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Wednesday, July 17, 2013

IRS Issues Guidance on Delay of Employer Mandate

Last week, the IRS issued guidance on the one-year delay of Obamacare's employer shared responsibility (i.e., "Pay or Play") mandate.  The guidance confirmed that the new effective date for both the employer reporting requirements and penalty provisions will be January 1, 2015.   This gives  "large employers" (i.e., those with 50 or more full-time employees or equivalents) an additional year to plan for the employer mandate.

Many business owners are asking how they should proceed in light of the delay.  Here are my initial thoughts:

  • One option is to take advantage of the additional year to plan for implementation and better ensure compliance in 2015.  
    • Large employers could begin putting in place systems to identify and count their full-time employees and full-time equivalents under the rather complex proposed regulations issued by the IRS earlier this year.  The IRS guidance encourages large employers to voluntarily begin reporting information in 2014 as a kind of of real-world testing of the mandatory reporting requirements that will begin in 2015.  Employers could use 2014 as a kind of trial run to get ready for 2015.
    • Closely-held businesses with overlapping ownership might use the extra time to determine whether their employees will be aggregated together for purposes of the employer mandate under the "controlled group" rules.  If so, such businesses now have additional time to consider various options to limit Obamacare liability, including business restructuring, business succession plans, and estate planning.
  • A second option that some large employers may want to consider is simply "wait and see."  
    • Although the Obama Administration steadfastly maintains that the one-year delay will not affect the ultimate implementation of the employer mandate, it seems clear that the delay has clouded the employer mandate in uncertainty as to whether it will ever be implemented in its current form.  Business lobbies, for instance have pressed Congress to change the ACA's definition of full-time employee (currently those working at least 30 hours per week).  Even in the current dysfunctional Congress, there is some possibility that bipartisan support could emerge to amend the employer mandate before 2015.
    • Further, the IRS still has not issued final rules on the employer mandate.  The IRS previously suggested that the final rules would not differ much from the proposed rules.  However, in light of the delay, it would not be surprising to see some significant changes.
Employers of all sizes should also keep in mind that the delay in the "Pay or Play" mandate does not affect other Obamacare provisions that are set to take effect this year.  For instance, employers must still issue notices to employees about the availability of health care exchanges by October 1, 2013. The individual mandate is still in effect, so employers who do not offer minimum health coverage should bear in mind that any otherwise uninsured employees will be required to obtain minimum health insurance or else face a possible tax penalty.

This article is intended to provide information about current legal developments of general interest and consists of the opinions of the author.  It should not be construed as legal advice, and readers should not act upon the information contained herein without consulting professional counsel.