The ACA End Game – What if an Employer Neither Plays Nor Pays

The ACA End Game – What if an Employer Neither Plays Nor Pays

Inevitably there will be employers who fail to comply with the ACA’s Play or Pay Mandate through ignorance or even despite their best efforts.  This is understandable given the complex nature of the law and how much bad information is being circulated about the ACA.  What is not clear is the government’s end game when this situation occurs.  Consider the following example, which is quite common in the restaurant industry, to illustrate the point.

Clyde got into the restaurant business a few years back.  After a few successful years he decided to expand his business and he now successfully operates three restaurant businesses.  Most of Clyde’s employees work 30 or more hours per week.  In total Clyde’s three restaurants employ 100 employees who work 30 or more hours per week.

Clyde’s situation represents numerous restaurant owners around the country.  Any restaurant owner with 50 or more full-time equivalent employees will have to navigate the complex ACA law.  Employers close to the 50 employee threshold will have to understand complex issues such as the controlled group rules and the nuanced hour counting requirements of the ACA.  Undoubtedly some will fail to comply for a multitude of reasons ranging from ignorance, receiving bad information, or the sheer complexity of the law.  Regardless of the reason, there will be some business owners who unknowingly fail to comply with the law.

Let’s go back to the example with Clyde.  If Clyde’s restaurants do not comply with the ACA, his restaurants will be liable for $140,000 in penalties associated with the Play or Pay Mandate in 2015 even if the noncompliance is inadvertent. If the government strictly enforces the penalty which is how the ACA and associated regulations are currently drafted, it could cause all three of Clyde’s restaurants to go out of business.  This would cause 100 people to lose their job.  If the restaurants were operating as pass-thru tax entities, Clyde would be liable for the $140,000.  If the restaurants were not pass-thru tax entities, State law may prevent Clyde from opening a successor restaurant as the penalty associated with Clyde’s three restaurant’s would attach to any successor business of Clyde’s.  I don’t see any winners in this scenario.

Alternatively, the government could implement a corrections program to assist people like Clyde who inadvertently fail to comply with the law.  When the proposed shared responsibility regulations were released there was strong support for a corrections program.  However, there has been little discussion of any sort of program in the past six months.  Hopefully, the Department of the Treasury seriously considers implementing a corrections program to assist business owners in complying with the complicated law.

Regardless of whether a corrections program is created, prudent business owners will begin planning for the 2015 employer mandate soon.  Business owners waiting until the last second to implement an ACA strategy will have less flexibility to minimize their ACA exposure.

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