable payment under section 4980H(a) is equal
to the number of all full-time employees (excluding 30 full-time
employees) multiplied by one-twelfth of $2,000 for each calendar month.
For purposes of the liability calculation under section 4980H(a), with
respect to each calendar month, an applicable large employer member's
number of full-time employees is reduced by that member's allocable
share of 30. Accordingly, an applicable large employer with 50 full-
time employees that is subject to an assessable payment under section
4980H(a) may be subject to an assessable payment based on 20 employees
(that is, 50 minus 30) times one-twelfth of $2,000 for each calendar
month. An applicable large employer member's allocation is equal to 30

[[Page 8576]]

allocated ratably among all members of the applicable large employer on
the basis of the number of full-time employees employed by each
applicable large employer member during the calendar month. See Sec.
54.4980H-4(e).
For 2015 plus any calendar months of 2016 that fall within the
employer's 2015 plan year, if an applicable large employer with 100 or
more full-time employees (including FTEs) on business days during 2014
(or an applicable large employer member that is part of such an
applicable large employer) is subject to an assessable payment under
section 4980H(a), the assessable payment under section 4980H(a) with
respect to the transition relief period will be calculated by reducing
an applicable large employer member's number of full-time employees by
that member's allocable share of 80 rather than 30. The rules set forth
in Sec. 54.4980H-4(e) apply with respect to allocation of the
reduction by 80 full-time employees for the applicable large employer.
For this transition relief period, the aggregate amount of assessable
payment determined under section 4980H(b) for an applicable large
employer member also may not exceed the potential assessable payment
under section 4980H(a), including the reduction by the ratable portion
of 80 as set forth in this paragraph, for that applicable large
employer member.\16\
---------------------------------------------------------------------------

\16\ The number 80 applies for purposes of the 2015 transition
rule in lieu of the number 30 that applies under the general rule
because this maintains the same 20-full-time-employee difference
between the applicable threshold number (50 under the general rule;
100 under the 2015 transition rule) and the number of full-time
employees (30 under the general rule; 80 under the 2015 transition
rule) by which the applicable large employer's number of full-time
employees is reduced.
---------------------------------------------------------------------------

c. Application to Non-Calendar Year Plans
The transition relief described in this section XV.D.7 applies to
all calendar months of 2015 plus any calendar months of 2016 that fall
within the employer's 2015 plan year, and is available for an employer
only if it did not modify the plan year of its plan after February 9,
2014, to begin on a later calendar date (for example, changing the
start date of the plan year from January 1 to December 1).
d. Coordination With Other Transition Relief
The relief described in this section XV.D.7 of the preamble applies
in addition to the forms of transition relief described in section
XV.D.1 (non-calendar plan years), section XV.D.2 (shorter measurement
periods permitted for stability period starting during 2015), section
XV.D.3 (shorter period permitted in 2014 for determining applicable
large employer status for 2015), section XV.D.4 (offer of coverage for
January 2015), and section XV.D.5 (coverage for dependents) of this
preamble.

E. Interim Guidance With Respect to Multiemployer Arrangements

In response to commenters' requests for special rules for employers
participating in multiemployer plans in view of such plans' unique
operating structures, section IX.D of the preamble to the proposed
regulations, as corrected, contains transition guidance that is
intended to provide an administratively feasible means for employers
that contribute to multiemployer plans to comply with section 4980H.
Pursuant to this preamble, employers may rely on the interim
guidance described in this section XV.E. This interim guidance is
intended to continue the transition guidance originally set forth in
section IX.D of the preamble to the proposed regulations, as corrected,
and as clarified in this preamble. Any future guidance that limits the
scope of the interim guidance will be applied prospectively and will
apply no earlier than January 1 of the calendar year beginning at least
six months after the date of issuance of the guidance.
This interim guidance applies to an applicable large employer
member that is required by a collective bargaining agreement or an
appropriate related participation agreement to make contributions, with
respect to some or all of its employees, to a multiemployer plan that
offers, to individuals who satisfy the plan's eligibility conditions,
coverage that is affordable and provides MV, and that offers coverage
to those individuals' dependents. Under this interim guidance, the
applicable large employer member will not be treated, with respect to
employees for whom the employer is required by the collective
bargaining agreement or appropriate related participation agreement to
make contributions to the multiemployer plan, as failing to offer the
opportunity to enroll in MEC to full-time employees (and their
dependents) for purposes of section 4980H(a), and will not be subject
to an assessable payment under section 4980H(b). For purposes of this
section XV.E of the preamble, whether the employee is a full-time
employee is determined under section 4980H(c)(4), whether coverage is
affordable is determined under section 36B(c)(2)(C)(i), and whether
coverage provides MV is determined under section 36B(c)(2)(C)(ii).
For purposes of determining whether coverage under the
multiemployer plan is affordable, employers participating in the plan
may use any of the affordability safe harbors set forth in the final
regulations. Coverage under a multiemployer plan will also be
considered affordable with respect to a full-time employee if the
employee's required contribution, if any, toward self-only health
coverage under the plan does not exceed 9.5 percent of the wages
reported to the qualified multiemployer plan, which may be determined
based on actual wages or an hourly wage rate under the applicable
collective bargaining agreement or participation agreement.
If any assessable payment were due under section 4980H, it would be
payable by a participating applicable large employer member and that
member would be responsible for identifying its full-time employees for
this purpose (which would be based on hours of service for that
employer). If the applicable large employer member contributes to one
or more multiemployer plans and also maintains a single employer plan,
the interim guidance applies to each multiemployer plan but not to the
single employer plan.
One commenter asked whether the rule set out in section IX.D of the
preamble to the proposed regulations, as corrected, applies to non-
federal governmental multiemployer plans. The commenter noted that the
proposed regulations do not define multiemployer plan but that section
414(f)(1) defines a multiemployer plan as a plan (A) to which more than
one employer is required to contribute, (B) which is maintained
pursuant to one or more collective bargaining agreements between one or
more employee organizations and more than one employer, and (C) which
satisfies such other requirements as the Secretary of Labor may
prescribe by regulation. The commenter asked whether the rule set out
in section IX.D of the preamble to the proposed regulations, as
corrected, applies to public sector multiemployer plans which are not
subject to the jurisdiction of DOL. The rule set out in section IX.D of
the preamble to the proposed regulations and in this section of the
preamble applies to a multiemployer plan that is not subject to the
jurisdiction of DOL if the plan meets the requirements of section
414(f)(1)(A) and (B).

[[Page 8577]]

XVI. Effective Dates and Reliance

Section 1513(d) of the Affordable Care Act provides that section
4980H applies to months beginning after December 31, 2013; however,
Notice 2013-45 provides transition relief from section 4980H for 2014.
These final regulations are effective February 12, 2014. These
final regulations are applicable for periods after December 31, 2014.
Employers may rely on these final regulations for periods before
January 1, 2015. If and to the extent an employer has relied on Notice
2012-58, the employer may continue to rely on Notice 2012-58 to the
extent reliance is provided in section IV of that notice.

Availability of IRS Documents

The IRS notices and other IRS guidance cited in this preamble are
available in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(b)).

Special Analyses

It has been determined that this Treasury decision is not a
significant regulatory action as defined in Executive Order 12866, as
supplemented by Executive Order 13563. Therefore, a regulatory
assessment is not required. It has been determined that section 553(b)
of the Administrative Procedure Act (5 U.S.C. chapter 5) does not apply
to these regulations, and because the regulations do not impose a
collection of information requirement on small entities, the Regulatory
Flexibility Act (5 U.S.C. chapter 6) (RFA) does not apply.
Pursuant to section 7805(f) of the Code, the proposed regulations
were submitted to the Chief Counsel for Advocacy of the Small Business
Administration (SBA Chief Counsel for Advocacy) for comment on their
impact on small business, and the SBA Chief Counsel for Advocacy
submitted comments on the regulations. The SBA Chief Counsel for
Advocacy disagreed with the statement that the RFA does not apply to
the proposed regulations because the regulations do not impose a
collection of information on small entities. Specifically, the SBA
Chief Counsel for Advocacy stated that the proposed regulations impose
a collection because they require employers to maintain records for a
number of calculations and the determination of whether employers are
subject to section 4980H, including calculating full-time employees and
FTEs and calculating affordability. However, the regulations do not
contain any recordkeeping requirement. For purposes of the RFA, a
recordkeeping requirement is a mandate to maintain specified records. 5
U.S.C. 601(8). Therefore, to constitute a recordkeeping requirement,
the mandate to maintain specified records must be a requirement in
addition to the general requirement in section 6001 that taxpayers must
keep adequate books and records to support what they reported on their
return. Thus, because a recordkeeping requirement is one that requires
specified records, a regulation that does not require that particular
records be maintained, but nonetheless prompts some taxpayers to
maintain records consistent with the provisions of section 6001, does
not impose a recordkeeping requirement. Neither the proposed nor final
regulations require employers to maintain any specified records.
Rather, the preambles to both the final and the proposed regulations
provide that the otherwise generally applicable substantiation and
recordkeeping requirements in section 6001 apply.

Drafting Information

The principal authors of these final regulations are Kathryn
Johnson and Shad Fagerland of the Office of the Division Counsel/
Associate Chief Counsel (Tax Exempt and Government Entities). Other
personnel from the Treasury Department and the IRS participated in the
development of the regulations.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 54

Excise taxes, Pensions, Reporting and recordkeeping requirements.

26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1, 54, and 301 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in
part as follows:

Authority: 26 U.S.C. 7805 * * *


0
Par. 2. Section 1.1361-4 is amended as follows:
0
1. In paragraph (a)(8)(i)(C), the language ``and 4412; and'' is removed
and ``and 4412;'' is added in its place.
0
2. In paragraph (a)(8)(i)(D), the language ``or 6427.'' is removed and
``or 6427; and'' is added in its place.
0
3. Paragraph (a)(8)(i)(E) is added.
0
4. In paragraph (a)(8)(ii), the language ``January 1, 2008.'' is
removed and ``January 1, 2008, except that paragraph (a)(8)(i)(E) of
this section applies for periods after December 31, 2014.'' is added in
its place.
The addition reads as follows:


Sec. 1.1361-4 Effect of QSub election.

(a) * * *
(8) * * *
(i) * * *
(E) Assessment and collection of an assessable payment imposed by
section 4980H and reporting required by section 6056.
* * * * *

PART 54--PENSION EXCISE TAXES

0
Par. 3. The authority citation for part 54 is amended by adding entries
in numerical order to read as follows:

Authority: 26 U.S.C. 7805 * * *

Section 54.4980H-3 is also issued under 26 U.S.C.
4980H(c)(4)(B); * * *

0
Par. 4. Sections 54.4980H-0, 54.4980H-1, 54.4980H-2, 54.4980H-3,
54.4980H-4, 54.4980H-5, and 54.4980H-6 are added to read as follows:

Sec.
* * * * *
54.4980H-0 Table of contents.
54.4980H-1 Definitions.
54.4980H-2 Applicable large employer and applicable large employer
member.
54.4980H-3 Determining full-time employees.
54.4980H-4 Assessable payments under section 4980H(a).
54.4980H-5 Assessable payments under section 4980H(b).
54.4980H-6 Administration and procedure.
* * * * *


Sec. 54.4980H-0 Table of contents.

This section lists the table of contents for Sec. Sec. 54.4980H-1
through 54.4980H-6.


Sec. 54.4980H-1 Definitions.

(a) Definitions.
(1) Administrative period.
(2) Advance credit payment.
(3) Affordable Care Act.
(4) Applicable large employer.
(5) Applicable large employer member.
(6) Applicable premium tax credit.
(7) Bona fide volunteer.
(8) Calendar month.
(9) Church, or a convention or association of churches.
(10) Collective bargaining agreement.
(11) Cost-sharing reduction.

[[Page 8578]]

(12) Dependent.
(13) Educational organization.
(14) Eligible employer-sponsored plan.
(15) Employee.
(16) Employer.
(17) Employment break period.
(18) Exchange.
(19) Federal poverty line.
(20) Form W-2 wages.
(21) Full-time employee.
(22) Full-time equivalent employee (FTE).
(23) Government entity.
(24) Hour of service.
(25) Initial measurement period.
(26) Limited non-assessment period for certain employees.
(27) Minimum essential coverage.
(28) Minimum value.
(29) Month.
(30) New employee.
(31) Ongoing employee.
(32) Part-time employee.
(33) Period of employment.
(34) Person.
(35) Plan year.
(36) Predecessor employer.
(37) Qualified health plan.
(38) Seasonal employee.
(39) Seasonal worker.
(40) Section 1411 certification.
(41) Section 4980H(a) applicable payment amount.
(42) Section 4980H(b) applicable payment amount.
(43) Self-only coverage.
(44) Special unpaid leave.
(45) Stability period.
(46) Standard measurement period.
(47) Start date.
(48) United States.
(49) Variable hour employee.
(50) Week.
(b) Effective/applicability date.


Sec. 54.4980H-2 Applicable large employer and applicable large
employer member.

(a) In general.
(b) Determining applicable large employer status.
(1) In general.
(2) Seasonal worker exception.
(3) Employers not in existence in preceding calendar year.
(4) Special rules for government entities, churches, and
conventions and associations of churches.
(5) Transition rule for an employer's first year as an applicable
large employer.
(c) Full-time equivalent employees (FTEs).
(1) In general.
(2) Calculating the number of FTEs.
(d) Examples.
(e) Additional guidance.
(f) Effective/applicability date.


Sec. 54.4980H-3 Determining full-time employees.

(a) In general.
(b) Hours of service.
(1) In general.
(2) Hourly employees calculation.
(3) Non-hourly employees calculation.
(c) Monthly measurement method.
(1) In general.
(2) Employee first otherwise eligible for an offer of coverage.
(3) Use of weekly periods.
(4) Employees rehired after termination of employment or resuming
service after other absence.
(5) Examples.
(d) Look-back measurement method.
(1) Ongoing employees.
(2) New non-variable hour, new non-seasonal and new non-part-time
employees.
(3) New variable hour employees, new seasonal employees, and new
part-time employees.
(4) Transition from new variable hour employee, new seasonal
employee, or new part-time employee to ongoing employee.
(5) Examples.
(6) Employees rehired after termination of employment or resuming
service after other absence.
(e) Use of the look-back measurement method and the monthly
measurement method for different categories of employees.
(f) Changes in employment status resulting in a change in full-time
employee determination method.
(1) Change in employment status from a position to which a look-
back measurement method applies to a position to which the monthly
measurement method applies, or vice versa.
(2) Special rule for certain employees to whom minimum value
coverage has been continuously offered.
(g) Nonpayment or late payment of premiums.
(h) Additional guidance.
(i) Effective/applicability date.


Sec. 54.4980H-4 Assessable payments under section 4980H(a).

(a) In general.
(b) Offer of coverage.
(1) In general.
(2) Offer of coverage on behalf of another entity.
(c) Partial calendar month.
(d) Application to applicable large employer member.
(e) Allocated reduction of 30 full-time employees.
(f) Example.
(g) Additional guidance.
(h) Effective/applicability date.


Sec. 54.4980H-5 Assessable payments under section 4980H(b).

(a) In general.
(b) Offer of coverage.
(c) Partial calendar month.
(d) Applicability to applicable large employer member.
(e) Affordability.
(1) In general.
(2) Affordability safe harbors for section 4980H(b) purposes.
(f) Additional guidance.
(g) Effective/applicability date.


Sec. 54.4980H-6 Administration and procedure.

(a) In general.
(b) Effective/applicability date.


Sec. 54.4980H-1 Definitions.

(a) Definitions. The definitions in this section apply only for
purposes of this section and Sec. Sec. 54.4980H-2 through 54.4980H-6.
(1) Administrative period. The term administrative period means an
optional period, selected by an applicable large employer member, of no
longer than 90 days beginning immediately following the end of a
measurement period and ending immediately before the start of the
associated stability period. The administrative period also includes
the period between a new employee's start date and the beginning of the
initial measurement period, if the initial measurement period does not
begin on the employee's start date.
(2) Advance credit payment. The term advance credit payment means
an advance payment of the premium tax credit as provided in Affordable
Care Act section 1412 (42 U.S.C. 18082).
(3) Affordable Care Act. The term Affordable Care Act means the
Patient Protection and Affordable Care Act, Public Law 111-148 (124
Stat. 119 (2010)), and the Health Care and Education Reconciliation Act
of 2010, Public Law 111-152 (124 Stat. 1029 (2010)), as amended by the
Medicare and Medicaid Extenders Act of 2010, Public Law 111-309 (124
Stat. 3285 (2010)), the Comprehensive 1099 Taxpayer Protection and
Repayment of Exchange Subsidy Overpayments Act of 2011, Public Law 112-
9 (125 Stat. 36 (2011)), the Department of Defense and Full-Year
Continuing Appropriations Act, 2011, Public Law 112-10 (125 Stat. 38
(2011)), and the 3% Withholding Repeal and Job Creation Act, Public Law
112-56 (125 Stat. 711 (2011)).
(4) Applicable large employer. The term applicable large employer
means, with respect to a calendar year, an employer that employed an
average of at least 50 full-time employees (including full-time
equivalent employees) on business days during the preceding calendar
year. For rules relating to the determination of applicable large
employer status, see Sec. 54.4980H-2.

