Summary of the Final Employer Shared Responsibility (Free Rider Penalty) Regulations

By Kimberly Pugliese posted 07-03-2014 17:29


On Monday, February 10th the Internal Revenue Service (IRS) released long-awaited final regulations implementing the Employer Shared Responsibility provision (the Free Rider Penalty or employer mandate) under Health Care Reform.  In addition to clarifying a number of open issues, the final regulations offer certain transition relief to employers for the 2015 plan year but will require full compliance with the law in 2016. 

General Rule and Effective Date

Under Internal Revenue Code (Code) Section 4980H, large employers that do not offer health coverage to full-time employees and their dependent children, or offer coverage that is “inadequate” or “unaffordable,” and have at least one employee enroll in Exchange (Market place) coverage and qualify for a federal premium tax credit or cost-sharing reduction, must pay a non-deductible penalty. 

While generally effective January 1, 2015, the final regulations provide transition relief for non-calendar year plans in existence on December 27, 2012:  for any employee for whom the employer offers “adequate” and “affordable” coverage by the first day of the plan year beginning in 2015, no penalty will be due prior to the beginning of the plan year beginning in 2015.  Note that an employer is not eligible for this transition if it modified its plan year after December 27, 2012 to begin at a later date.  The regulations include additional requirements an employer must satisfy to be able to take advantage of this transition. 

American Fidelity Administrative Services Can Help!

The final regulations provide welcome transition relief for employers.  The various transition rules provide employers with additional time to refine their analyses, test their strategies, and implement procedures that will be necessary in order to comply with the rules on an ongoing basis.

American Fidelity Administrative Services provides a variety of services designed to assist employers in understanding the changing law and developing compliance strategies. 

Learn more at or contact us at 877-302-5073.


Neither American Fidelity Assurance Company nor American Fidelity Administrative Services provide tax or legal advice, we always recommend working with your own legal counsel to discuss how your plans could be affected.

Further, this is only a brief summary that reflects our current understanding of select provisions of the law, often in the absence of regulations. All of the interpretations contained herein are subject to change as the appropriate agencies publish additional guidance.

Finally, any Federal tax information provided is not intended or written, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter that is contained in our written work products.

Some products and services may be provided by third party contractors or affiliated companies. Sales tax may apply to some services or deliverables. AFAS consultants provide information for plan sponsors about health and welfare benefit plans but do not provide guidance on specific insurance products; AFAS can provide a referral to an insurance agency if you would like assistance implementing or revising an insurance product.