The Affordable Care Act’s (ACA) employer shared responsibility rules provide applicable large employers (i.e., those with 50 or more full-time and full-time equivalent employees on business days during the preceding calendar year) with a choice: make an offer of group health plan coverage to substantially all of the employer’s full-time employees or pay a non-deductible excise tax if at least one full-time employee qualifies for a premium tax credit from a public insurance exchange or marketplace. (The particulars of the tax are explained in a set of Questions and Answers issued by the Internal Revenue Service.) Because the amount of the tax for failing to offer any coverage is substantial, most employers view the employer shared responsibility rules as imposing a mandate rather than offering a meaningful choice. Consequently, what constitutes an offer of coverage, and how the offer is reported, is of interest to employers.

In the vast majority of cases, the offer of coverage will be made to employees under a plan that is established and maintained by the employer or an affiliate of the employer. In the regulations and other guidance implementing the employer shared responsibility rules, a single applicable large employer is referred to as an ALE, and members of a group of related entities that together make up an ALE are referred to as applicable large employer member(s) (or “ALE member(s)”). Where coverage is offered by an affiliate, the 2014 Instructions for Forms 1094-C and 1095-C (following the applicable final regulation) provide that an “employer offers health coverage to an employee if it, or another employer in the Aggregated ALE Group . . . offers health coverage on behalf of the employer.” Simply put, coverage offered by an affiliate of the employer is treated as an offer of coverage by the employer.

But there are instances in which the offer of coverage is not made by the employer or an affiliate. The final regulations under Internal Revenue Code § 4980H implementing the employer shared responsibility rules recognize and provide separate rules for three such instances: multiemployer or single employer Taft-Hartley plans, multiple employer welfare arrangements (MEWAs), and offers of health coverage made by staffing firms. There are, of course, other cases not necessarily contemplated by the final regulations. These instances are sometimes collectively referred to as “inadvertent MEWAs.” They include:

• Instances in which employees remain on the group health plan of a seller for a period of time following a corporate transaction;

• Joint ventures that offer group health plan coverage to venture employees under a group health plan maintained by one of the parties to the venture;

• Cases in which an employer extends coverage to employees of an unrelated vendor that serves the employer or its workforce; and

• Situations in which employers mistakenly believe they are under common control only to later discover they are not.

NOTE: Inadvertent MEWAs can pose a host of problems beyond those relating to ACA reporting. MEWAs are generally subject to other reporting requirements under ERISA.

Under the final regulations, an offer of coverage includes an offer of coverage made on behalf of an employer, including 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. Moreover, 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 (PEO) or a staffing firm (in cases where the staffing firm is not the common law employer of the worksite employee) is treated as an offer of coverage by the employer.

Multiemployer plans

Reporting by employers who offer coverage to their collectively bargained employees under a multiemployer (Taft-Hartley) plan is particularly challenging, both because it would require a level of cooperation by the multiemployer trustees that was previously rare if not unheard of and also because there are other potential legal impediments—e.g., the HIPAA privacy rules—that may prevent the sharing of the information. The draft 2015 Instructions for Forms 1094-C and 1095-C provided some welcome relief on this score. For 2015, employers are allowed to use code 1H (“no offer of coverage”) on Form 1095-C, Line 14 for any month in which they claim the benefit of the multiemployer plan transition relief made available in the preamble to the final Code § 4980H regulations. Employers signal that they are taking advantage of the transition relief by entering Code 2E on Form 1095-C, Line 16. Before the draft 2015 instructions, an employer had to determine whether each of its full-time collectively bargained employees was actually covered by the multiemployer plan. That the employer was contributing on the employee’s behalf was insufficient, nor was the employer permitted to simply leave Form 1095-C, Line 14 blank.

Multiple Employer Welfare Arrangements

The typical MEWA is offered by a trade or industry association, where the levels of cooperation are typically high. The relief provided by the draft 2015 Instructions to multiemployer plans is not available. Nor is that relief necessary, since employers usually know which employees are enrolled in the offered coverage.

Inadvertent MEWAs are another matter entirely. In the case of post-corporate transaction coverage, the buyer and seller will need to cooperate and coordinate to ensure that the buyer has the information that it needs to prepare Form 1095-Cs for its employees. This is a matter that perhaps should be included in the purchase agreement. Provided the parties are aware of the issue, obtaining the requisite information to prepare Form 1095-Cs should not prove too troublesome in the case of joint ventures and companies that extend coverage to an unrelated workforce. Awareness is critical, however, and it is often missing. The problems compound in the case of employers that mistakenly believe they are under common control. In each of these cases, it might well be that Form 1095-Cs are provided, and information is transmitted on Form 1094-C, but by the wrong party. One would hope that penalties would be waived under the transitional good faith compliance standard or abated if corrected voluntarily in advance of an audit based on a showing of reasonable cause.

PEOs and Staffing Firms

The special rule provided in the final Code § 4980H final regulations has been the source of considerable confusion where staffing firms are concerned. The rule provides as follows:

(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. . . . 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. (Emphasis added.)

The rule applies by its terms in instances where the worksite employees are the common law employees of the client. While there is some difference of opinion on the matter, PEOs typically treat worksite employees as the client’s common law employees, while staffing firms do the opposite. For entities affected by the rule, the proper reporting entity is the common law employer. Thus, in the case of the typical PEO, the PEO will need to provide the client company with the information on participant elections, coverage offered, minimum value, and affordability that the client needs to prepare and file Forms 1094-C and 1095-C.

The staffing industry takes the position that, in the great majority of cases, the worksite employees should be considered the common law employees of the staffing firm—and there is historical precedent in support of that position. Nevertheless, as a precaution, staffing firms are charging additional fees for worksite employees who accept their offer of coverage if the client expresses concern about the issue. If it turns out on audit that the worksite employees are in fact the common law employees of the client, then the client is treated as having offered the coverage for purposes of compliance with the employer shared responsibility rules. While this strategy is sound in our view, if the worksite employees are determined on audit to be the common law employees of the client, then the client and not the staffing firm should have filed the Forms 1095-C. It is unclear why, as a policy matter, this should be of concern provided that the staffing firm filed the reports based on a reasonable, good faith assumption that it was the common law employer.

Separately, the question of the employer status of staffing firms and their clients has been muddied by the recent National Labor Relations Board decision in Browning-Ferris Industries of California, Inc. There, the NLRB held that, under the National Labor Relations Act, workers at a Browning-Ferris recycling facility were employees of both Browning-Ferris and its subcontractor, despite that Browning-Ferris never actually exercised its authority to control the terms and conditions of the workers’ employment. Unlike labor law, however, there is no such thing as joint employment for tax and employee benefits law purposes. Thus, this decision has no bearing on the interpretation of who is the common law employer for purposes of the ACA’s employer shared responsibility rules.