[[Page 8579]]

(5) Applicable large employer member. The term applicable large
employer member means a person that, together with one or more other
persons, is treated as a single employer that is an applicable large
employer. For this purpose, if a person, together with one or more
other persons, is treated as a single employer that is an applicable
large employer on any day of a calendar month, that person is an
applicable large employer member for that calendar month. If the
applicable large employer comprises one person, that one person is the
applicable large employer member. An applicable large employer member
does not include a person that is not an employer or only an employer
of employees with no hours of service for the calendar year. For rules
for government entities, and churches, or conventions or associations
of churches, see Sec. 54.4980H-2(b)(4).
(6) Applicable premium tax credit. The term applicable premium tax
credit means any premium tax credit that is allowed or paid under
section 36B and any advance payment of such credit.
(7) Bona fide volunteer. The term bona fide volunteer means an
employee of a government entity or an organization described in section
501(c) that is exempt from taxation under section 501(a) whose only
compensation from that entity or organization is in the form of--
(i) Reimbursement for (or reasonable allowance for) reasonable
expenses incurred in the performance of services by volunteers, or
(ii) Reasonable benefits (including length of service awards), and
nominal fees, customarily paid by similar entities in connection with
the performance of services by volunteers.
(8) Calendar month. The term calendar month means one of the 12
full months named in the calendar, such as January, February, or March.
(9) Church or a convention or association of churches. The term
church or a convention or association of churches has the same meaning
as provided in Sec. 1.170A-9(b).
(10) Collective bargaining agreement. The term collective
bargaining agreement means an agreement that the Secretary of Labor
determines to be a collective bargaining agreement, provided that the
health benefits provided under the collective bargaining agreement are
the subject of good faith bargaining between employee representatives
and one or more employers, and the agreement between employee
representatives and one or more employers satisfies section
7701(a)(46).
(11) Cost-sharing reduction. The term cost-sharing reduction means
a cost-sharing reduction and any advance payment of the reduction as
defined under section 1402 of the Affordable Care Act and 45 CFR
155.20.
(12) Dependent. The term dependent means a child (as defined in
section 152(f)(1) but excluding a stepson, stepdaughter or an eligible
foster child (and excluding any individual who is excluded from the
definition of dependent under section 152 by operation of section
152(b)(3))) of an employee who has not attained age 26. A child attains
age 26 on the 26th anniversary of the date the child was born. A child
is a dependent for purposes of section 4980H for the entire calendar
month during which he or she attains age 26. Absent knowledge to the
contrary, applicable large employer members may rely on an employee's
representation about that employee's children and the ages of those
children. The term dependent does not include the spouse of an
employee.
(13) Educational organization. The term educational organization
means an entity described in Sec. 1.170A-9(c)(1), whether or not
described in section 501(c)(3) and tax-exempt under section 501(a).
Thus, the term educational organization includes taxable entities, tax-
exempt entities and government entities.
(14) Eligible employer-sponsored plan. The term eligible employer-
sponsored plan has the same meaning as provided under section
5000A(f)(2) and the regulations thereunder and any other applicable
guidance.
(15) Employee. The term employee means an individual who is an
employee under the common-law standard. See Sec. 31.3401(c)-1(b). For
purposes of this paragraph (a)(15), a leased employee (as defined in
section 414(n)(2)), a sole proprietor, a partner in a partnership, a 2-
percent S corporation shareholder, or a worker described in section
3508 is not an employee.
(16) Employer. The term employer means the person that is the
employer of an employee under the common-law standard. See Sec.
31.3121(d)-1(c). For purposes of determining whether an employer is an
applicable large employer, all persons treated as a single employer
under section 414(b), (c), (m), or (o) are treated as a single
employer. Thus, all employees of a controlled group of entities under
section 414(b) or (c), an affiliated service group under section
414(m), or an entity in an arrangement described under section 414(o),
are taken into account in determining whether the members of the
controlled group or affiliated service group together are an applicable
large employer. For purposes of determining applicable large employer
status, the term employer also includes a predecessor employer (see
paragraph (a)(36) of this section) and a successor employer.
(17) Employment break period. The term employment break period
means a period of at least four consecutive weeks (disregarding special
unpaid leave), measured in weeks, during which an employee of an
educational organization is not credited with hours of service for an
applicable large employer.
(18) Exchange. The term Exchange means an Exchange as defined in 45
CFR 155.20.
(19) Federal poverty line. The term federal poverty line means for
a plan year any of the poverty guidelines (updated periodically in the
Federal Register by the Secretary of Health and Human Services under
the authority of 42 U.S.C. 9902(2)) in effect within six months before
the first day of the plan year of the applicable large employer
member's health plan, as selected by the applicable large employer
member.
(20) Form W-2 wages. The term Form W-2 wages with respect to an
employee refers to the amount of wages as defined under section 3401(a)
for the applicable calendar year (required to be reported in Box 1 of
the Form W-2 (Wage and Tax Statement)) received from an applicable
large employer.
(21) Full-time employee--(i) In general. The term full-time
employee means, with respect to a calendar month, an employee who is
employed an average of at least 30 hours of service per week with an
employer. For rules on the determination of whether an employee is a
full-time employee, including a description of the look-back
measurement method and the monthly measurement method, see Sec.
54.4980H-3. The look-back measurement method for identifying full-time
employees is available only for purposes of determining and computing
liability under section 4980H and not for the purpose of determining
status as an applicable large employer under Sec. 54.4980H-2.
(ii) Monthly equivalency. Except as otherwise provided in paragraph
(a)(21)(iii) of this section, 130 hours of service in a calendar month
is treated as the monthly equivalent of at least 30 hours of service
per week, and this 130 hours of service monthly equivalency applies for
both the look-back measurement method and the monthly measurement
method for determining full-time employee status.
(iii) Determination of full-time employee status using weekly rule
under

[[Page 8580]]

the monthly measurement method. Under the optional weekly rule set
forth in Sec. 54.4980H-3(c)(3), full-time employee status for certain
calendar months is based on hours of service over four weekly periods
and for certain other calendar months is based on hours of service over
five weekly periods. With respect to a month with four weekly periods,
an employee with at least 120 hours of service is a full-time employee,
and with respect to a month with five weekly periods, an employee with
at least 150 hours of service is a full-time employee. For purposes of
this rule, the seven continuous calendar days that constitute a week
(for example Sunday through Saturday) must be consistently applied for
all calendar months of the calendar year.
(22) Full-time equivalent employee (FTE). The term full-time
equivalent employee, or FTE, means a combination of employees, each of
whom individually is not treated as a full-time employee because he or
she is not employed on average at least 30 hours of service per week
with an employer, who, in combination, are counted as the equivalent of
a full-time employee solely for purposes of determining whether the
employer is an applicable large employer. For rules on the method for
determining the number of an employer's full-time equivalent employees,
or FTEs, see Sec. 54.4980H-2(c).
(23) Government entity. The term government entity means the
government of the United States, any State or political subdivision
thereof, any Indian tribal government (as defined in section
7701(a)(40)) or subdivision of an Indian tribal government (determined
in accordance with section 7871(d)), or any agency or instrumentality
of any of the foregoing.
(24) Hour of service--(i) In general. The term hour of service
means each hour for which an employee is paid, or entitled to payment,
for the performance of duties for the employer; and each hour for which
an employee is paid, or entitled to payment by the employer for 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 (as defined in 29 CFR 2530.200b-
2(a)). For the rules for determining an employee's hours of service,
see Sec. 54.4980H-3.
(ii) Excluded hours--(A) Bona fide volunteers. The term hour of
service does not include any hour for services performed as a bona fide
volunteer.
(B) Work-study program. The term hour of service does not include
any hour for services to the extent those services are performed as
part of a Federal Work-Study Program as defined under 34 CFR 675 or a
substantially similar program of a State or political subdivision
thereof.
(C) Services outside the United States. The term hour of service
does not include any hour for services to the extent the compensation
for those services constitutes income from sources without the United
States (within the meaning of sections 861 through 863 and the
regulations thereunder).
(iii) Service for other applicable large employer members. In
determining hours of service and status as a full-time employee for all
purposes under section 4980H, an hour of service for one applicable
large employer member is treated as an hour of service for all other
applicable large employer members for all periods during which the
applicable large employer members are part of the same group of
employers forming an applicable large employer.
(25) Initial measurement period. The term initial measurement
period means a period selected by an applicable large employer member
of at least three consecutive months but not more than 12 consecutive
months used by the applicable large employer as part of the look-back
measurement method in Sec. 54.4980H-3(d).
(26) Limited non-assessment period for certain employees.
References to the limited non-assessment period for certain employees
refers to the limited period during which an employer will not be
subject to an assessable payment under section 4980H(a), and in certain
cases section 4980H(b), with respect to an employee as set forth in--
(i) Section 54.4980H-2(b)(5) (regarding the transition rule for an
employer's first year as an applicable large employer),
(ii) Section 54.4980H-3(c)(2) (regarding the application of section
4980H for the three full calendar month period beginning with the first
full calendar month in which an employee is first otherwise eligible
for an offer of coverage under the monthly measurement method),
(iii) Section 54.4980H-3(d)(2)(iii) (regarding the application of
section 4980H during the initial three full calendar months of
employment for an employee reasonably expected to be a full-time
employee at the start date, under the look-back measurement method),
(iv) Section 54.4980H-3(d)(3)(iii) (regarding the application of
section 4980H during the initial measurement period to a new variable
hour employee, seasonal employee or part-time employee determined to be
employed on average at least 30 hours of service per week, under the
look-back measurement method),
(v) Section 54.4980H-3(d)(3)(vii) (regarding the application of
section 4980H following an employee's change in employment status to a
full-time employee during the initial measurement period, under the
look-back measurement method), and
(vi) Section 54.4980H-4(c) and Sec. 54.4980H-5(c) (regarding the
application of section 4980H to the calendar month in which an
employee's start date occurs on a day other than the first day of the
calendar month).
(27) Minimum essential coverage. The term minimum essential
coverage, or MEC, has the same meaning as provided in section 5000A(f)
and any regulations or other guidance thereunder.
(28) Minimum value. The term minimum value has the same meaning as
provided in section 36B(c)(2)(C)(ii) and any regulations or other
guidance thereunder.
(29) Month. The term month means--
(i) A calendar month as defined in paragraph (a)(8) of this
section, or
(ii) The period that begins on any date following the first day of
a calendar month and that ends on the immediately preceding date in the
immediately following calendar month (for example, from February 2 to
March 1 or from December 15 to January 14).
(30) New employee. Under the look-back measurement method, the term
new employee means an employee who has been employed by an applicable
large employer for less than one complete standard measurement period;
for treatment of the employee as a new employee or continuing employee
under the look-back measurement method following a period for which no
hours of service are earned, see the rehire and continuing employee
rules at Sec. 54.4980H-3(d)(6). Under the monthly measurement method,
the term new employee means an employee who either has not previously
been employed by the applicable large employer or has previously been
employed by the applicable large employer but is treated as a new
employee under the rehire and continuing employee rules at Sec.
54.4980H-3(c)(4).
(31) Ongoing employee. The term ongoing employee means an employee
who has been employed by an applicable large employer member for at
least one complete standard measurement period. For the treatment of an
ongoing employee as a new employee or continuing employee following a
period for which no hours

[[Page 8581]]

of service are earned, see the rehire and continuing employee rules at
Sec. 54.4980H-3(d)(6).
(32) Part-time employee. The term part-time employee means a new
employee who the applicable large employer member reasonably expects to
be employed on average less than 30 hours of service per week during
the initial measurement period, based on the facts and circumstances at
the employee's start date. Whether an employer's determination that a
new employee is a part-time employee is reasonable is based on the
facts and circumstances at the employee's start date. Factors to
consider in determining a new employee's full-time employee status are
set forth in Sec. 54.4980H-3(d)(2)(ii).
(33) Period of employment. The term period of employment means the
period of time beginning on the first date for which an employee is
credited with an hour of service for an applicable large employer
(including any member of that applicable large employer) and ending on
the last date on which the employee is credited with an hour of service
for that applicable large employer, both dates inclusive. An employee
may have one or more periods of employment with the same applicable
large employer.
(34) Person. The term person has the same meaning as provided in
section 7701(a)(1) and the regulations thereunder.
(35) Plan year. A plan year must be twelve consecutive months,
unless a short plan year of less than twelve consecutive months is
permitted for a valid business purpose. A plan year is permitted to
begin on any day of a year and must end on the preceding day in the
immediately following year (for example, a plan year that begins on
October 15, 2015, must end on October 14, 2016). A calendar year plan
year is a period of twelve consecutive months beginning on January 1
and ending on December 31 of the same calendar year. Once established,
a plan year is effective for the first plan year and for all subsequent
plan years, unless changed, provided that such change will only be
recognized if made for a valid business purpose. A change in the plan
year is not permitted if a principal purpose of the change in plan year
is to circumvent the rules of section 4980H or these regulations.
(36) Predecessor employer. [Reserved]
(37) Qualified health plan. The term qualified health plan means a
qualified health plan as defined in Affordable Care Act section 1301(a)
(42 U.S.C. 18021(a)), but does not include a catastrophic plan
described in Affordable Care Act section 1302(e) (42 U.S.C. 18022(e)).
(38) Seasonal employee. The term seasonal employee means an
employee who is hired into a position for which the customary annual
employment is six months or less.
(39) Seasonal worker. The term seasonal worker means a worker who
performs labor or services on a seasonal basis as defined by the
Secretary of Labor, including (but not limited to) workers covered by
29 CFR 500.20(s)(1), and retail workers employed exclusively during
holiday seasons. Employers may apply a reasonable, good faith
interpretation of the term seasonal worker and a reasonable good faith
interpretation of 29 CFR 500.20(s)(1) (including as applied by analogy
to workers and employment positions not otherwise covered under 29 CFR
500.20(s)(1)).
(40) Section 1411 Certification. The term Section 1411
Certification means the certification received as part of the process
established by the Secretary of Health and Human Services under which
an employee is certified to the employer under section 1411 of the
Affordable Care Act as having enrolled for a calendar month in a
qualified health plan with respect to which an applicable premium tax
credit or cost-sharing reduction is allowed or paid with respect to the
employee.
(41) Section 4980H(a) applicable payment amount. The term section
4980H(a) applicable payment amount means, with respect to any calendar
month, 1/12 of $2,000, adjusted for inflation in accordance with
section 4980H(c)(5) and any applicable guidance thereunder.
(42) Section 4980H(b) applicable payment amount. The term section
4980H(b) applicable payment amount means, with respect to any calendar
month, 1/12 of $3,000, adjusted for inflation in accordance with
section 4980H(c)(5) and any applicable guidance thereunder.
(43) Self-only coverage. The term self-only coverage means health
insurance coverage provided to only one individual, generally the
employee.
(44) Special unpaid leave. The term special unpaid leave means--
(i) Unpaid leave that is subject to the Family and Medical Leave
Act of 1993 (FMLA), Public Law 103-3, 29 U.S.C. 2601 et seq.;
(ii) Unpaid leave that is subject to the Uniformed Services
Employment and Reemployment Rights Act of 1994 (USERRA), Public Law
103-353, 38 U.S.C. 4301 et seq.; or
(iii) Unpaid leave on account of jury duty.
(45) Stability period. The term stability period means a period
selected by an applicable large employer member that immediately
follows, and is associated with, a standard measurement period or an
initial measurement period (and, if elected by the employer, the
administrative period associated with that standard measurement period
or initial measurement period), and is used by the applicable large
employer member as part of the look-back measurement method in Sec.
54.4980H-3(d).
(46) Standard measurement period. The term standard measurement
period means a period of at least three but not more than 12
consecutive months that is used by an applicable large employer member
as part of the look-back measurement method in Sec. 54.4980H-3(d). See
Sec. 54.4980H-3(d)(1)(ii) for rules on the use of payroll periods that
include the beginning and end dates of the measurement period.
(47) Start date. The term start date means the first date on which
an employee is required to be credited with an hour of service with an
employer. For rules relating to when, following a period for which an
employee does not earn an hour of service, that employee may be treated
as a new employee with a new start date rather than a continuing
employee, see the rehire and continuing employee rules at Sec.
54.4980H-3(c)(4) and Sec. 54.4980H-3(d)(6).
(48) United States. The term United States means United States as
defined in section 7701(a)(9).
(49) Variable hour employee-(i) In general. The term variable hour
employee means an employee if, based on the facts and circumstances at
the employee's start date, the applicable large employer member cannot
determine whether the employee is reasonably expected to be employed on
average at least 30 hours of service per week during the initial
measurement period because the employee's hours are variable or
otherwise uncertain.
(ii) Factors--(A) In general. Factors to consider in determining
whether it can be determined that the employee is reasonably expected
to be (or reasonably expected not to be) employed on average at least
30 hours of service per week during the initial measurement period
include, but are not limited to, whether the employee is replacing an
employee who was a full-time employee or a variable hour employee, the
extent to which the hours of service of employees in the same or
comparable positions have actually varied above and below an average of
30 hours of service per week during recent measurement periods, and
whether the

[[Page 8582]]

job was advertised, or otherwise communicated to the new employee or
otherwise documented (for example, through a contract or job
description) as requiring hours of service that would average at least
30 hours of service per week, less than 30 hours of service per week,
or may vary above and below an average of 30 hours of service per week.
These factors are only relevant for a particular new employee if the
employer has no reason to anticipate that the facts and circumstances
related to that new employee will be different. In all cases, no single
factor is determinative. For purposes of determining whether an
employee is a variable hour employee, the applicable large employer
member may not take into account the likelihood that the employee may
terminate employment with the applicable large employer (including any
member of the applicable large employer) before the end of the initial
measurement period.
(B) Additional factors for an employee hired by an employer for
temporary placement at an unrelated entity. In the case of an
individual who, under all the facts and circumstances, is the employee
of an entity (referred to solely for purposes of this paragraph (a)(49)
as a ``temporary staffing firm'') that hired such individual for
temporary placement at an unrelated entity that is not the common law
employer, additional factors to consider to determine whether the
employee is reasonably expected to be (or reasonably expected not to
be) employed by the temporary staffing firm on average at least 30
hours of service per week during the initial measurement period
include, but are not limited to, whether other employees in the same
position of employment with the temporary staffing firm, as part of
their continuing employment, retain the right to reject temporary
placements that the temporary staffing firm offers the employee;
typically have periods during which no offer of temporary placement is
made; typically are offered temporary placements for differing periods
of time; and typically are offered temporary placements that do not
extend beyond 13 weeks.
(C) Educational organizations. An employer that is an educational
organization cannot take into account the potential for, or likelihood
of, an employment break period in determining its expectation of future
hours of service.
(iii) Application only for look-back measurement method. The term
variable hour employee is used as a category of employees under the
look-back measurement method and is not relevant to the monthly
measurement method.
(50) Week. The term week means any period of seven consecutive
calendar days applied consistently by the applicable large employer
member.
(b) Effective/applicability date. This section is applicable for
periods after December 31, 2014.


Sec. 54.4980H-2 Applicable large employer and applicable large
employer member.

