Earlier this year, the Internal Revenue Service (IRS) proposed extensive regulations on the employer mandate, commonly known as the play or pay feature of the Affordable Care Act (ACA). We asked benefits expert Sheldon J. Blumling, a partner in Fisher & Phillips’ Irvine, California, office to discuss them.

Update: In July 2013, the Obama Administration delayed the ACA 'play or pay' provision until 2015.

“This is very important guidance,” said Blumling. “There may be more proposals at the end of 2013, but this is the bulk of it.” As most employers realize, or we hope you do, the play or pay mandate kicks in on January 1, 2014. At that point, employers with 50 or more full-time employees or full-time equivalents must either offer healthcare coverage to all full-time employees (play) or pay penalties. Blumling urges employers to begin planning as soon as possible, since the law and the processes it requires are complex.

In fact, he believes it is so complex that many employers will need to hire a benefits consultant. But he also acknowledges that the IRS tried to give employers as much flexibility as it could within the constraints of the way the law was written.

For example, whether coverage is affordable according to the law originally meant that it did not cost more than 9.5 percent of an employee’s household income. But about 18 months ago, the IRS announced that the cost must be no greater a percentage than that of the employee’s W-2 income, easing any employer’s calculations. And, in this new guidance, surprisingly, dependents that must be covered under an employee’s plan means children, including step- and foster children, but not spouses or domestic partners.

But, says Blumling, the affordability factor is based on employee-only coverage, not that of families. He adds, “I’ve never seen a plan that refused to cover a spouse.” He also notes that Congress didn’t intend to let an employer off the hook if the coverage it offers is affordable for the employee by himself or herself, but not for the family.

Two other features are helpful. The guidance gives employers more leeway than expected on how to plan for a parent and its subsidiaries. Employers feared that all would be lumped together, so that if any one entity had 50 employees, all would have to play or pay. Not so, says the IRS: Each entity can be counted separately. But there may be some limitations issued, such as rules on highly compensated employees.

The second helpful feature involves how to calculate an employee’s income for the affordability factor. You could, of course, base it on each person’s W-2 for 2013, but in some, if not many, cases that figure would be inaccurate for 2014.

So the IRS created new safe harbors: You can use a rate of pay based on 9.5 percent of an exempt employee’s monthly income or, for nonexempts, such a person’s earnings for 130 hours. A second safe harbor allows employers to calculate affordability based on the federal poverty level: That’s $11,000 a year for an individual, so more than 9.5 percent of that per month means it’s not affordable coverage.