Free Rider Penalty- Large Employers Subject to Penalty

By Kimberly Pugliese posted 08-06-2014 09:28


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

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. 

Large Employers Subject to the Penalty

The Free Rider Penalty only applies to large employers.  A large employer generally is one that employed an average of at least 50 full-time equivalent employees on business days during the preceding year.  However, the final regulations provide that employers with 50-99 full-time equivalent employees will not be subject to the penalty until the first day of the plan year that begins on or after January 1, 2016. Although not subject to a penalty in the plan year that begins in 2015, these smaller employers will still need to meet the reporting requirements related to Employer Shared Responsibility for the plan year that begins in 2015.

An employer’s number of full-time employees is based on actual hours of service in the prior year.  However, for purposes of determining whether an employer is a large employer in 2015, an employer may use a period of at least six consecutive calendar months, chosen by the employer, in the 2014 calendar year (rather than having to use the entire 2014 calendar year). 

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.