(a) In general. Section 4980H applies to an applicable large
employer and to all of the applicable large employer members that
comprise that applicable large employer.
(b) Determining applicable large employer status--(1) In general.
An employer's status as an applicable large employer for a calendar
year is determined by taking the sum of the total number of full-time
employees (including any seasonal workers) for each calendar month in
the preceding calendar year and the total number of FTEs (including any
seasonal workers) for each calendar month in the preceding calendar
year, and dividing by 12. The result, if not a whole number, is then
rounded to the next lowest whole number. If the result of this
calculation is less than 50, the employer is not an applicable large
employer for the current calendar year. If the result of this
calculation is 50 or more, the employer is an applicable large employer
for the current calendar year, unless the seasonal worker exception in
paragraph (b)(2) of this section applies.
(2) Seasonal worker exception. If the sum of an employer's full-
time employees and FTEs exceeds 50 for 120 days or less during the
preceding calendar year, and the employees in excess of 50 who were
employed during that period of no more than 120 days are seasonal
workers, the employer is not considered to employ more than 50 full-
time employees (including FTEs) and the employer is not an applicable
large employer for the current calendar year. In the case of an
employer that was not in existence on any business day during the
preceding calendar year, if the employer reasonably expects that the
sum of its full-time employees and FTEs for the current calendar year
will exceed 50 for 120 days or less during the calendar year, and that
the employees in excess of 50 who will be employed during that period
of no more than 120 days will be seasonal workers, the employer is not
an applicable large employer for the current calendar year. For
purposes of this paragraph (b)(2) only, four calendar months may be
treated as the equivalent of 120 days. The four calendar months and the
120 days are not required to be consecutive.
(3) Employers not in existence in preceding calendar year. An
employer not in existence throughout the preceding calendar year is an
applicable large employer for the current calendar year if the employer
is reasonably expected to employ an average of at least 50 full-time
employees (taking into account FTEs) on business days during the
current calendar year and it actually employs an average of at least 50
full-time employees (taking into account FTEs) on business days during
the calendar year. An employer is treated as not having been in
existence throughout the prior calendar year only if the employer was
not in existence on any business day in the prior calendar year. See
paragraph (b)(2) of this section for the application of the seasonal
worker exception to employers not in existence in the preceding
calendar year.
(4) Special rules for government entities, churches, and
conventions and associations of churches. [Reserved]
(5) Transition rule for an employer's first year as an applicable
large employer. With respect to an employee who was not offered
coverage by the employer at any point during the prior calendar year,
if the applicable large employer offers coverage to the employee on or
before April 1 of the first calendar year for which the employer is an
applicable large employer, the employer will not be subject to an
assessable payment under section 4980H by reason of its failure to
offer coverage to the employee for January through March of that year,
provided that this relief applies only with respect to potential
liability under section 4980H(b) (for January through March of the
first calendar year for which the employer is an applicable large
employer) if the coverage offered by April 1 provides minimum value. If
the employer does not offer coverage to the employee by April 1, the
employer may be subject to a section 4980H(a) assessable payment with
respect January through March of the first calendar year for which the
employer is an applicable large employer in addition to any later
calendar months for which coverage was not offered. If the employer
offers coverage to the employee by April 1 that does not provided
minimum value, the employer may be subject to a section 4980H(b)
assessable payment with respect to the employee for January through
March of the first calendar year for which the employer is an
applicable large employer in addition to any later calendar months for
which coverage does not provide minimum value or is not affordable.
This rule applies only

[[Page 8583]]

during the first year that an employer is an applicable large employer
(and would not apply if, for example, the employer falls below the 50
full-time employee (plus FTE) threshold for a subsequent calendar year
and then increases employment and becomes an applicable large employer
again).
(c) Full-time equivalent employees (FTEs)--(1) In general. In
determining whether an employer is an applicable large employer, the
number of FTEs it employed during the preceding calendar year is taken
into account. All employees (including seasonal workers) who were not
employed on average at least 30 hours of service per week for a
calendar month in the preceding calendar year are included in
calculating the employer's FTEs for that calendar month.
(2) Calculating the number of FTEs. The number of FTEs for each
calendar month in the preceding calendar year is determined by
calculating the aggregate number of hours of service for that calendar
month for employees who were not full-time employees (but not more than
120 hours of service for any employee) and dividing that number by 120.
In determining the number of FTEs for each calendar month, fractions
are taken into account; an employer may round the number of FTEs for
each calendar month to the nearest one hundredth.
(d) Examples. The following examples illustrate the rules of
paragraphs (a) through (c) of this section. In these examples, hours of
service are computed following the rules set forth in Sec. 54.4980H-3,
and references to years refer to calendar years unless otherwise
specified. The employers in Example 2 through Example 6 are each the
sole applicable large employer member of the applicable large employer,
as determined under section 414(b), (c), (m), and (o).

Example 1 (Applicable large employer/controlled group). (i)
Facts. For all of 2015 and 2016, Corporation Z owns 100 percent of
all classes of stock of Corporation Y and Corporation X. Corporation
Z has no employees at any time in 2015. For every calendar month in
2015, Corporation Y has 40 full-time employees and Corporation X has
60 full-time employees. Corporations Z, Y, and X are a controlled
group of corporations under section 414(b).
(ii) Conclusion. Because Corporations Z, Y and X have a combined
total of 100 full-time employees during 2015, Corporations Z, Y, and
X together are an applicable large employer for 2016. Each of
Corporations Z, Y and X is an applicable large employer member for
2016.
Example 2 (Applicable large employer with FTEs). (i) Facts.
During each calendar month of 2015, Employer W has 20 full-time
employees each of whom averages 35 hours of service per week, 40
employees each of whom averages 90 hours of service per calendar
month, and no seasonal workers.
(ii) Conclusion. Each of the 20 employees who average 35 hours
of service per week count as one full-time employee for each
calendar month. To determine the number of FTEs for each calendar
month, the total hours of service of the employees who are not full-
time employees (but not more than 120 hours of service per employee)
are aggregated and divided by 120. The result is that the employer
has 30 FTEs for each calendar month (40 x 90 = 3,600, and 3,600 /
120 = 30). Because Employer W has 50 full-time employees (the sum of
20 full-time employees and 30 FTEs) during each calendar month in
2015, and because the seasonal worker exception is not applicable,
Employer W is an applicable large employer for 2016.
Example 3 (Seasonal worker exception). (i) Facts. During 2015,
Employer V has 40 full-time employees for the entire calendar year,
none of whom are seasonal workers. In addition, Employer V also has
80 seasonal workers who are full-time employees and who work for
Employer V from September through December 2015. Employer V has no
FTEs during 2015.
(ii) Conclusion. Before applying the seasonal worker exception,
Employer V has 40 full-time employees during each of eight calendar
months of 2015, and 120 full-time employees during each of four
calendar months of 2015, resulting in an average of 66.67 full-time
employees for the year. However, Employer V's workforce exceeded 50
full-time employees (counting seasonal workers) for no more than
four calendar months (treated as the equivalent of 120 days) in
calendar year 2015, and the number of full-time employees would be
less than 50 during those months if seasonal workers were
disregarded. Accordingly, because after application of the seasonal
worker exception described in paragraph (b)(2) of this section
Employer V is not considered to employ more than 50 full-time
employees, Employer V is not an applicable large employer for 2016.
Example 4 (Seasonal workers and other FTEs). (i) Facts. Same
facts as Example 3, except that Employer V has 20 FTEs in August,
some of whom are seasonal workers.
(ii) Conclusion. The seasonal worker exception described in
paragraph (b)(2) of this section does not apply if the number of an
employer's full-time employees (including seasonal workers) and FTEs
exceeds 50 for more than 120 days during the calendar year. Because
Employer V has at least 50 full-time employees for a period greater
than four calendar months (treated as the equivalent of 120 days)
during 2015, the exception described in paragraph (b)(2) of this
section does not apply. Employer V averaged 68 full-time employees
in 2015: [(40 x 7) + (60 x 1) + (120 x 4)] / 12 = 68.33, and
accordingly, Employer V is an applicable large employer for calendar
year 2016.
Example 5 (New employer). (i) Facts. Corporation S is
incorporated on January 1, 2016. On January 1, 2016, Corporation S
has three employees. However, prior to incorporation, Corporation
S's owners purchased a factory intended to open within two calendar
months of incorporation and to employ approximately 100 full-time
employees. By March 15, 2016, Corporation S has more than 75 full-
time employees.
(ii) Conclusion. Because Corporation S can reasonably be
expected to employ on average at least 50 full-time employees on
business days during 2016, and actually employs an average of at
least 50 full-time employees on business days during 2016,
Corporation S is an applicable large employer (and an applicable
large employer member) for calendar year 2016.
Example 6 (First year as applicable large employer). (i) Facts.
As of January 1, 2015, Employer R has been in existence for several
years and did not average 50 or more full-time employees (including
FTEs) on business days during 2014. Employer R averages 50 or more
full-time employees on business days during 2015, so that for 2016
Employer R is an applicable large employer, for the first time. For
all the calendar months of 2016, Employer R has the same 60 full-
time employees. Employer R offered 20 of those full-time employees
healthcare coverage during 2015, and offered those same employees
coverage providing minimum value for 2016. With respect to the 40
full-time employees who were not offered coverage during 2015,
Employer R offers coverage providing minimum value for calendar
months April 2016 through December 2016.
(ii) Conclusion. For the 40 full-time employees not offered
coverage during 2015 and offered coverage providing minimum value
for the calendar months April 2016 through December 2016, the
failure to offer coverage during the calendar months January 2016
through March 2016 will not result in an assessable payment under
section 4980H with respect to those employees for those three
calendar months. For those same 40 full-time employees, the offer of
coverage during the calendar months April 2016 through December 2016
may result in an assessable payment under section 4980H(b) with
respect to any employee for any calendar month for which the offer
is not affordable and for which Employer R has received a Section
1411 Certification. For the other 20 full-time employees, the offer
of coverage during 2016 may result in an assessable payment under
section 4980H(b) for any calendar month if the offer is not
affordable and Employer R has received a Section 1411 Certification
with respect to the employee who received the offer of coverage. For
all calendar months of 2016, Employer R will not be subject to an
assessable payment under section 4980H(a).

(e) Additional guidance. With respect to an employer's status as an
applicable large employer, the Commissioner may prescribe additional
guidance of general applicability, published in the Internal Revenue
Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter).
(f) Effective/applicability date. This section is applicable for
periods after December 31, 2014.

[[Page 8584]]

Sec. 54.4980H-3 Determining full-time employees.

(a) In general. This section sets forth the rules for determining
hours of service and status as a full-time employee for purposes of
section 4980H. These regulations provide two methods for determining
full-time employee status--the monthly measurement method, set forth in
paragraph (c) of this section, and the look-back measurement method,
set forth in paragraph (d) of this section. The monthly measurement
method applies for purposes of determining and calculating liability
under section 4980H(a) and (b), as well as, with respect to paragraph
(c)(1) of this section, determination of applicable large employer
status (except with respect to the weekly rule under the monthly
measurement method). The look-back measurement method applies solely
for purposes of determining and calculating liability under section
4980H(a) and (b) (and not for purposes of determining status as an
applicable large employer). See Sec. 54.4980H-1(a)(21) for the
definition of full-time employee. The rules set forth in this section
prescribe the minimum standards for determining status as a full-time
employee for purposes of section 4980H; treatment of additional
employees as full-time employees for other purposes does not affect
section 4980H liability if those employees are not full-time employees
under the look-back measurement method or the monthly measurement
method.
(b) Hours of service--(1) In general. The following rules on the
calculation of hours of service apply for purposes of applying both the
look-back measurement method and the monthly measurement method.
(2) Hourly employees calculation. Under the look-back measurement
method and the monthly measurement method, for employees paid on an
hourly basis, an employer must calculate actual hours of service from
records of hours worked and hours for which payment is made or due.
(3) Non-hourly employees calculation--(i) In general. Except as
otherwise provided, under the look-back measurement method and the
monthly measurement method, for employees paid on a non-hourly basis,
an employer must calculate hours of service by using one of the
following methods:
(A) Using actual hours of service from records of hours worked and
hours for which payment is made or due;
(B) Using a days-worked equivalency whereby the employee is
credited with eight hours of service for each day for which the
employee would be required to be credited with at least one hour of
service in accordance with paragraph (b)(2) of this section; or
(C) Using a weeks-worked equivalency whereby the employee is
credited with 40 hours of service for each week for which the employee
would be required to be credited with at least one hour of service in
accordance with paragraph (b)(2) of this section.
(ii) Change in method. An employer must use one of the three
methods in paragraph (b)(3)(i) of this section for calculating the
hours of service for non-hourly employees. An employer is not required
to use the same method for all non-hourly employees, and may apply
different methods for different categories of non-hourly employees,
provided the categories are reasonable and consistently applied.
Similarly, an applicable large employer member is not required to apply
the same methods as other applicable large employer members of the same
applicable large employer for the same or different categories of non-
hourly employees, provided that in each case the categories are
reasonable and consistently applied by the applicable large employer
member. An employer may change the method of calculating the hours of
service of non-hourly employees (or of one or more categories of non-
hourly employees) for each calendar year.
(iii) Prohibited use of equivalencies. The number of hours of
service calculated using the days-worked or weeks-worked equivalency
must reflect generally the hours actually worked and the hours for
which payment is made or due. An employer is not permitted to use the
days-worked equivalency or the weeks-worked equivalency if the result
is to substantially understate an employee's hours of service in a
manner that would cause that employee not to be treated as a full-time
employee, or if the result is to understate the hours of service of a
substantial number of employees (even if no particular employee's hours
of service are understated substantially and even if the understatement
would not cause the employee to not be treated as a full-time
employee). For example, as to the former, an employer may not use a
days-worked equivalency in the case of an employee who generally works
three 10-hour days per week, because the equivalency would
substantially understate the employee's hours of service as 24 hours of
service per week, which would result in the employee being treated as
not a full-time employee.
(c) Monthly measurement method--(1) In general. Under the monthly
measurement method, an applicable large employer member determines each
employee's status as a full-time employee by counting the employee's
hours of service for each calendar month. See Sec. 54.4980H-1(a)(21)
for the definition of full-time employee. This paragraph (c)(1) (except
with respect to the weekly rule) applies for purposes of the
determination of status as an applicable large employer; paragraphs
(c)(2) through (4) of this section do not apply for purposes of the
determination of status as an applicable large employer. For rules
regarding the use of the look-back measurement method and the monthly
measurement method for different categories of employees, see paragraph
(e) of this section.
(2) Employee first otherwise eligible for an offer of coverage. The
rule in this paragraph (c)(2) applies with respect to an employee who,
in a calendar month, first becomes otherwise eligible to be offered
coverage under a group health plan of an employer using the monthly
measurement method with respect to that employee. For purposes of this
paragraph (c)(2), an employee is otherwise eligible to be offered
coverage under a group health plan for a calendar month if, pursuant to
the terms of the plan as in effect for that calendar month, the
employee meets all conditions to be offered coverage under the plan for
that calendar month, other than the completion of a waiting period,
within the meaning of Sec. 54.9801-2, and an employee is first
otherwise eligible if the employee has not previously been eligible or
otherwise eligible for an offer of coverage under a group health plan
of the employer during the employee's period of employment. An employer
is not subject to an assessable payment under section 4980H(a) with
respect to an employee for each calendar month during the period of
three full calendar months beginning with the first full calendar month
in which the employee is otherwise eligible for an offer of coverage
under a group health plan of the employer, provided that the employee
is offered coverage no later than the first day of the first calendar
month immediately following the three-month period if the employee is
still employed on that day. If the coverage for which the employee is
otherwise eligible during the three-month period, and which the
employee actually is offered on the day following that three-month
period if still employed, provides minimum value, the employer also
will not be subject to an assessable payment under section 4980H(b)
with respect to that employee for the three-month period. This rule
cannot apply more

[[Page 8585]]

than once per period of employment of an employee. If an employee
terminates employment and returns under circumstances that would
constitute a rehire as set forth in paragraph (c)(4) of this section,
the rule in this paragraph (c)(2) may apply again.
(3) Use of weekly periods. With respect to a category of employees
for whom an employer uses the monthly measurement method, an employer
may determine full-time employee status for a calendar month based on
hours of service over a period that:
(i) Begins on the first day of the week that includes the first day
of the calendar month, provided that the period over which hours of
service are measured does not include the week in which falls the last
day of the calendar month (unless that week ends with the last day of
the calendar month, in which case it is included); or
(ii) begins on the first day of the week immediately subsequent to
the week that includes the first day of the calendar month (unless the
week begins on the first day of the calendar month, in which case it is
included), provided the period over which hours of service are measured
includes the week in which falls the last day of the calendar month.
(4) Employees rehired after termination of employment or resuming
service after other absence--(i) Treatment as a new employee after a
period of absence for employees of employers other than educational
organizations. Except as provided in paragraph (c)(4)(ii) of this
section (related to rules for employers that are educational
organizations), an employee who resumes providing services to (or is
otherwise credited with an hour of service for) an applicable large
employer after a period during which the individual was not credited
with any hours of service may be treated as having terminated
employment and having been rehired, and therefore may be treated as a
new employee upon the resumption of services only if the employee did
not have an hour of service for the applicable large employer for a
period of at least 13 consecutive weeks immediately preceding the
resumption of services. The rule set forth in this paragraph (c)(4)(i)
applies solely for the purpose of determining whether the employee,
upon the resumption of services, is treated as a new employee or as a
continuing employee, and does not determine whether the employee is
treated as a continuing full-time employee (for example, an employee on
leave) or a terminated employee for some or all of the period during
which no hours of service are credited.
(ii) Treatment as a new employee after a period of absence for
employees of educational organizations. With respect to an employer
that is an educational organization, an employee who resumes providing
services to (or is otherwise credited with an hour of service for) an
applicable large employer after a period during which the individual
was not credited with any hours of service may be treated as having
terminated employment and having been rehired, and therefore may be
treated as a new employee upon the resumption of services, only if the
employee did not have an hour of service for the applicable large
employer for a period of at least 26 consecutive weeks immediately
preceding the resumption of services. The rule set forth in this
paragraph (c)(4)(ii) applies solely for the purpose of determining
whether the employee, upon the resumption of services, is treated as a
new employee or as a continuing employee, and does not determine
whether the employee is treated as a continuing full-time employee (for
example, an employee on leave) or a terminated employee for some or all
of the period during which no hours of service are credited.
(iii) Averaging method for special unpaid leave and employment
break periods. The averaging method for periods of special unpaid leave
and employment break periods does not apply under the monthly
measurement method, regardless of whether the employer is (or is not)
an educational organization.
(iv) Treatment of continuing employee. The rule set forth in
paragraph (c)(2) of this section applies to an employee treated as a
continuing employee in the same way that it applies to an employee who
has not experienced a period with no hours of service. A continuing
employee treated as a full-time employee is treated as offered coverage
upon resumption of services if the employee is offered coverage as of
the first day that employee is credited with an hour of service, or, if
later, as soon as administratively practicable. For this purpose,
offering coverage by no later than the first day of the calendar month
following resumption of services is deemed to be as soon as
administratively practicable.
(v) Rule of parity. For purposes of determining the period after
which an employee may be treated as having terminated employment and
having been rehired, an applicable large employer may choose a period,
measured in weeks, of at least four consecutive weeks during which the
employee was not credited with any hours of service that exceeds the
number of weeks of that employee's period of employment with the
applicable large employer immediately preceding the period that is
shorter than 13 weeks (for an employee of an educational organization
employer, a period that is shorter than 26 weeks).
(vi) International transfers. An employer may treat an employee as
having terminated employment if the employee transfers to a position at
the same applicable large employer (including a different applicable
large employer member that is part of the same applicable large
employer) if the position is anticipated to continue indefinitely or
for at least 12 months and if substantially all of the compensation
will constitute income from sources without the United States (within
the meaning of sections 861 through 863 and the regulations
thereunder). With respect to an employee transferring from a position
that was anticipated to continue indefinitely or for at least 12 months
and in which substantially all of the compensation for the hours of
service constitutes income from sources without the United States
(within the meaning of sections 861 through 863 and the regulations
thereunder) to a position at the same applicable large employer
(including a different applicable large employer member that is part of
the same applicable large employer) with respect to which substantially
all of the compensation will constitute U.S. source income, the
employer may treat that employee as a new hire to the extent consistent
with the rules related to rehired employees as set forth in paragraph
(c)(4) of this section.
(5) Examples. The following examples illustrate the rules of
paragraphs (c)(1) through (4) of this section. In each example, the
employer is an applicable large employer with 200 full-time employees
(including FTEs) that uses the monthly measurement method to identify
full-time employees and offers coverage only to employees who are full-
time employees (and their dependents).

