Beginning in 2014, the Affordable Care Act (ACA) imposes “pay or play” requirements on large employers. Under these pay or play requirements, large employers that do not offer health coverage to their full-time employees and their dependents, or that offer coverage that is either unaffordable or does not provide minimum value, may be subject to a penalty. This penalty is also referred to as a “shared responsibility payment.”
On Jan. 2, 2013, the Internal Revenue Service (IRS) published proposed regulations that provide further guidance on the employer shared responsibility provisions. Although the proposed regulations are not final, employers may rely on them until further guidance is issued.
An important first step when assessing an employer’s potential liability under ACA is to determine if the employer meets the large employer threshold. Only employers with at least 50 full-time employees (including full-time equivalents) are subject to ACA’s pay or play penalty.
This Legislative Brief addresses the proposed regulations’ guidance on how foreign employers and employees are treated for purposes of the employer shared responsibility provisions.
Identifying Full-Time Employees
A full-time employee is an employee who is employed on average at least 30 hours of service per week. Hours worked by employees with fewer than 30 hours per week must be counted—and then divided by 120 per month—to determine the number of full-time equivalents (FTEs). The number of FTEs is then added to the actual full-time employee count.
Foreign Employers and Foreign Employees
For purposes of determining whether an employer meets the 50 full-time employee (or full-time employees and FTEs) threshold, an employer generally will take into account only work performed in the United States. For example, if a foreign employer has a large workforce worldwide, but fewer than 50 full-time U.S. employees in the United States, the foreign employer generally would not be subject to the employer shared responsibility provisions.
A company that employs U.S. citizens working abroad generally would be subject to the pay or play requirements only if the company had at least 50 full-time employees, determined by taking into account only work performed in the United States. Accordingly, employees working only abroad, whether or not they are U.S. citizens, generally will not be taken into account for purposes of determining whether an employer meets the 50 full-time employee threshold. Furthermore, for employees working abroad, the time spent working for the employer outside of the United States would not be taken into account to determine whether the employer owes a pay or play penalty or the amount of any penalty.
This rule is applicable both for purposes of determining whether an employer is subject to the mandate and for purposes of determining which employees are “full-time employees” and must, as a result, be offered coverage.