Example 1 (Monthly measurement method--employee first otherwise
eligible for an offer of coverage). (i) Facts. Employer Z uses the
monthly measurement method. Employer Z hires Employee A on January
1, 2016. For each calendar month in 2016, Employee A averages 20
hours of service per week and is not eligible (or otherwise
eligible) for an offer of coverage under the group health plan of
Employer Z. Effective

[[Page 8586]]

January 1, 2017, Employee A is promoted to a position that is
eligible for an offer of coverage under a group health plan of
Employer Z, following completion of a 90-day waiting period. For
January 2017 through March 2017, Employee A meets all of the
conditions for eligibility under the group health plan, other than
completion of the waiting period. The coverage that would have been
offered to Employee A under the terms of the plan, but for the
waiting period, during those three months would have provided
minimum value. Effective April 1, 2017, Employer Z offers Employee A
coverage that provides minimum value. Employee A averages 40 hours
of service per week for each calendar month in 2017.
(ii) Conclusion. Because Employer Z offers minimum value
coverage to Employee A no later than the first day following the
period of three full calendar months beginning with the first full
calendar month in which Employee A is otherwise eligible for an
offer of coverage under a group health plan of Employer Z, Employer
Z is not subject to an assessable payment for January 2017 through
March 2017 under section 4980H by reason of its failure to offer
coverage to Employee A during those months. For calendar months
after March 2017, an offer of minimum value coverage may result in
an assessable payment under section 4980H(b) with respect to
Employee A for any month for which the offer is not affordable and
for which Employer Z has received a Section 1411 Certification.
Employer Z is not subject to an assessable payment under section
4980H by reason of its failure to offer coverage to Employee A
during each month of 2016 because for each month of 2016, Employee A
was not a full-time employee.
Example 2 (Rehire rules under monthly measurement method for
employers that are not educational organizations). (i) Facts. Same
as Example 1, except that Employee A has zero hours of service
during a nine week period of unpaid leave (that constitutes special
unpaid leave) beginning on June 25, 2017, and ending on August 26,
2017. As a result of the nine week period during which Employee A
has zero hours of service, Employee A averages less than 30 hours of
service per week for July 2017 and August 2017. Employee A averages
more than 30 hours of service per week for each month between and
including September 2017 through December 2017. Employer Z does not
use the rule of parity, set forth in paragraph (c)(4)(v) of this
section, and Employer Z is not an educational organization.
(ii) Conclusion. Because Employee A resumes providing services
for Employer Z after a period during which the employee was not
credited with any hours of service of less than 13 consecutive
weeks, Employer Z may not treat Employee A as having terminated
employment and having been rehired. Therefore, Employer Z may not
treat Employee A as a new employee upon the resumption of services,
and, accordingly, Employer Z may not again apply the rule set forth
in paragraph (c)(2) of this section. Although the nine consecutive
weeks of zero hours of service constitute special unpaid leave, the
averaging method for periods of special unpaid leave does not apply
under the monthly measurement method. Therefore, Employer Z may
treat Employee A as a non-full-time employee for July 2017 and
August 2017.
Example 3 (Use of weekly rule). (i) Facts. Employer Y uses the
monthly measurement method in combination with the weekly rule for
purposes of determining whether an employee is a full-time employee
for a particular calendar month. For purposes of applying the weekly
rule, Employer Y uses the period of Sunday through Saturday as a
week and includes the week that includes the first day of a calendar
month and excludes the week that includes the last day of a calendar
month (except in any case in which the last day of the calendar
month occurs on a Saturday). Employer Y measures hours of service
for the five weeks from Sunday, December 27, 2015, through Saturday,
January 30, 2016, to determine an employee's full-time employee
status for January 2016, for the four weeks from Sunday, January 31,
2016, through Saturday, February 27, 2016, to determine an
employee's status for February 2016, and the four weeks from Sunday,
February 28, 2016, through Saturday, March 26, 2016, to determine an
employee's status for March 2016. For January 2016, Employer Y
treats an employee as a full-time employee if the employee has at
least 150 hours of service (30 hours per week x 5 weeks). For
February 2016 and March 2016, Employer Y treats an employee as a
full-time employee if the employee has at least 120 hours of service
(30 hours per week x 4 weeks).
(ii) Conclusion. Employer Y has correctly applied the weekly
rule as part of the monthly measurement method for determining each
employee's status as a full-time employee for the months January,
February, and March 2016.

(d) Look-back measurement method--(1) Ongoing employees--(i) In
general. Under the look-back measurement method for ongoing employees,
an applicable large employer determines each ongoing employee's full-
time employee status by looking back at the standard measurement
period. The applicable large employer member determines the months in
which the standard measurement period starts and ends, provided that
the determination must be made on a uniform and consistent basis for
all employees in the same category (see paragraph (d)(1)(v) of this
section for a list of permissible categories). For example, if an
applicable large employer member chooses a standard measurement period
of 12 months, the applicable large employer member could choose to make
it the calendar year, a non-calendar plan year, or a different 12-month
period, such as one that ends shortly before the start of the plan's
annual open enrollment period. If the applicable large employer member
determines that an employee was employed on average at least 30 hours
of service per week during the standard measurement period, then the
applicable large employer member must treat the employee as a full-time
employee during a subsequent stability period, regardless of the
employee's number of hours of service during the stability period, so
long as he or she remains an employee.
(ii) Use of payroll periods. For payroll periods that are one week,
two weeks, or semi-monthly in duration, an employer is permitted to
treat as a measurement period a period that ends on the last day of the
payroll period preceding the payroll period that includes the date that
would otherwise be the last day of the measurement period, provided
that the measurement period begins on the first day of the payroll
period that includes the date that would otherwise be the first day of
the measurement period. An employer may also treat as a measurement
period a period that begins on the first day of the payroll period that
follows the payroll period that includes the date that would otherwise
be the first day of the measurement period, provided that the
measurement period ends on the last day of the payroll period that
includes the date that would otherwise be the last day of the
measurement period. For example, an employer using the calendar year as
a measurement period could exclude the entire payroll period that
included January 1 (the beginning of the year) if it included the
entire payroll period that included December 31 (the end of that same
year), or, alternatively, could exclude the entire payroll period that
included December 31 of a calendar year if it included the entire
payroll period that included January 1 of that calendar year.
(iii) Employee determined to be employed an average of at least 30
hours of service per week. An employee who was employed on average at
least 30 hours of service per week during the standard measurement
period must be treated as a full-time employee for a stability period
that begins immediately after the standard measurement period and any
applicable administrative period. The stability period must be at least
six consecutive calendar months but no shorter in duration than the
standard measurement period.
(iv) Employee determined not to be employed on average at least 30
hours of service per week. If an employee was not employed an average
of at least 30 hours of service per week during the standard
measurement period, the applicable large employer member may treat the
employee as not a full-time employee during the stability period that
follows, but is not longer than, the

[[Page 8587]]

standard measurement period. The stability period must begin
immediately after the end of the measurement period and any applicable
administrative period.
(v) Permissible employee categories. Different applicable large
employer members of the same applicable large employer may use
measurement periods and stability periods that differ either in length
or in their starting or ending dates. In addition, subject to the rules
governing the relationship between the length of the measurement period
and the stability period, applicable large employer members may use
measurement periods and stability periods that differ either in length
or in their starting and ending dates for--
(A) Collectively bargained employees and non-collectively bargained
employees,
(B) Each group of collectively bargained employees covered by a
separate collective bargaining agreement,
(C) Salaried employees and hourly employees, and
(D) Employees whose primary places of employment are in different
States.
(vi) Optional administrative period. An applicable large employer
member may provide for an administrative period that begins immediately
after the end of a standard measurement period and that ends
immediately before the associated stability period; however, any
administrative period between the standard measurement period and the
stability period for ongoing employees may neither reduce nor lengthen
the measurement period or the stability period. The administrative
period following the standard measurement period may last up to 90
days. To prevent this administrative period from creating a period
during which coverage is not available, the administrative period must
overlap with the prior stability period, so that, during any such
administrative period applicable to ongoing employees following a
standard measurement period, ongoing employees who are enrolled in
coverage because of their status as full-time employees based on a
prior measurement period must continue to be covered through the
administrative period. Applicable large employer members may use
administrative periods that differ in length for the categories of
employees identified in paragraph (d)(1)(v) of this section.
(vii) Change in employment status. Except as provided in paragraph
(f)(2) of this section, if an ongoing employee experiences a change in
employment status before the end of a stability period, the change will
not affect the application of the classification of the employee as a
full-time employee (or not a full-time employee) for the remaining
portion of the stability period. For example, if an ongoing employee in
a certain position of employment is not treated as a full-time employee
during a stability period because the employee's hours of service
during the prior measurement period were insufficient for full-time-
employee treatment, and the employee experiences a change in employment
status that involves an increased level of hours of service, the
treatment of the employee as a non-full-time employee during the
remainder of the stability period is unaffected. Similarly, if an
ongoing employee in a certain position of employment is treated as a
full-time employee during a stability period because the employee's
hours of service during the prior measurement period were sufficient
for full-time-employee treatment, and the employee experiences a change
in employment status that involves a lower level of hours of service,
the treatment of the employee as a full-time employee during the
remainder of the stability period is unaffected.

(viii) Example.
The following example illustrates the application of paragraph
(d)(1) of this section:
(A) Facts. Employer Z is an applicable large employer member and
computes hours of service following the rules in this paragraph (d)(1).
Employer Z chooses to use a 12-month stability period that begins
January 1 and a 12-month standard measurement period that begins
October 15. Consistent with the terms of Employer Z's group health
plan, only employees classified as full-time employees using the look-
back measurement method are eligible for coverage. Employer Z chooses
to use an administrative period between the end of the standard
measurement period (October 14) and the beginning of the stability
period (January 1) to determine which employees were employed on
average 30 hours of service per week during the measurement period,
notify them of their eligibility for the plan for the calendar year
beginning on January 1 and of the coverage available under the plan,
answer questions and collect materials from employees, and enroll those
employees who elect coverage in the plan. Previously-determined full-
time employees already enrolled in coverage continue to be offered
coverage through the administrative period. Employee A and Employee B
have been employed by Employer Z for several years, continuously from
their start date. Employee A was employed on average 30 hours of
service per week during the standard measurement period that begins
October 15, 2015, and ends October 14, 2016, and for all prior standard
measurement periods. Employee B also was employed on average 30 hours
of service per week for all prior standard measurement periods, but
averaged less than 30 hours of service per week during the standard
measurement period that begins October 15, 2015, and ends October 14,
2016.
(B) Conclusions. Because Employee A was employed for the entire
standard measurement period that begins October 15, 2015, and ends
October 14, 2016, Employee A is an ongoing employee with respect to the
stability period running from January 1, 2017, through December 31,
2017. Because Employee A was employed on average 30 hours of service
per week during that standard measurement period, Employee A is offered
coverage for the entire 2017 stability period (including the
administrative period from October 15, 2017, through December 31,
2017). Because Employee A was employed on average 30 hours of service
per week during the prior standard measurement period, Employee A is
offered coverage for the entire 2016 stability period and, if enrolled,
would continue such coverage during the administrative period from
October 15, 2016, through December 31, 2016. Because Employee B was
employed for the entire standard measurement period that begins October
15, 2015, and ends October 14, 2016, Employee B is also an ongoing
employee with respect to the stability period in 2017. Because Employee
B was not a full-time employee based on hours of service during this
standard measurement period, Employee B is not offered coverage for the
stability period in 2017 (including the administrative period from
October 15, 2017, through December 31, 2017). However, because Employee
B was employed on average 30 hours of service per week during the prior
standard measurement period, Employee B is offered coverage through the
end of the 2016 stability period and, if enrolled, would continue such
coverage during the administrative period from October 15, 2016,
through December 31, 2016. Employer Z complies with the standards of
paragraph (d)(1) of this section because the standard measurement
period is no longer than 12 months, the stability period for ongoing
employees who are full-time employees based on hours of service during
the standard measurement period is not shorter than the standard
measurement period, the

[[Page 8588]]

stability period for ongoing employees who are not full-time employees
based on hours of service during the standard measurement period is no
longer than the standard measurement period, and the administrative
period is no longer than 90 days.

(2) New non-variable hour, new non-seasonal and new non-part-time
employees--(i) In general. For a new employee who is reasonably
expected at the employee's start date to be a full-time employee (and
is not a seasonal employee), an applicable large employer member
determines such employee's status as a full-time employee based on the
employee's hours of service for each calendar month. If the employee's
hours of service for the calendar month equal or exceed an average of
30 hours of service per week, the employee is a full-time employee for
that calendar month. Once a new employee who is reasonably expected at
the employee's start date to be a full-time employee (and is not a
seasonal employee) becomes an ongoing employee, the rules set forth in
paragraph (d)(1) of this section apply for determining full-time
employee status.
(ii) Factors for determining full-time employee status. Whether an
employer's determination that a new employee (who is not a seasonal
employee) is a full-time employee or is not a full-time employee is
reasonable is based on the facts and circumstances at the employee's
start date. Factors to consider in determining whether a new employee
who is not a seasonal employee is reasonably expected at the employee's
start date to be a full-time employee include, but are not limited to,
whether the employee is replacing an employee who was (or was not) a
full-time employee, the extent to which hours of service of ongoing
employees in the same or comparable positions have varied above and
below an average of 30 hours of service per week during recent
measurement periods, and whether the job was advertised, or otherwise
communicated to the new hire or otherwise documented (for example,
through a contract or job description), as requiring hours of service
that would average 30 (or more) hours of service per week or less than
30 hours of service per week. In all cases, no single factor is
determinative. An educational organization employer cannot take into
account the potential for, or likelihood of, an employment break period
in determining its expectation of future hours of service.
(iii) Application of section 4980H to initial full three calendar
months of employment. Notwithstanding paragraph (d)(2)(i) of this
section, with respect to an employee who is reasonably expected at his
or her start date to be a full-time employee (and is not a seasonal
employee), the employer will not be subject to an assessable payment
under section 4980H(a) for any calendar month of the three-month period
beginning with the first day of the first full calendar month of
employment if, for the calendar month, the employee is otherwise
eligible for an offer of coverage under a group health plan of the
employer, provided that the employee is offered coverage by the
employer no later than the first day of the fourth full calendar month
of employment if the employee is still employed on that day. If the
offer of coverage for which the employee is otherwise eligible during
the first three full calendar months of employment, and which the
employee actually is offered by the first day of the fourth month if
still employed, provides minimum value, the employer also will not be
subject to an assessable payment under section 4980H(b) with respect to
that employee for the first three full calendar months of employment.
For purposes of this paragraph (d)(2)(iii), an employee is otherwise
eligible to be offered coverage under a group health plan for a
calendar month if, pursuant to the terms of the plan as in effect for
that calendar month, the employee meets all conditions to be offered
coverage under the plan for that calendar month, other than the
completion of a waiting period, within the meaning of Sec. 54.9801-2.
(3) New variable hour employees, new seasonal employees, and new
part-time employees--(i) In general. For new variable hour employees,
new seasonal employees, and new part-time employees, applicable large
employer members are permitted to determine whether the new employee is
a full-time employee using an initial measurement period of no less
than three consecutive months and no more than 12 consecutive months
(as selected by the applicable large employer member) that begins on
the employee's start date or on any date up to and including the first
day of the first calendar month following the employee's start date (or
on the first day of the first payroll period starting on or after the
employee's start date, if later, as set forth in paragraph (d)(3)(ii)
of this section). The applicable large employer member measures the new
employee's hours of service during the initial measurement period and
determines whether the employee was employed on average at least 30
hours of service per week during this period. The stability period for
such employees must be the same length as the stability period for
ongoing employees.
(ii) Use of payroll periods. An applicable large employer member
may apply the payroll period rule set forth in paragraph (d)(1)(ii) of
this section for purposes of determining an initial measurement period,
provided that the initial measurement period must begin on the start
date or any date during the period beginning with the employee's start
date and ending with the later of the first day of the first calendar
month following the employee's start date and the first day of the
first payroll period that starts after the employee's start date. As
set forth in paragraph (d)(1)(ii) of this section, the use of payroll
periods for purposes of determining the initial measurement period
applies for payroll periods that are one week, two weeks, or semi-
monthly in duration.
(iii) Employees determined to be employed on average at least 30
hours of service per week. If a new variable hour employee, new
seasonal employee, or new part-time employee has on average at least 30
hours of service per week during the initial measurement period, the
applicable large employer member must treat the employee as a full-time
employee during the stability period that begins after the initial
measurement period (and any associated administrative period). The
stability period must be a period of at least six consecutive calendar
months that is no shorter in duration than the initial measurement
period. The stability period must begin immediately after the end of
the measurement period and any applicable administrative period. With
respect to an employee who has on average at least 30 hours of service
per week during the initial measurement period, the employer will not
be subject to an assessable payment under section 4980H(a) for any
calendar month during the initial measurement period and any associated
administrative period if, for the calendar month, the employee is
otherwise eligible for an offer of coverage under a group health plan
of the employer, provided that the employee is offered coverage by the
employer no later than the first day of the associated stability period
if the employee is still employed on that day. If the offer of coverage
for which the employee is otherwise eligible during the initial
measurement period, and which the employee actually is offered by the
first day of the stability period if still employed, provides minimum
value, the employer also will not be subject to an assessable payment
under section 4980H(b) with respect to that employee during the

[[Page 8589]]

initial measurement period and any associated administrative period.
For purposes of this paragraph (d)(3)(iii), an employee is otherwise
eligible to be offered coverage under a group health plan for a month
if, pursuant to the terms of the plan as in effect for that calendar
month, the employee meets all conditions to be offered coverage under
the plan for that month, other than the completion of a waiting period,
within the meaning of Sec. 54.9801-2.
(iv) Employees determined not to be employed on average at least 30
hours of service per week. If a new variable hour employee, new
seasonal employee, or new part-time employee does not have on average
at least 30 hours of service per week during the initial measurement
period, the applicable large employer member may treat the employee as
not a full-time employee during the stability period that follows the
initial measurement period. Except as provided in paragraph (d)(4)(iv)
of this section, the stability period for such employees must not be
more than one month longer than the initial measurement period and must
not exceed the remainder of the first entire standard measurement
period (plus any associated administrative period) for which a variable
hour employee, seasonal employee, or part-time employee has been
employed. The stability period must begin immediately after the end of
the measurement period and any applicable administrative period.
(v) Permissible differences in measurement or stability periods for
different categories of employees. Subject to the rules governing the
relationship between the length of the measurement period and the
stability period, with respect to a new variable hour employee, new
seasonal employee, or new part-time employee, applicable large employer
members may use measurement periods and stability periods that differ
either in length or in their starting and ending dates for the
categories of employees identified in paragraph (d)(1)(v) of this
section.
(vi) Optional administrative period--(A) In general. Subject to the
limits in paragraph (d)(3)(vi)(B) of this section, an applicable large
employer member may apply an administrative period in connection with
an initial measurement period and before the start of the stability
period. This administrative period must not exceed 90 days in total.
For this purpose, the administrative period includes all periods
between the start date of a new variable hour employee, new seasonal
employee, or new part-time employee and the date the employee is first
offered coverage under the applicable large employer member's group
health plan, other than the initial measurement period. Thus, for
example, if the applicable large employer member begins the initial
measurement period on the first day of the first month following a new
employee's start date, the period between the employee's start date and
the first day of the next month must be taken into account in applying
the 90-day limit on the administrative period. Similarly, if there is a
period between the end of the initial measurement period and the date
the employee is first offered coverage under the plan, that period must
be taken into account in applying the 90-day limit on the
administrative period. Applicable large employer members may use
administrative periods that differ in length for the categories of
employees identified in paragraph (d)(1)(v) of this section.
(B) Limit on combined length of initial measurement period and
administrative period. In addition to the specific limits on the
initial measurement period (which must not exceed 12 months) and the
administrative period (which must not exceed 90 days), there is a limit
on the combined length of the initial measurement period and the
administrative period applicable to a new variable hour employee, new
seasonal employee, or new part-time employee. Specifically, the initial
measurement period and administrative period together cannot extend
beyond the last day of the first calendar month beginning on or after
the first anniversary of the employee's start date. For example, if an
applicable large employer member uses a 12-month initial measurement
period for a new variable hour employee, and begins that initial
measurement period on the first day of the first calendar month
following the employee's start date, the period between the end of the
initial measurement period and the offer of coverage to a new variable
hour employee who is a full-time employee based on hours of service
during the initial measurement period must not exceed one month.
(vii) Change in employment status during the initial measurement
period--(A) In general. If a new variable hour employee, new seasonal
employee, or new part-time employee experiences a change in employment
status before the end of the initial measurement period such that, if
the employee had begun employment in the new position or status, the
employee would have reasonably been expected to be employed on average
at least 30 hours of service per week (or, if applicable, would not
have been a seasonal employee and would have been expected to be
employed on average at least 30 hours of service per week), the rules
set forth in the remainder of this paragraph (d)(3)(vii) apply. With
respect to an employee described in this paragraph (d)(3)(vii) and
subject to the rules in the next sentence, the employer will not be
subject to an assessable payment under section 4980H for the period
before the first day of the fourth full calendar month following the
change in employment status (or, if earlier and the employee averages
30 or more hours of service per week during the initial measurement
period, the first day of the first month following the end of the
initial measurement period (including any optional administrative
period associated with the initial measurement period)). An employer
will not be subject to an assessable payment under section 4980H(a)
with respect to an employee described in this paragraph (d)(3)(vii) for
any calendar month during the period described in the prior sentence
if, for the calendar month, the employee is otherwise eligible for an
offer of coverage under a group health plan of the employer, provided
that the employee is offered coverage by the employer no later than the
end of the period described in the prior sentence if the employee is
still employed on that date; if the offer of coverage for which the
employee is otherwise eligible during the period described in the prior
sentence, and which the employee is actually offered by the first day
after the end of that period if still employed, provides minimum value,
the employer also will not be subject to an assessable payment under
section 4980H(b) with respect to that employee during that period. For
purposes of this paragraph (d)(3)(vii), an employee is otherwise
eligible to be offered coverage under a group health plan for a
calendar month if, pursuant to the terms of the plan as in effect for
that calendar month, the employee meets all conditions to be offered
coverage under the plan for that calendar month, other than the
completion of a waiting period, within the meaning of Sec. 54.9801-2.
(B) Example. The following example illustrates the provisions of
paragraph (d)(3)(vii) of this section. In the following example, the
applicable large employer member has 200 full-time employees and offers
all of its full-time employees (and their dependents) the opportunity
to enroll in minimum essential coverage under an eligible employer-
sponsored plan. The coverage is affordable within the meaning of

[[Page 8590]]

section 36B(c)(2)(C)(i) (or is treated as affordable under one of the
affordability safe harbors described in Sec. 54.4980H-5) and provides
minimum value.

Example (Change in employment status from variable hour employee
to full-time employee). (i) Facts. For new variable hour employees,
Employer Z uses a 12-month initial measurement period that begins on
the start date and applies an administrative period from the end of
the initial measurement period through the end of the first calendar
month beginning on or after the end of the initial measurement
period. For new variable hour employees, Employer Z offers coverage
no later than the first day of the fourteenth month after the start
date if an employee averages 30 or more hours of service per week
during the initial measurement period. Employer Z hires Employee A
on May 10, 2015. Employee A's initial measurement period runs from
May 10, 2015, through May 9, 2016, with the optional administrative
period ending June 30, 2016. At Employee A's May 10, 2015, start
date, Employee A is a variable hour employee. On September 15, 2015,
Employer Z promotes Employee A to a position that can reasonably be
expected to average at least 30 hours of service per week. For
October 2015 through December 2015, Employee A is otherwise eligible
for an offer of coverage that provides minimum value, and, on
January 1, 2016, Employee A is offered coverage by the employer that
provides minimum value.
(ii) Conclusion. Employer Z will not be subject to an assessable
payment under section 4980H(a) with respect to Employee A for
October 2015, November 2015, or December 2015, because for each of
those months Employee A is otherwise eligible for an offer of
coverage and because Employee A is offered coverage by January 1,
2016 (the date that is the earlier of the first day of the fourth
calendar month following the change in employment status (January 1,
2016) or the first day of the calendar month after the end of the
initial measurement period plus the optional administrative period
(July 1, 2016)). Because the coverage offered on January 1, 2016,
provides minimum value, Employer Z also will not be subject to an
assessable payment under section 4980H(b) with respect to Employee A
for October 2015, November 2015, or December 2015.

(4) Transition from new variable hour employee, new seasonal
employee, or new part-time employee to ongoing employee--(i) In
general. Once a new variable hour employee, new seasonal employee, or
new part-time employee has been employed for an entire standard
measurement period, the applicable large employer member must test the
employee for full-time employee status, beginning with that standard
measurement period, at the same time and under the same conditions as
apply to other ongoing employees. Accordingly, for example, an
applicable large employer member with a calendar year standard
measurement period that also uses a one-year initial measurement period
beginning on the employee's start date would test a new employee whose
start date is April 12 for full-time employee status first based on the
initial measurement period (April 12 of the year including the start
date through April 11 of the following year) and again based on the
calendar year standard measurement period (if the employee continues in
employment for that entire standard measurement period) beginning on
January 1 of the year after the start date.
(ii) Employee determined to be employed an average of at least 30
hours of service per week. An employee who was employed an average of
at least 30 hours of service per week during an initial measurement
period or standard measurement period must be treated as a full-time
employee for the entire associated stability period. This is the case
even if the employee was employed an average of at least 30 hours of
service per week during the initial measurement period but was not
employed an average of at least 30 hours of service per week during the
overlapping or immediately following standard measurement period. In
that case, the applicable large employer member may treat the employee
as not a full-time employee only after the end of the stability period
associated with the initial measurement period. Thereafter, the
applicable large employer member must determine the employee's status
as a full-time employee in the same manner as it determines such status
in the case of its other ongoing employees as described in paragraph
(d)(1) of this section.
(iii) Employee determined not to be employed an average of at least
30 hours of service per week. If the employee was not employed an
average of at least 30 hours of service per week during the initial
measurement period, but was employed at least 30 hours of service per
week during the overlapping or immediately following standard
measurement period, the employee must be treated as a full-time
employee for the entire stability period that corresponds to that
standard measurement period (even if that stability period begins
before the end of the stability period associated with the initial
measurement period). Thereafter, the applicable large employer member
must determine the employee's status as a full-time employee in the
same manner as it determines such status in the case of its other
ongoing employees as described in paragraph (d)(1) of this section.
(iv) Treatment during periods between stability periods. If there
is a period between the end of the stability period associated with the
initial measurement period and the beginning of the stability period
associated with the first full standard measurement period during which
an employee is employed, the treatment as a full-time employee or not a
full-time employee that applies during the stability period associated
with the initial measurement period continues to apply until the
beginning of the stability period associated with the first full
standard measurement period during which the employee is employed.
(5) Examples. The following examples illustrate the look-back
measurement methods described in paragraphs (d)(1), (d)(3) and (d)(4)
of this section. In all of the following examples, the applicable large
employer member has 200 full-time employees and offers all of its full-
time employees (and their dependents) the opportunity to enroll in
minimum essential coverage under an eligible employer-sponsored plan.
The coverage is affordable within the meaning of section
36B(c)(2)(C)(i) (or is treated as affordable coverage under one of the
affordability safe harbors described in Sec. 54.4980H-5) and provides
minimum value. In Example 1 through Example 8, the new employee is a
new variable hour employee, and the employer has chosen to use a 12-
month standard measurement period for ongoing employees starting
October 15 and a 12-month stability period associated with that
standard measurement period starting January 1. (Thus, during the
administrative period from October 15 through December 31 of each
calendar year, the employer continues to offer coverage to employees
who qualified for coverage for that entire calendar year based upon
having an average of at least 30 hours of service per week during the
prior standard measurement period.) In Example 9 and Example 10, the
new employee is a new variable hour employee, and the employer uses a
six-month standard measurement period, starting each May 1 and November
1, with six-month stability periods associated with those standard
measurement periods starting January 1 and July 1. In Example 12,
Example 13, and Example 14, the employer is in the trade or business of
providing temporary workers to numerous clients that are unrelated to
the employer and to one another; the employer is the common law
employer of the temporary workers based on all of the facts and
circumstances; the employer offers health plan coverage only to full-
time employees (including temporary workers who are full-time
employees) and their dependents; and the employer uses a 12-month
initial measurement

[[Page 8591]]

period for new variable hour employees that begins on the start date
and applies an administrative period from the end of the initial
measurement period through the end of the first calendar month
beginning after the end of the initial measurement period.

Example 1 (12-Month initial measurement period followed by 1+
partial month administrative period). (i) Facts. For new variable
hour employees, Employer Z uses a 12-month initial measurement
period that begins on the start date and applies an administrative
period from the end of the initial measurement period through the
end of the first calendar month beginning on or after the end of the
initial measurement period. Employer Z hires Employee A on May 10,
2015. Employee A's initial measurement period runs from May 10,
2015, through May 9, 2016. Employee A has an average of 30 hours of
service per week during this initial measurement period. Employer Z
offers coverage that provides minimum value to Employee A for a
stability period that runs from July 1, 2016, through June 30, 2017.
For each calendar month during the period beginning with June 2015
and ending with June 2016, Employee A is otherwise eligible for an
offer of coverage with respect to the coverage that is offered to
Employee A on July 1, 2016.
(ii) Conclusion. Employer Z uses an initial measurement period
that does not exceed 12 months; an administrative period totaling
not more than 90 days; and a combined initial measurement period and
administrative period that does not last beyond the final day of the
first calendar month beginning on or after the one-year anniversary
of Employee A's start date. Accordingly, Employer Z complies with
the standards for the initial measurement period and stability
periods for a new variable hour employee. Employer Z will not be
subject to an assessable payment under section 4980H(a) with respect
to Employee A for any calendar month from June 2015 through June
2016 because, for each month during that period, Employee A is
otherwise eligible for an offer of coverage and because coverage is
offered no later than the end of the initial measurement period plus
the associated administrative period (July 1, 2016). Employer Z will
not be subject to an assessable payment under section 4980H(b) with
respect to Employee A for any calendar month from June 2015 through
June 2016 because the coverage Employer Z offers to Employee A
provides minimum value. Employer Z will not be subject to an
assessable payment under section 4980H(a) or (b) with respect to
Employee A for May 2015 because an applicable large employer member
is not subject to an assessable payment under section 4980H with
respect to an employee for the calendar month in which falls the
employee's start date if the start date is on a date other than the
first day of the calendar month. Employer Z must test Employee A
again based on the period from October 15, 2015, through October 14,
2016 (Employer Z's first standard measurement period that begins
after Employee A's start date).
Example 2 (11-Month initial measurement period followed by 2+
partial month administrative period). (i) Facts. Same as Example 1,
except that Employer Z uses an 11-month initial measurement period
that begins on the start date and applies an administrative period
from the end of the initial measurement period until the end of the
second calendar month beginning after the end of the initial
measurement period. Employee A's initial measurement period runs
from May 10, 2015, through April 9, 2016. The administrative period
associated with Employee A's initial measurement period ends on June
30, 2016. Employee A has an average of 30 hours of service per week
during this initial measurement period.
(ii) Conclusion. Same as Example 1.
Example 3 (11-Month initial measurement period preceded by
partial month administrative period and followed by 2-month
administrative period). (i) Facts. Same as Example 1, except that
Employer Z uses an 11-month initial measurement period that begins
on the first day of the first calendar month beginning after the
start date and applies an administrative period that runs from the
end of the initial measurement period through the end of the second
calendar month beginning on or after the end of the initial
measurement period. Employee A's initial measurement period runs
from June 1, 2015, through April 30, 2016. The administrative period
associated with Employee A's initial measurement period ends on June
30, 2016. Employee A has an average of 30 hours of service per week
during this initial measurement period.
(ii) Conclusion. Same as Example 1.
Example 4 (12-Month initial measurement period preceded by
partial month administrative period and followed by 2-month
administrative period). (i) Facts. For new variable hour employees,
Employer Z uses a 12-month initial measurement period that begins on
the first day of the first month following the start date and
applies an administrative period that runs from the end of the
initial measurement period through the end of the second calendar
month beginning on or after the end of the initial measurement
period. Employer Z hires Employee A on May 10, 2015. Employee A's
initial measurement period runs from June 1, 2015, through May 31,
2016. Employee A has an average of 30 hours of service per week
during this initial measurement period. Employer Z offers coverage
to Employee A for a stability period that runs from August 1, 2016,
through July 31, 2017.
(ii) Conclusion. Employer Z does not satisfy the standards for
the look-back measurement method in paragraph (d)(3)(vi)(B) of this
section because the combination of the initial partial month delay,
the 12-month initial measurement period, and the two month
administrative period means that the coverage offered to Employee A
does not become effective until after the first day of the second
calendar month following the first anniversary of Employee A's start
date. Accordingly, Employer Z is potentially subject to an
assessable payment under section 4980H for each full calendar month
during the initial measurement period and associated administrative
period.
Example 5 (Continuous full-time employee). (i) Facts. Same as
Example 1; in addition, Employer Z tests Employee A again based on
Employee A's hours of service from October 15, 2015, through October
14, 2016 (Employer Z's first standard measurement period that begins
after Employee A's start date), determines that Employee A has an
average of 30 hours of service per week during that period, and
offers Employee A coverage for July 1, 2017, through December 31,
2017. (Employee A already has an offer of coverage for the period of
January 1, 2017, through June 30, 2017, because that period is
covered by the initial stability period following the initial
measurement period, during which Employee A was determined to be a
full-time employee.)
(ii) Conclusion. Employer Z is not subject to any payment under
section 4980H for any calendar month during 2017 with respect to
Employee A.
Example 6 (Initially full-time employee, becomes non-full-time
employee). (i) Facts. Same as Example 1; in addition, Employer Z
tests Employee A again based on Employee A's hours of service from
October 15, 2015, through October 14, 2016 (Employer Z's first
standard measurement period that begins after Employee A's start
date), and determines that Employee A has an average of 28 hours of
service per week during that period. Employer Z continues to offer
coverage to Employee A through June 30, 2017 (the end of the
stability period based on the initial measurement period during
which Employee A was determined to be a full-time employee), but
does not offer coverage to Employee A for the period of July 1,
2017, through December 31, 2017.
(ii) Conclusion. Employer Z is not subject to any payment under
section 4980H for any calendar month during 2017 with respect to
Employee A.
Example 7 (Initially non-full-time employee). (i) Facts. Same
as Example 1, except that Employee A has an average of 28 hours of
service per week during the initial measurement period (May 10,
2015, through May 9, 2016), and Employer Z does not offer coverage
to Employee A for any calendar month in 2016.
(ii) Conclusion. From Employee A's start date through the end of
2016, Employer Z is not subject to any payment under section 4980H
with respect to Employee A, because Employer Z complies with the
standards for the measurement and stability periods for a new
variable hour employee with respect to Employee A and because under
those standards, Employee A is not a full-time employee for any
month during 2016.
Example 8 (Initially non-full-time employee, becomes full-time
employee). (i) Facts. Same as Example 7; in addition, Employer Z
tests Employee A again based on Employee A's hours of service from
October 15, 2015, through October 14, 2016 (Employer Z's first
standard measurement period that begins after Employee A's start
date), determines that Employee A has an average of 30 hours of
service per week during this standard measurement period, and offers
coverage to Employee A for 2017.
(ii) Conclusion. Employer Z is not subject to any payment under
section 4980H for any calendar month during 2017 with respect to
Employee A.

[[Page 8592]]

Example 9 (Initially full-time employee). (i) Facts. For new
variable hour employees, Employer Y uses a six-month initial
measurement period that begins on the start date and applies an
administrative period that runs from the end of the initial
measurement period through the end of the first full calendar month
beginning after the end of the initial measurement period. Employer
Y hires Employee B on May 10, 2015. Employee B's initial measurement
period runs from May 10, 2015, through November 9, 2015, during
which Employee B has an average of 30 hours of service per week.
Employer Y offers coverage that provides minimum value to Employee B
for a stability period that runs from January 1, 2016, through June
30, 2016. For each calendar month during the period from June 2015
through December 2015, Employee B is otherwise eligible for an offer
of coverage with respect to the coverage that is offered to Employee
B on January 1, 2016.
(ii) Conclusion. Employer Y uses an initial measurement period
that does not exceed 12 months; an administrative period totaling
not more than 90 days; and a combined initial measurement period and
administrative period that does not extend beyond the final day of
the first calendar month beginning on or after the one-year
anniversary of Employee B's start date. Employer Y complies with the
standards for the measurement and stability periods for a new
variable hour employee with respect to Employee B. Employer Y is not
subject to an assessable payment under section 4980H(a) with respect
to Employee B for any calendar month from June 2015 through December
2015 because, for each month during that period, Employee B is
otherwise eligible for an offer of coverage and because Employee B
is offered coverage no later than the end of the initial measurement
period plus the associated administrative period (January 1, 2016).
Employer Y is not subject to an assessable payment under section
4980H(b) with respect to Employee B for any calendar month from June
2015 through December 2015 because the coverage Employer Y offers to
Employee B no later than January 1, 2016, provides minimum value.
Employer Y is not subject to an assessable payment under section
4980H(a) or (b) with respect to Employee B for May 2015 because an
applicable large employer member is not subject to an assessable
payment under section 4980H with respect to an employee for the
calendar month in which falls the employee's start date if the start
date is on a date other than the first day of the calendar month.
Employer Y must test Employee B again based on Employee B's hours of
service during the period from November 1, 2015, through April 30,
2016 (Employer Y's first standard measurement period that begins
after Employee B's start date).
Example 10 (Initially full-time employee, becomes non-full-time
employee). (i) Facts. Same as Example 9; in addition, Employer Y
tests Employee B again based on Employee B's hours of service during
the period from November 1, 2015, through April 30, 2016 (Employer
Y's first standard measurement period that begins after Employee B's
start date), during which period Employee B has an average of 28
hours of service per week. Employer Y continues to offer coverage to
Employee B through June 30, 2016 (the end of the initial stability
period based on the initial measurement period during which Employee
B has an average of 30 hours of service per week), but does not
offer coverage to Employee B from July 1, 2016, through December 31,
2016.
(ii) Conclusion. Employer Y is not subject to any payment under
section 4980H with respect to Employee B for any calendar month
during 2016.
Example 11 (Seasonal employee, 12-month initial measurement
period; 1+ partial month administrative period). (i) Facts.
Employer X offers health plan coverage only to full-time employees
(and their dependents). Employer X uses a 12-month initial
measurement period for new seasonal employees that begins on the
start date and applies an administrative period from the end of the
initial measurement period through the end of the first calendar
month beginning after the end of the initial measurement period.
Employer X hires Employee C, a ski instructor, on November 15, 2015,
with an anticipated season during which Employee C will work running
through March 15, 2016. Employee C's initial measurement period runs
from November 15, 2015, through November 14, 2016.
(ii) Conclusion. Employer X determines that Employee C is a
seasonal employee because Employee C is hired into a position for
which the customary annual employment is six months or less.
Accordingly, Employer X may treat Employee C as a seasonal employee
during the initial measurement period.
Example 12 (Variable hour employee; temporary staffing firm).
(i) Facts. Employer W hires Employee D on January 1, 2015, in a
position under which Employer W will offer assignments to Employee D
to provide services in temporary placements at clients of Employer
W, and employees of Employer W in the same position as Employee D,
as part of their continuing employment, retain the right to reject
an offer of placement. Employees of Employer W in the same position
of employment as Employee D typically perform services for a
particular client for 40 hours of service per week for a period of
less than 13 weeks, and for each employee there are typically
periods in a calendar year during which Employer W does not have an
assignment to offer the employee. At the time Employee D is hired by
Employer W, Employer W has no reason to anticipate that Employee D's
position of employment will differ from the typical employee in the
same position.
(ii) Conclusion. Employer W cannot determine whether Employee D
is reasonably expected to average at least 30 hours of service per
week for the 12-month initial measurement period. Accordingly,
Employer W may treat Employee D as a variable hour employee during
the initial measurement period.
Example 13 (Variable hour employee; temporary staffing firm).
(i) Facts. Employer V hires Employee E on January 1, 2015, in a
position under which Employer V will offer assignments to Employee E
to provide services in temporary placements at clients of Employer
V. Employees of Employer V in the same position of employment as
Employee E typically are offered assignments of varying hours of
service per week (so that some weeks of the assignment typically
result in more than 30 hours of service per week and other weeks of
the assignment typically result in less than 30 hours of service per
week). Although a typical employee in the same position of
employment as Employee E rarely fails to have an offer of an
assignment for any period during the calendar year, employees of
Employer V in the same position of employment, as part of their
continuing employment, retain the right to reject an offer of
placement, and typically refuse one or more offers of placement and
do not perform services for periods ranging from four to twelve
weeks during a calendar year. At the time Employee E is hired by
Employer V, Employer V has no reason to anticipate that Employee E's
position of employment will differ from the typical employee in the
same position.
(ii) Conclusion. Employer V cannot determine whether Employee E
is reasonably expected to average at least 30 hours of service per
week for the 12-month initial measurement period. Accordingly,
Employer V may treat Employee E as a variable hour employee during
the initial measurement period.
Example 14 (Variable hour employee; temporary staffing firm).
(i) Facts. Employer T hires Employee F on January 1, 2015, in a
position under which Employer T will offer assignments to Employee F
to provide services in temporary placements at clients of Employer
T. Employees of Employer T in the same position typically are
offered assignments of 40 or more hours of service per week for
periods expected to last for periods of three months to 12 months,
subject to a request for renewal by the client. Employees of
Employer T in similar positions to Employee F are typically offered
and take new positions immediately upon cessation of a placement. At
the time Employee F is hired by Employer T, Employer T has no reason
to anticipate that Employee F's position of employment will differ
from the typical employee in the same position.
(ii) Conclusion. Employer T must assume that Employee F will be
employed by Employer T and available for an offer of temporary
placement for the entire initial measurement period. Under that
assumption, Employer T would reasonably determine that Employee F is
reasonably expected to average at least 30 hours of service per week
for the 12-month initial measurement period. Accordingly, Employer T
may not treat Employee F as a variable hour employee during the
initial measurement period.
Example 15 (Variable hour employee). (i) Facts. Employee G is
hired on an hourly basis by Employer S to fill in for employees who
are absent and to provide additional staffing at peak times.
Employer S expects that Employee G will average 30 hours of service
per week or more for Employee G's first few months of employment,
while assigned to a specific project, but also reasonably expects
that the assignments will be of unpredictable

[[Page 8593]]

duration, that there will be periods of unpredictable duration
between assignments, that the hours per week required by subsequent
assignments will vary, and that Employee G will not necessarily be
available for all assignments.
(ii) Conclusion. Employer S cannot determine whether Employee G
is reasonably expected to average at least 30 hours of service per
week for the initial measurement period. Accordingly, Employer S may
treat Employee G as a variable hour employee during the initial
measurement period.
Example 16 (Period between initial stability period and standard
stability period). (i) Facts. Employer R uses an 11-month initial
measurement period for new variable hour, new seasonal, and new
part-time employees with an administrative period that lasts from
the end of the initial measurement period through the last day of
the first calendar month beginning on or after the first anniversary
of the employee's start date. Employer R uses a standard measurement
period of October 15 through October 14, and an administrative
period of October 15 through December 31. Employee H is hired as a
variable hour employee on October 20, 2015, with an initial
measurement period of October 20, 2015, through September 19, 2016,
and an administrative period lasting through November 30, 2016.
Employee H is a full-time employee based on the hours of service in
the initial measurement period, and Employee H's stability period
for the initial measurement period is December 1, 2016, through
November 30, 2017. Employee H's first full standard measurement
period begins on October 15, 2016, with an associated stability
period beginning on January 1, 2018. The standard measurement period
beginning on October 15, 2015, does not apply to Employee H because
Employee H is not hired until October 20, 2015.
(ii) Conclusion. For the period after the stability period
associated with the initial measurement period and before the
stability period associated with Employee H's first full standard
measurement period (that is December 1, 2017, through December 31,
2017), Employer R must treat Employee H as a full-time employee
because the treatment as a full-time employee (or not a full-time
employee) that applies during the stability period associated with
the initial measurement period continues to apply until the
beginning of the stability period associated with the first full
standard measurement period during which the employee is employed.

(6) Employees rehired after termination of employment or resuming
service after other absence--(i) Treatment as a new employee after a
period of absence for employees of employers other than educational
organizations--(A) In general. The rules in this paragraph (d)(6)(i)
apply to employers that are not educational organizations. For rules
relating to employers that are educational organizations, see paragraph
(d)(6)(ii) of this section. An employee who resumes providing services
to (or is otherwise credited with an hour of service for) an applicable
large employer that is not an educational organization after a period
during which the employee was not credited with any hours of service
may be treated as having terminated employment and having been rehired,
and therefore may be treated as a new employee upon the resumption of
services, only if the employee did not have an hour of service for the
applicable large employer for a period of at least 13 consecutive weeks
immediately preceding the resumption of services. The rule set forth in
this paragraph (d)(6)(i) applies solely for the purpose of determining
whether the employee, upon the resumption of services, is treated as a
new employee or as a continuing employee, and does not determine
whether the employee is treated as a continuing full-time employee or a
terminated employee during the period during which no hours of service
are credited.
(B) Averaging method for special unpaid leave. For purposes of
applying the look-back measurement method described in paragraph (d) of
this section to an employee who is not treated as a new employee under
paragraph (d)(6)(i) of this section, the employer determines the
employee's average hours of service for a measurement period by
computing the average after excluding any special unpaid leave during
that measurement period and by using that average as the average for
the entire measurement period. Alternatively, for purposes of
determining the employee's average hours of service for the measurement
period, the employer may choose to treat the employee as credited with
hours of service for any periods of special unpaid leave during that
measurement period at a rate equal to the average weekly rate at which
the employee was credited with hours of service during the weeks in the
measurement period that are not part of a period of special unpaid
leave. There is no limit on the number of hours of service required to
be excluded or credited (as the case may be) with respect to special
unpaid leave. For purposes of this paragraph (d)(6)(i)(B), in computing
the average weekly rate, employers are permitted to use any reasonable
method if applied on a consistent basis. In addition, if an employee's
average weekly rate under this paragraph (d)(6)(i)(B) is computed for a
measurement period and that measurement period is shorter than six
months, the six-month period ending with the close of the measurement
period is used to compute the average hours of service.
(C) Averaging rules for employment break periods for employers
other than educational organizations. The averaging rule for employment
break periods described in paragraph (d)(6)(ii)(B) of this section
applies only to educational organizations and does not apply to other
employers.
(ii) Treatment as a new employee after a period of absence for
employees of employers that are educational organizations--(A) In
general. The rules of this paragraph (d)(6)(ii) apply only to employers
that are educational institutions. An employee who resumes providing
services to (or is otherwise credited with an hour of service for) an
applicable large employer that is an educational organization after a
period during which the employee was not credited with any hours of
service may be treated as having terminated employment and having been
rehired, and therefore may be treated as a new employee upon the
resumption of services, only if the employee did not have an hour of
service for the applicable large employer for a period of at least 26
consecutive weeks immediately preceding the resumption of services. The
rule set forth in this paragraph (d)(6)(ii)(A) applies solely for the
purpose of determining whether the employee, upon the resumption of
services, is treated as a new employee or as a continuing employee, and
does not determine whether the employee is treated as a continuing
full-time employee or a terminated employee during the period during
which no hours of service are credited.
(B) Averaging method for special unpaid leave and employment break
periods. For purposes of applying the look-back measurement method
described in paragraph (d) of this section to an employee who is not
treated as a new employee under paragraph (d)(6)(ii)(A) of this
section, an educational organization employer determines the employee's
average hours of service for a measurement period by computing the
average after excluding any special unpaid leave and any employment
break period during that measurement period and by using that average
as the average for the entire measurement period. Alternatively, for
purposes of determining the employee's average hours of service for the
measurement period, the employer may choose to treat the employee as
credited with hours of service for any periods of special unpaid leave
and any employment break period during that measurement period at a
rate equal to the average weekly rate at which the

[[Page 8594]]

employee was credited with hours of service during the weeks in the
measurement period that are not part of a period of special unpaid
leave or an employment break period. Notwithstanding the preceding two
sentences, no more than 501 hours of service during employment break
periods in a calendar year are required to be excluded (under the first
sentence) or credited (under the second sentence) by an educational
organization, provided that this 501-hour limit does not apply to hours
of service required to be excluded or credited in respect of special
unpaid leave. In applying the preceding sentence, an employer that uses
the method described in the first sentence of this paragraph
(d)(6)(ii)(B) determines the number of hours excluded by multiplying
the average weekly rate for the measurement period (determined as in
the second sentence of this paragraph (d)(6)(ii)(B)) by the number of
weeks in the employment break period. For purposes of this paragraph
(d)(6)(ii)(B), in computing the average weekly rate, employers are
permitted to use any reasonable method if applied on a consistent
basis. In addition, if an employee's average weekly rate under this
paragraph (d)(6)(ii)(B) is being computed for a measurement period and
that measurement period is shorter than six months, the six-month
period ending with the close of the measurement period is used to
compute the average hours of service.
(iii) Treatment of continuing employee. Under the look-back
measurement method, an employee treated as a continuing employee
retains, upon resumption of services, the status that employee had with
respect to the application of any stability period (for example, if the
continuing employee returns during a stability period in which the
employee is treated as a full-time employee, the employee is treated as
a full-time employee upon return and through the end of that stability
period). For purposes of the preceding sentence, a continuing employee
treated as a full-time employee is treated as offered coverage upon
resumption of services if the employee is offered coverage as of the
first day that employee is credited with an hour of service, or, if
later, as soon as administratively practicable. For this purpose,
offering coverage by no later than the first day of the calendar month
following resumption of services is deemed to be as soon as
administratively practicable. If a continuing employee returns during a
stability period in which the employee is treated as a full-time
employee and the employer previously made the employee an offer of
coverage with respect to the entire stability period and the employee
declined the offer, the employer will continue to be treated as having
offered coverage for that stability period and the employer need not
make a new offer of coverage for the remainder of the ongoing stability
period due to the employee's resumption of services.
(iv) Rule of parity. For purposes of determining the period after
which an employee may be treated as having terminated employment and
having been rehired, an applicable large employer may choose a period,
measured in weeks, of at least four consecutive weeks during which the
employee was not credited with any hours of service that exceeds the
number of weeks of that employee's period of employment with the
applicable large employer immediately preceding the period and that is
shorter than 13 weeks (for an employee of an educational organization
employer, a period that is shorter than 26 weeks). For purposes of the
preceding sentence, the duration of the immediately preceding period of
employment is determined after application to that period of employment
of the averaging methods described in paragraphs (d)(6)(i)(B) and
(d)(6)(ii)(B) of this section (relating to employment break periods and
special unpaid leave), if applicable.
(v) International transfers. An employer may treat an employee as
having terminated employment if the employee transfers to a position at
the same applicable large employer (including a different applicable
large employer member that is part of the same applicable large
employer) if the position is anticipated to continue indefinitely or
for at least 12 months and if substantially all of the compensation
will constitute income from sources without the United States (within
the meaning of sections 861 through 863 and the regulations
thereunder). With respect to an employee transferring from a position
that was anticipated to continue indefinitely or for at least 12 months
and in which substantially all of the compensation for the hours of
service constitutes income from sources without the United States
(within the meaning of sections 861 through 863 and the regulations
thereunder) to a position at the same applicable large employer
(including a different applicable large employer member that is part of
the same applicable large employer) with respect to which substantially
all of the compensation will constitute U.S. source income, the
employer may treat that employee as a new hire to the extent consistent
with the rules related to rehired employees in paragraph (d)(6) of this
section.
(vi) Anti-abuse rule. For purposes of this paragraph (d)(6), any
hour of service is disregarded if the hour of service is credited, or
the services giving rise to the crediting of the hour of service are
requested or required of the employee, for a purpose of avoiding or
undermining the application of the employee rehire rules under
paragraph (d)(6) of this section, or the application of the averaging
method for employment break periods under paragraph (d)(6)(ii)(B) of
this section. For example, if an employee of an educational
organization would otherwise have a period with no hours of service to
which the rules under paragraph (d)(6)(ii)(B) of this section would
apply, but for the employer's request or requirement that the employee
perform one or more hours of service for a purpose of avoiding the
application of those rules, any such hours of service for the week are
disregarded, and the rules under paragraph (d)(6)(ii)(B) of this
section will apply.
(vii) Examples. The following examples illustrate the provisions of
paragraph (d)(6) of this section. All employers in these examples are
applicable large employer members with 200 full-time employees
(including full-time equivalent employees), each is in a different
applicable large employer group, and each determines full-time employee
status under the look-back measurement method. None of the periods
during which an employee is not credited with an hour of service for an
employer involve special unpaid leave or the employee being credited
with hours of service for any applicable large employer member in the
same applicable large employer as the employer.

Example 1. (i) Facts. As of April 1, 2015, Employee A has been
an employee of Employer Z (which is not an educational organization)
for 10 years. On April 1, 2015, Employee A terminates employment and
is not credited with an hour of service until June 1, 2015, when
Employer Z rehires Employee A and Employee A continues as an
employee through December 31, 2015, which is the close of the
measurement period as applied by Employer Z.
(ii) Conclusion. Because the period for which Employee A is not
credited with any hours of service is not longer than Employee A's
prior period of employment and is less than 13 weeks, Employee A is
not treated as having terminated employment and been rehired for
purposes of determining whether Employee A is treated as a new
employee

[[Page 8595]]

upon resumption of services. Therefore, Employee A's hours of
service prior to termination are required to be taken into account
for purposes of the measurement period, and Employee A's period with
no hours of service is taken into account as a period of zero hours
of service during the measurement period.
Example 2. (i) Facts. Same facts as Example 1, except that
Employee A is rehired on December 1, 2015.
(ii) Conclusion. Because the period during which Employee A is
not credited with an hour of service for Employer Z exceeds 13
weeks, Employee A is treated as having terminated employment on
April 1, 2015, and having been rehired as a new employee on December
1, 2015, for purposes of determining Employee A's full-time employee
status. Because Employee A is treated as a new employee, Employee
A's hours of service prior to termination are not taken into account
for purposes of the measurement period, and the period between
termination and rehire with no hours of service is not taken into
account in the new measurement period that begins after the employee
is rehired.
Example 3. (i) Facts. Employee B is employed by Employer Y, an
educational organization. Employee B is employed for 38 hours of
service per week on average from September 7, 2014, through May 23,
2015, and then does not provide services (and is not otherwise
credited with an hour of service) during the summer break when the
school is generally not in session. Employee B resumes providing
services for Employer Y on September 7, 2015, when the new school
year begins.
(ii) Conclusion. Because the period from May 24, 2015 through
September 5, 2015 (a total of 15 weeks), during which Employee B is
not credited with an hour of service does not exceed 26 weeks, and
also does not exceed the number of weeks of Employee B's immediately
preceding period of employment, Employee B is not treated as having
terminated employment on May 24, 2015, and having been rehired on
September 6, 2015. Also, for purposes of determining Employee B's
average hours of service per week for the measurement period,
Employee B is credited, under the averaging method for employment
break periods applicable to educational organizations, as having an
average of 38 hours of service per week for the 15 weeks between May
24, 2015 and September 5, 2015, during which Employee B otherwise
was credited with no hours of service. However, Employer Y is not
required to credit more than 501 hours of service for the employment
break period (15 weeks x 38 hours = 570 hours).
Example 4. (i) Facts. Same facts as Example 3, except that
Employee B does not resume providing services for Employer Y until
December 5, 2015.
(ii) Conclusion. Because the period from May 24, 2015 through
December 5, 2015, exceeds 26 weeks, Employee B may be treated as
having terminated employment on May 24, 2015, and having been
rehired on December 5, 2015. Because Employee B is treated as a new
employee on December 5, 2015, Employee B's hours of service prior to
termination are not taken into account for purposes of the
measurement period, and the period between termination and rehire
with no hours of service is not taken into account in the new
measurement period that begins after Employee B is rehired. The
averaging method for employment break periods applicable to
educational organizations does not apply because Employee B is
treated as a new employee rather than a continuing employee as of
the date of resumption of services.

(e) Use of the look-back measurement method and the monthly
measurement method for different categories of employees. Different
applicable large employer members of the same applicable large employer
may use different methods of determining full-time employee status
(that is, either the monthly measurement method or the look-back
measurement method). In addition, an applicable large employer member
may use either the monthly measurement method or the look-back
measurement method for each of the categories of employees set forth in
paragraphs (d)(1)(v) and (d)(3)(v) of this section, and is not required
to use the same method for all categories.
(f) Changes in employment status resulting in a change in full-time
employee determination method--(1) Change in employment status from a
position to which a look-back measurement method applies to a position
to which the monthly measurement method applies, or vice versa--(i)
Change from look-back measurement method to monthly measurement method.
For an employee transferring from a position under which the look-back
measurement method is used to determine the employee's status as a
full-time employee, to a position under which the monthly measurement
method is used to determine the employee's status as a full-time
employee, the following rules apply:
(A) For an employee who at the time of the change of position is in
a stability period under which the employee is treated as a full-time
employee, the employer must continue to treat the employee as a full-
time employee through the end of the stability period;
(B) For an employee who at the time of the change of position is in
a stability period under which the employee is not treated as a full-
time employee, the employer may continue to treat the employee as not a
full-time employee through the end of the stability period, or may
apply the monthly measurement method set forth in paragraph (c) of this
section through the end of the stability period beginning with any
calendar month including the calendar month in which the change in
employment status occurs or any subsequent calendar month;
(C) For the stability period associated with the measurement period
during which the change in employment status occurs, the employer must
treat the employee as a full-time employee for any calendar month
during which the employee either would be treated as a full-time
employee under the stability period that would have applied based on
the measurement period in which the change in employment status
occurred or would be treated as a full-time employee under the monthly
measurement method; and
(D) For any calendar month subsequent to the stability period
identified in paragraph (f)(1)(i)(C) of this section, the monthly
measurement method applies for determination of the employee's status
as a full-time employee.
(ii) Change from monthly measurement method to look-back
measurement method. For an employee who is transferring from a position
under which the monthly measurement method is used to determine the
employee's status as a full-time employee, to a position under which a
look-back measurement method is used to determine the employee's status
as a full-time employee, the following rules apply:
(A) For the remainder of the applicable stability period during
which the change in employment status occurs, the employer must
continue to use the monthly measurement method to determine the
employee's status as a full-time employee unless the employee's hours
of service prior to the change in employment status would have resulted
in the employee being treated as a full-time employee during the
stability period in which the change in employment status occurs, in
which case the employer must treat the employee as a full-time employee
for that stability period;
(B) For the applicable stability period following the measurement
period during which the change in employment status occurs, the
employer must treat the employee as a full-time employee for any
calendar month during which the employee either would be treated as a
full-time employee based on the measurement period during which the
change in employment status occurs or would be treated as a full-time
employee under the monthly measurement method; and
(C) For any calendar month subsequent to the stability period
identified in paragraph (f)(1)(ii)(B) of this section, the look-back
measurement

[[Page 8596]]

method applies for determination of the employee's status as a full-
time employee.
(iii) Examples. The following examples illustrate the rules of this
paragraph (f). In each example, the employer is an applicable large
employer with 200 full-time employees (including FTEs). For each
example, the employer uses the monthly measurement method for
determining whether a salaried employee is a full-time employee, and
the look-back measurement method for determining whether an hourly
employee is a full-time employee with a measurement period from October
15 through October 14 of the following calendar year, and a stability
period from January 1 through December 31. In each case, the relevant
employee has been employed continuously for several years.
Example 1 (Look-back measurement method to monthly measurement
method). Employee A is an hourly employee. Based on Employee A's
hours of service from October 15, 2015, through October 14, 2016,
Employee A is treated as a full-time employee from January 1, 2017,
through December 31, 2017. On July 1, 2017, Employee A transfers
from a position as an hourly employee to a position as a salaried
employee. For the months July 2017 through December 2017, Employee A
must be treated as a full-time employee. Employee A is employed for
hours of service from October 15, 2016, through October 14, 2017,
such that under the applicable look-back measurement method Employee
A would be treated as a full-time employee for the period of January
1, 2018, through December 31, 2018. Accordingly, Employee A must be
treated as a full-time employee for the calendar year 2018. For
calendar year 2019, the determination of whether Employee A is a
full-time employee is made under the monthly measurement method.
Example 2 (Look-back measurement method to monthly measurement
method). Same facts as Example 1, except that based on Employee A's
hours of service from October 15, 2015, through October 14, 2016,
Employee A is not treated as a full-time employee from January 1,
2017, through December 31, 2017. For the months July 2017 through
December 2017, Employer Z may either treat Employee A as not a full-
time employee or apply the monthly measurement method to determine
Employee A's status as a full-time employee. Employee A is employed
for hours of service from October 15, 2016, through October 14,
2017, such that under the applicable look-back measurement method
Employee A would be treated as a full-time employee for the period
of January 1, 2018, through December 31, 2018. Employee A must be
treated as a full-time employee for the calendar year 2018. For
calendar year 2019, the determination of whether Employee A is a
full-time employee is made under the monthly measurement method.
Example 3 (Look-back measurement method to monthly measurement
method). Same facts as Example 1, except that Employee A is
employed for hours of service from October 15, 2016, through October
14, 2017, such that under the applicable look-back measurement
method Employee A would not be treated as a full-time employee for
the period of January 1, 2018, through December 31, 2018. For the
calendar year 2018, Employer Z must treat Employee A as a full-time
employee only for calendar months during which Employee A would be a
full-time employee under the monthly measurement method. For
calendar year 2019, the determination of whether Employee A is a
full-time employee is made under the monthly measurement method.
Example 4 (Monthly measurement method to look-back measurement
method). Employee B is a salaried employee of Employer Y. On July
1, 2017, Employee B transfers to an hourly employee position. Based
on Employee B's hours of service from October 15, 2015, through
October 14, 2016, Employee B would have been treated as a full-time
employee for the stability period from January 1, 2017, through
December 31, 2017, had the look-back measurement method applicable
to hourly employees applied to Employee B for the entire stability
period. For the calendar months January 2017 through June 2017
(prior to Employee B's change to hourly employee status), Employee
B's status as a full-time employee is determined using the monthly
measurement method. For the calendar months July 2017 through
December 2017, Employer Y must treat Employee B as a full-time
employee because Employee B would have been treated as a full-time
employee during that portion of the stability period had the look-
back measurement method applied to Employee B for that entire
stability period. Employee B is employed for hours of service from
October 15, 2016, through October 14, 2017, such that under the
applicable look-back measurement method Employee B would be treated
as a full-time employee for the period January 1, 2018, through
December 31, 2018. Accordingly, Employee B must be treated as a
full-time employee for the calendar year 2018. For calendar year
2019, the determination of whether Employee B is a full-time
employee is made under the applicable look-back measurement method.
Example 5 (Monthly measurement method to look-back measurement
method). Same facts as Example 4, except that based on Employee B's
hours of service from October 15, 2015, through October 14, 2016,
Employee B would not have been treated as a full-time employee from
January 1, 2017, through December 31, 2017. For the calendar months
of 2017, Employer Y applies the monthly measurement method to
determine Employee B's status as a full-time employee. Employee B is
employed for hours of service from October 15, 2016, through October
14, 2017, such that under the applicable look-back measurement
method Employee B would be treated as a full-time employee for the
period January 1, 2018, through December 31, 2018. Accordingly,
Employee B must be treated as a full-time employee for the calendar
year 2018. For calendar year 2019, the determination of whether
Employee B is a full-time employee is made under the applicable
look-back measurement method.
Example 6 (Monthly measurement method to look-back measurement
method). Same facts as Example 4, except that Employee B is employed
for hours of service from October 15, 2016, through October 14,
2017, such that under the applicable look-back measurement method
Employee B would not be treated as a full-time employee for the
period of January 1, 2018, through December 31, 2018. For the
calendar year 2018, Employer Y must treat Employee B as a full-time
employee only for calendar months during which Employee B would be a
full-time employee under the monthly measurement method.

(2) Special rule for certain employees to whom minimum value
coverage has been continuously offered--(i) In general. Notwithstanding
the rules in paragraphs (e) and (f) of this section, an employer using
the look-back measurement method to determine the full-time employee
status of an employee may apply the monthly measurement method to that
employee beginning on the first day of the fourth full calendar month
following the calendar month in which the employee experiences a change
in employment status such that, if the employee had begun employment in
the new position or status, the employee would have reasonably been
expected not to be employed on average at least 30 hours of service per
week (for example, the employee has changed to a part-time position of
only 20 hours of service per week). This rule only applies with respect
to an employee to whom the applicable large employer member offered
minimum value coverage by the first day of the calendar month following
the employee's initial three full calendar months of employment through
the calendar month in which the change in employment status described
in this paragraph (f)(2) occurs, and only if the employee actually
averages less than 30 hours of service per week for each of the three
full calendar months following the change in employment status. For the
three full calendar months between the employee's change in employment
status and the application of the monthly measurement method, the
employee's full-time employee status is determined based on the
employee's status during the applicable stability period(s). Under this
rule, an employer may apply the monthly measurement method to an
employee even if the employer does not apply the monthly measurement
method to the other employees in the same category of employees under
paragraph (d)(1)(v) or (d)(3)(v) of this section (for example,

[[Page 8597]]

under this method an employer could apply the monthly measurement
method to an hourly employee, even if the employer uses the look-back
measurement method to determine full-time employee status of all other
hourly employees). The employer may continue to apply the monthly
measurement method through the end of the first full measurement period
(and any associated administrative period) that would have applied had
the employee remained under the applicable look-back measurement
method.
(ii) Examples. The following examples illustrate the rule of
paragraphs (f)(2) of this section. In each example, the employer is an
applicable large employer with 200 full-time employees (including
FTEs).

Example 1 (New variable hour employee, no delay in coverage,
becomes non-full-time employee). (i) Facts. Employer Z, an
applicable large employer, uses the look-back measurement method to
determine the full-time employee status for all of its employees. On
May 10, 2015, Employer Z hired Employee A who is a variable hour
employee. Although Employee A is a new variable hour employee, so
that Employer Z could wait until the end of an initial measurement
period to offer coverage to Employee A without an assessable payment
under section 4980H with respect to Employee A, Employer Z offers
coverage that provides minimum value to Employee A on September 1,
2015. For its ongoing employees, Employer Z has chosen to use a 12-
month standard measurement period starting October 15 and a 12-month
stability period associated with that standard measurement period
starting January 1. Employee A continues in employment with Employer
Z for over five years and averages more than 30 hours of service per
week for all measurement periods through the measurement period
ending October 14, 2020. On February 12, 2021, Employee A
experiences a change in position of employment with Employer Z to a
position under which Employer Z reasonably expects Employee A to
average less than 30 hours of service per week. For the calendar
months after February 2021, Employee A averages less than 30 hours
of service per week. Employer Z offered Employee A coverage that
provided minimum value continuously from September 1, 2015, through
May 31, 2021. Effective June 1, 2021, Employer Z elects to apply the
monthly measurement method to determine Employee A's status as a
full-time employee for the remainder of the stability period ending
December 31, 2021, and the calendar year 2022 (which is through the
end of the first full measurement period following the change in
employment status plus the associated administrative period).
Applying the stability period beginning January 1, 2021, Employer Z
treats Employee A as a full-time employee for each calendar month
from January 2021 through May 2021. Applying the monthly measurement
method, for each calendar month from June 2021 through December
2022, Employer Z treats Employee A as not a full-time employee.
(ii) Conclusion. Because Employer Z offered coverage that
provided minimum value to Employee A from no later than the first
day of the fourth full calendar month following Employee A's start
date through the calendar month in which the change in employment
status occurred, and because Employee A did not average 30 hours of
service per week for any of the three calendar months immediately
following Employee A's change in employment status to an employee
not reasonably expected to average 30 hours of service per week,
Employer Z may use the monthly measurement method to determine the
full-time employee status of Employee A beginning on the first day
of the fourth month following the change in employment status (June
1, 2021) through the end of the first full measurement period (plus
any associated administrative period) immediately following the
change in employment status (December 31, 2022). Because Employee A
did not average at least 30 hours of service per week for any
calendar month from June 2021 through December 2022, Employer Z has
properly treated Employee A as not a full-time employee for those
calendar months.
Example 2 (New full-time employee, no delay in coverage, becomes
non-full-time employee). (i) Facts. Same facts as Example 1, except
that at Employee A's start date, Employer Z reasonably expects that
Employee A will average at least 30 hours of service per week.
Accordingly, Employer Z offers coverage to Employee A beginning on
September 1, 2015, and offers coverage continuously to Employee A
for all calendar months through May 2021.
(ii) Conclusion. Same as Example 1.

(g) Nonpayment or late payment of premiums. An applicable large
employer member will not be treated as failing to offer to a full-time
employee (and his or her dependents) the opportunity to enroll in
minimum essential coverage under an eligible employer-sponsored plan
for an employee whose coverage under the plan is terminated during the
coverage period solely due to the employee failing to make a timely
payment of the employee portion of the premium. This treatment
continues only through the end of the coverage period (typically the
plan year). For this purpose, the rules in Sec. 54.4980B-8, Q&A-5(a),
(c), (d) and (e) apply under this section to the payment for coverage
with respect to a full-time employee in the same manner that they apply
to payment for COBRA continuation coverage under Sec. 54.4980B-8.
(h) Additional guidance. With respect to the determination of full-
time employee status, including determination of hours of service, the
Commissioner may prescribe additional guidance of general
applicability, published in the Internal Revenue Bulletin (see Sec.
601.601(d)(2)(ii)(b) of this chapter).
(i) Effective/applicability date. This section is applicable for
periods after December 31, 2014.


Sec. 54.4980H-4 Assessable payments under section 4980H(a).

(a) In general. If an applicable large employer member fails to
offer to its full-time employees (and their dependents) the opportunity
to enroll in minimum essential coverage under an eligible employer-
sponsored plan for any calendar month, and the applicable large
employer member has received a Section 1411 Certification with respect
to at least one full-time employee, an assessable payment is imposed.
For the calendar month, the applicable large employer member will owe
an assessable payment equal to the product of the section 4980H(a)
applicable payment amount and the number of full-time employees of the
applicable large employer member (other than employees in a limited
non-assessment period for certain employees and as adjusted in
accordance with paragraph (e) of this section). For purposes of this
paragraph (a), an applicable large employer member is treated as
offering such coverage to its full-time employees (and their
dependents) for a calendar month if, for that month, it offers such
coverage to all but five percent (or, if greater, five) of its full-
time employees (provided that an employee is treated as having been
offered coverage only if the employer also offers coverage to that
employee's dependents). For purposes of the preceding sentence, an
employee in a limited non-assessment period for certain employees is
not included in the calculation.
(b) Offer of coverage--(1) In general. An applicable large employer
member will not be treated as having made an offer of coverage to a
full-time employee for a plan year if the employee does not have an
effective opportunity to elect to enroll in the coverage at least once
with respect to the plan year, or does not have an effective
opportunity to decline to enroll if the coverage offered does not
provide minimum value or requires an employee contribution for any
calendar month of more than 9.5 percent of a monthly amount determined
as the federal poverty line for a single individual for the applicable
calendar year, divided by 12. For this purpose, the applicable federal
poverty line is the federal poverty line for the 48 contiguous states
and the District of Columbia. Whether an employee has an effective
opportunity to enroll or to decline to enroll is determined based on
all the relevant facts and circumstances,

[[Page 8598]]

including adequacy of notice of the availability of the offer of
coverage, the period of time during which acceptance of the offer of
coverage may be made, and any other conditions on the offer. An
employee's election of coverage from a prior year that continues for
the next plan year unless the employee affirmatively elects to opt out
of the plan constitutes an offer of coverage for purposes of section
4980H.
(2) Offer of coverage on behalf of another entity. For purposes of
section 4980H, an offer of coverage by one applicable large employer
member to an employee for a calendar month is treated as an offer of
coverage by all applicable large employer members for that calendar
month. In addition, an offer of coverage made to an employee on behalf
of a contributing employer under a multiemployer or single employer
Taft-Hartley plan or multiple employer welfare arrangement (MEWA) is
treated as made by the employer. For an offer of coverage to an
employee performing services for an employer that is a client of a
staffing firm, in cases in which the staffing firm is not the common
law employer of the individual and the staffing firm makes an offer of
coverage to the employee on behalf of the client employer under a plan
established or maintained by the staffing firm, the offer is treated as
made by the client employer for purposes of section 4980H only if the
fee the client employer would pay to the staffing firm for an employee
enrolled in health coverage under the plan is higher than the fee the
client employer would pay the staffing firm for the same employee if
that employee did not enroll in health coverage under the plan.
(c) Partial calendar month. If an applicable large employer member
fails to offer coverage to a full-time employee for any day of a
calendar month, that employee is treated as not offered coverage during
that entire month, regardless of whether the employer uses the payroll
period rule set forth in Sec. 54.4980H-3(d)(1)(ii) or the weekly rule
set forth in Sec. 54.4980H-3(c)(3) to determine full-time employee
status for the calendar month. However, in a calendar month in which
the employment of a full-time employee terminates, if the employee
would have been offered coverage for the entire calendar month had the
employee been employed for the entire calendar month, the employee is
treated as having been offered coverage for that entire calendar month.
In addition, an applicable large employer member is not subject to an
assessable payment under section 4980H with respect to an employee for
the calendar month in which the employee's start date occurs if the
start date is on a date other than the first day of the calendar month,
and, in addition, with respect to the calendar month in which the start
date occurs, such an employee is not included for purposes of the
calculation of any potential liability under section 4980H(a).
(d) Application to applicable large employer member. The liability
for an assessable payment under section 4980H(a) for a calendar month
with respect to a full-time employee applies solely to the applicable
large employer member that was the employer of that employee for that
calendar month. For an employee who was an employee of more than one
applicable large employer member of the same applicable large employer
during a calendar month, the liability for the assessable payment under
section 4980H(a) for a calendar month applies to the applicable large
employer member for whom the employee has the greatest number of hours
of service for that calendar month (if the employee has an equal number
of hours of service for two or more applicable large employer members
of the same applicable large employer for the calendar month, those
applicable large employer members can treat one of those members as the
employer of that employee for that calendar month for purposes of this
section, and if the members do not select one member, or select in an
inconsistent manner, the IRS will select a member to be treated as the
employer of that employee for purposes of the assessable payment
determination). For a calendar month, an applicable large employer
member may be liable for an assessable payment under section 4980H(a)
or under section 4980H(b), but will not be liable for an assessable
payment under both section 4980H(a) and section 4980H(b).
(e) Allocated reduction of 30 full-time employees. For purposes of
the liability calculation under paragraph (a) of this section, with
respect to each calendar month, an applicable large employer member's
number of full-time employees is reduced by that member's allocable
share of 30. The applicable large employer member's allocation is equal
to 30 allocated ratably among all members of the applicable large
employer on the basis of the number of full-time employees employed by
each applicable large employer member during the calendar month (after
application of the rules of paragraph (d) of this section addressing
employees who work for more than one applicable large employer member
during a calendar month). If an applicable large employer member's
total allocation is not a whole number, the allocation is rounded to
the next highest whole number. This rounding rule may result in the
aggregate reduction for the entire group of applicable large employer
members exceeding 30.
(f) Example. The following example illustrates the provisions of
paragraphs (a) and (e) of this section.

Example. (i) Facts. Applicable large employer member Z and
applicable large employer member Y are the two members of an
applicable large employer. Applicable large employer member Z
employs 40 full-time employees in each calendar month of 2017.
Applicable large employer member Y employs 35 full-time employees in
each calendar month of 2017. Assume that for 2017, the applicable
payment amount for a calendar month is $2,000 divided by 12.
Applicable large employer member Z does not sponsor an eligible
employer-sponsored plan for any calendar month of 2017, and receives
a Section 1411 Certification for 2017 with respect to at least one
of its full-time employees. Applicable large employer member Y
sponsors an eligible employer-sponsored plan under which all of its
full-time employees are eligible for minimum essential coverage.
(ii) Conclusion. Pursuant to section 4980H(a) and this section,
applicable large employer member Z is subject to an assessable
payment under section 4980H(a) for 2017 of $48,000, which is equal
to 24 x $2,000 (40 full-time employees reduced by 16 (its allocable
share of the 30-employee offset ((40/75) x 30 = 16)) and then
multiplied by $2,000). Applicable large employer member Y is not
subject to an assessable payment under section 4980H(a) for 2017.

(g) Additional guidance. With respect to assessable payments under
section 4980H(a), the Commissioner may prescribe additional guidance of
general applicability, published in the Internal Revenue Bulletin (see
Sec. 601.601(d)(2)(ii)(b) of this chapter).
(h) Effective/applicability date. This section is applicable for
periods after December 31, 2014.


Sec. 54.4980H-5 Assessable payments under section 4980H(b).

(a) In general. If an applicable large employer member offers to
its full-time employees (and their dependents) the opportunity to
enroll in minimum essential coverage under an eligible employer-
sponsored plan for any calendar month (including an offer of coverage
to all but five percent or less (or, if greater, five or less) of its
full-time employees (provided that an employee is treated as having
been offered coverage only if the employer also offers coverage to that
employee's dependents)) and the applicable large employer member has
received a Section 1411 Certification with respect to one or more full-
time employees of

[[Page 8599]]

the applicable large employer member, then there is imposed on the
applicable large employer member an assessable payment equal to the
product of the number of full-time employees of the applicable large
employer member for which it has received a Section 1411 Certification
(minus the number of those employees in a limited non-assessment period
for certain employees and the number of other employees who were
offered the opportunity to enroll in minimum essential coverage under
an eligible employer-sponsored plan that satisfied minimum value and
met one or more of the affordability safe harbors described in
paragraph (e) of this section) and the section 4980H(b) applicable
payment amount. Notwithstanding the foregoing, the aggregate amount of
assessable payment determined under this paragraph (a) with respect to
all employees of an applicable large employer member for any calendar
month may not exceed the product of the section 4980H(a) applicable
payment amount and the number of full-time employees of the applicable
large employer member during that calendar month (reduced by the
applicable large employer member's ratable allocation of the 30
employee reduction under Sec. 54.4980H-4(e)).
(b) Offer of coverage. For purposes of this section, the same rules
with respect to an offer of coverage for purposes of section 4980H(a)
apply. See Sec. 54.4980H-4.
(c) Partial calendar month. If an applicable large employer member
fails to offer coverage to a full-time employee for any day of a
calendar month, that employee is treated as not offered coverage during
that entire month, regardless of whether the employer uses the payroll
period rule set forth in Sec. 54.4980H-3(d)(1)(ii) or the weekly rule
set forth in Sec. 54.4980H-3(c)(3) to determine full-time employee
status for the calendar month. However, in a calendar month in which a
full-time employee's employment terminates, if the employee would have
been offered coverage if the employee had been employed for the entire
month, the employee is treated as having been offered coverage during
that month. Also, an applicable large employer member is not subject to
an assessable payment under section 4980H with respect to an employee
for the calendar month in which the employee's start date occurs if the
start date is on a date other than the first day of the calendar month.
(d) Applicability to applicable large employer member. The
liability for an assessable payment under section 4980H(b) for a
calendar month with respect to a full-time employee applies solely to
the applicable large employer member that was the employer of that
employee for that calendar month. For an employee who was a full-time
employee of more than one applicable large employer member during that
calendar month, the liability for the assessable payment under section
4980H(b) for a calendar month applies to the applicable large employer
member for whom the employee has the greatest number of hours of
service for that calendar month (if the employee has an equal number of
hours of service for two or more applicable large employer members for
the calendar month, those applicable large employer members can treat
one of those members as the employer of that employee for that calendar
month for purposes of this paragraph (d), and if the members do not
select one member, or select in an inconsistent manner, the IRS will
select a member to be treated as the employer of that employee for
purposes of the assessable payment determination). For a calendar
month, an applicable large employer member may be liable for an
assessable payment under section 4980H(a) or under section 4980H(b),
but will not be liable for an assessable payment under both section
4980H(a) and section 4980H(b).
(e) Affordability--(1) In general. An employee who is offered
coverage by an applicable large employer member may be eligible for an
applicable premium tax credit or cost-sharing reduction if that offer
of coverage is not affordable within the meaning of section
36B(c)(2)(C)(i) and the regulations thereunder.
(2) Affordability safe harbors for section 4980H(b) purposes. The
affordability safe harbors set forth in paragraph (e)(2)(ii) through
(iv) of this section apply solely for purposes of section 4980H(b), so
that an applicable large employer member that offers minimum essential
coverage providing minimum value will not be subject to an assessable
payment under section 4980H(b) with respect to any employee receiving
the applicable premium tax credit or cost-sharing reduction for a
period for which the coverage is determined to be affordable under the
requirements of an affordability safe harbor. This rule applies even if
the applicable large employer member's offer of coverage that meets the
requirements of an affordability safe harbor is not affordable for a
particular employee under section 36B(c)(2)(C)(i) and an applicable
premium tax credit or cost-sharing reduction is allowed or paid with
respect to that employee.
(i) Conditions of using an affordability safe harbor. An applicable
large employer member may use one or more of the affordability safe
harbors described in this paragraph (e)(2) only if the employer offers
its full-time employees and their dependents the opportunity to enroll
in minimum essential coverage under an eligible employer-sponsored plan
that provides minimum value with respect to the self-only coverage
offered to the employee. Use of any of the safe harbors is optional for
an applicable large employer member, and an applicable large employer
member may choose to apply the safe harbors for any reasonable category
of employees, provided it does so on a uniform and consistent basis for
all employees in a category. Reasonable categories generally include
specified job categories, nature of compensation (hourly or salary),
geographic location, and similar bona fide business criteria. An
enumeration of employees by name or other specific criteria having
substantially the same effect as an enumeration by name is not
considered a reasonable category.
(ii) Form W-2 safe harbor-(A) Full-year offer of coverage. An
employer will not be subject to an assessable payment under section
4980H(b) with respect to a full-time employee if that employee's
required contribution for the calendar year for the employer's lowest
cost self-only coverage that provides minimum value during the entire
calendar year (excluding COBRA or other continuation coverage except
with respect to an active employee eligible for continuation coverage)
does not exceed 9.5 percent of that employee's Form W-2 wages from the
employer (and any other member of the same applicable large employer
that also pays wages to that employee) for the calendar year.
Application of this safe harbor is determined after the end of the
calendar year and on an employee-by-employee basis, taking into account
the Form W-2 wages and the required employee contribution for that
year. In addition, to qualify for this safe harbor, the employee's
required contribution must remain a consistent amount or percentage of
all Form W-2 wages during the calendar year (or during the plan year
for plans with non-calendar year plan years) so that an applicable
large employer member is not permitted to make discretionary
adjustments to the required employee contribution for a pay period. A
periodic contribution that is based on a consistent percentage of all
Form W-2 wages may be subject to a dollar limit specified by the
employer.
(B) Adjustment for partial-year offer of coverage. For an employee
not offered

[[Page 8600]]

coverage for an entire calendar year, the Form W-2 safe harbor is
applied by adjusting the Form W-2 wages to reflect the period for which
coverage was offered, then determining whether the employee's required
contribution for the employer's lowest cost self-only coverage that
provides minimum value, totaled for the periods during which coverage
was offered, does not exceed 9.5 percent of the adjusted amount of Form
W-2 wages. To adjust Form W-2 wages for this purpose, the Form W-2
wages are multiplied by a fraction equal to the number of calendar
months for which coverage was offered over the number of calendar
months in the employee's period of employment with the employer during
the calendar year. For this purpose, if coverage is offered during at
least one day during the calendar month, or the employee is employed
for at least one day during the calendar month, the entire calendar
month is counted in determining the applicable fraction.
(iii) Rate of pay safe harbor. An applicable large employer member
satisfies the rate of pay safe harbor with respect to an hourly
employee for a calendar month if the employee's required contribution
for the calendar month for the applicable large employer member's
lowest cost self-only coverage that provides minimum value does not
exceed 9.5 percent of an amount equal to 130 hours multiplied by the
lower of the employee's hourly rate of pay as of the first day of the
coverage period (generally the first day of the plan year) or the
employee's lowest hourly rate of pay during the calendar month. An
applicable large employer member satisfies the rate of pay safe harbor
with respect to a non-hourly employee for a calendar month if the
employee's required contribution for the calendar month for the
applicable large employer member's lowest cost self-only coverage that
provides minimum value does not exceed 9.5 percent of the employee's
monthly salary, as of the first day of the coverage period (instead of
130 multiplied by the hourly rate of pay); provided that if the monthly
salary is reduced, including due to a reduction in work hours, the safe
harbor is not available, and, solely for purposes of this paragraph
(e)(2)(iii), an applicable large employer member may use any reasonable
method for converting payroll periods to monthly salary. For this
purpose, if coverage is offered during at least one day during the
calendar month, the entire calendar month is counted both for purposes
of determining the assumed income for the calendar month and for
determining the employee's share of the premium for the calendar month.
(iv) Federal poverty line safe harbor. An applicable large employer
member satisfies the federal poverty line safe harbor with respect to
an employee for a calendar month if the employee's required
contribution for the calendar month for the applicable large employer
member's lowest cost self-only coverage that provides minimum value
does not exceed 9.5 percent of a monthly amount determined as the
federal poverty line for a single individual for the applicable
calendar year, divided by 12. For this purpose, if coverage is offered
during at least one day during the calendar month, the entire calendar
month is counted both for purposes of determining the monthly amount
for the calendar month and for determining the employee's share of the
premium for the calendar month. For this purpose, the applicable
federal poverty line is the federal poverty line for the State in which
the employee is employed.
(v) Examples. The following examples illustrate the application of
the affordability safe harbors described in this paragraph (e)(2). In
each example, each employer is an applicable large employer member with
200 full-time employees (including full-time equivalent employees).

Example 1 (Form W-2 wages safe harbor). (i) Facts. Employee A
is employed by Employer Z consistently from January 1, 2015, through
December 31, 2015. In addition, Employer Z offers Employee A and his
dependents minimum essential coverage during that period that
provides minimum value. The employee contribution for self-only
coverage is $100 per calendar month, or $1,200 for the calendar
year. For 2015, Employee A's Form W-2 wages with respect to
employment with Employer Z are $24,000.
(ii) Conclusion. Because the employee contribution for 2015 is
less than 9.5 percent of Employee A's Form W-2 wages for 2015, the
coverage offered is treated as affordable with respect to Employee A
for 2015 ($1,200 is 5 percent of $24,000).
Example 2 (Form W-2 wages safe harbor). (i) Facts. Employee B
is employed by Employer Y from January 1, 2015, through September
30, 2015. In addition, Employer Y offers Employee B and his
dependents minimum essential coverage during that period that
provides minimum value. The employee contribution for self-only
coverage is $100 per calendar month, or $900 for Employee B's period
of employment. For 2015, Employee B's Form W-2 wages with respect to
employment with Employer Y are $18,000. For purposes of applying the
affordability safe harbor, the Form W-2 wages are multiplied by 9/9
(9 calendar months of coverage offered over 9 months of employment
during the calendar year) or 1. Accordingly, affordability is
determined by comparing the adjusted Form W-2 wages ($18,000) to the
employee contribution for the period for which coverage was offered
($900).
(ii) Conclusion. Because the employee contribution for 2015 is
less than 9.5 percent of Employee B's adjusted Form W-2 wages for
2015, the coverage offered is treated as affordable with respect to
Employee B for 2015 ($900 is 5 percent of $18,000).
Example 3 (Form W-2 wages safe harbor). (i) Facts. Employee C
is employed by Employer X from May 15, 2015, through December 31,
2015. In addition, Employer X offers Employee C and her dependents
minimum essential coverage during the period from August 1, 2015,
through December 31, 2015, that provides minimum value. The employee
contribution for self-only coverage is $100 per calendar month, or
$500 for Employee C's period of employment. For 2015, Employee C's
Form W-2 wages with respect to employment with Employer X are
$15,000. For purposes of applying the affordability safe harbor, the
Form W-2 wages are multiplied by 5/8 (5 calendar months of coverage
offered over 8 months of employment during the calendar year).
Accordingly, affordability is determined by comparing the adjusted
Form W-2 wages ($9,375 or $15,000 x 5/8) to the employee
contribution for the period for which coverage was offered ($500).
(ii) Conclusion. Because the employee contribution of $500 is
less than 9.5 percent of $9,375 (Employee C's adjusted Form W-2
wages for 2015), the coverage offered is treated as affordable with
respect to Employee C for 2015 ($500 is 5.33 percent of $9,375).
Example 4 (Rate of pay safe harbor). (i) Facts. Employer W
offers its full-time employees and their dependents minimum
essential coverage that provides minimum value. For the 2016
calendar year, Employer W is using the rate of pay safe harbor to
establish premium contribution amounts for full-time employees paid
at a rate of $7.25 per hour (the minimum wage in Employer W's
jurisdiction) for each calendar month of the entire 2016 calendar
year. Employer W can apply the affordability safe harbor by using an
assumed monthly income amount that is based on an assumed 130 hours
of service multiplied by $7.25 per hour ($942.50 per calendar
month). To satisfy the safe harbor, Employer W would set the
employee monthly contribution amount at a rate that does not exceed
9.5 percent of the assumed monthly income of $942.50. Employer W
sets the employee contribution for self-only coverage at $85 per
calendar month for 2016.
(ii) Conclusion. Because $85 is less than 9.5 percent of the
employee's assumed monthly income at a $7.25 rate of pay, the
coverage offered is treated as affordable under the rate of pay safe
harbor for each calendar month of 2016 ($85 is 9.01 percent of
$942.50).
Example 5 (Rate of pay safe harbor). (i) Facts. Employee E is
employed by Employer V from May 1, 2015, through December 31, 2015.
Employer V offers Employee E and her dependents minimum essential
coverage from May 1, 2015, through December 31, 2015, that provides
minimum value. The employee contribution for self-only coverage is
$100 per calendar month. From May 1,

[[Page 8601]]

2015, through October 31, 2015, Employee E is paid at a rate of $10
per hour. From November 1, 2015, through December 31, 2015, Employee
E is paid at a rate of $12 per hour. For purposes of applying the
affordability safe harbor for the calendar months May 2015 through
October 2015, Employer V may assume that Employee E earned $1,300
per calendar month (130 hours of service multiplied by $10 (which is
the lower of the employee's hourly rate of pay at the beginning of
the coverage period ($10) and the lowest hourly rate of pay for the
calendar month ($10)). Accordingly, affordability is determined by
comparing the assumed income ($1,300 per month) to the employee
contribution ($100 per calendar month). For the calendar months
November 2015 through December 2015, Employer V may assume that
Employee E earned $1,300 per calendar month (130 hours of service
multiplied by $10 (which is the lower of the employee's hourly rate
of pay at the beginning of the coverage period ($10) and the lowest
hourly rate of pay for the calendar month ($12)). Accordingly,
affordability is determined by comparing the assumed income ($1,300
per month) to the employee contribution ($100 per calendar month).
(ii) Conclusion. Because $100 is less than 9.5 percent of
Employee E's assumed monthly income for each calendar month from May
2015 through December 2015, the coverage offered is treated as
affordable with respect to Employee E for May 2015 through December
2015 ($100 is 7.69 percent of $1,300).
Example 6 (Federal poverty line safe harbor). (i) Facts.
Employee F is employed by Employer T from January 1, 2015, through
December 31, 2015. In addition, Employer T offers Employee F and his
dependents minimum essential coverage during that period that
provides minimum value. Employer T uses the look-back measurement
method. Under that measurement method as applied by Employer T,
Employee F is treated as a full-time employee for the entire
calendar year 2015. Employee F is regularly credited with 35 hours
of service per week but is credited with only 20 hours of service
during the month of March 2015 and only 15 hours of service during
the month of August 2015. Assume for this purpose that the federal
poverty line for 2015 for an individual is $11,670. With respect to
Employee F, Employer T sets the monthly employee contribution for
employee single-only coverage for each calendar month of 2015 at
$92.39 (9.5 percent of $11,670, divided by 12).
(ii) Conclusion. Regardless of Employee F's actual wages for any
calendar month in 2015, including the months of March 2015 and
August 2015, when Employee F has lower wages because of
significantly lower hours of service, the coverage under the plan is
treated as affordable with respect to Employee F, because the
employee contribution does not exceed 9.5 percent of the federal
poverty line.

(f) Additional guidance. With respect to assessable payments under
section 4980H(b), including the determination of whether an offer of
coverage is affordable for purposes of section 4980H, the Commissioner
may prescribe additional guidance of general applicability, published
in the Internal Revenue Bulletin (see Sec. 601.601(d)(2)(ii)(b) of
this chapter).
(g) Effective/applicability date. This section is applicable for
periods after December 31, 2014.


Sec. 54.4980H-6 Administration and procedure.

(a) In general. [Reserved]
(b) Effective/applicability date. This section is applicable for
periods after December 31, 2014.

PART 301--PROCEDURE AND ADMINISTRATION

Par. 5. The authority citation for part 301 continues to read in
part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 6.
Section 301.7701-2 is amended as follows:

0
1. In paragraph (c)(2)(v)(A)(3), the language ``and 4412; and'' is
removed and ``and 4412;'' is added in its place.


0
2. In paragraph (c)(2)(v)(A)(4), the language ``or 6427.'' is removed
and ``or 6427; and'' is added in its place.


0
3. Paragraphs (c)(2)(v)(A)(5) and (e)(6)(iii) are added.
The additions read as follows:


Sec. 301.7701-2 Business entities; definitions.

* * * * *
(c) * * *
(2) * * *
(v) * * *
(A) * * *
(5) Assessment and collection of an assessable payment imposed by
section 4980H and reporting required by section 6056.
* * * * *
(e) * * *
(6) * * *
(iii) Paragraph (c)(2)(v)(A)(5) of this section applies for periods
after December 31, 2014.
* * * * *

John Dalrymple,
Deputy Commissioner for Services and Enforcement.
Approved: February 7, 2014.
Mark J. Mazur,
Assistant Secretary of the Treasury (Tax Policy).
[FR Doc. 2014-03082 Filed 2-10-14; 4:15 pm]
BILLING CODE 4830-01-P