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Represents management exclusively in every aspect of employment, benefits, labor, and immigration law and related litigation Over 750 attorneys in 53 locations nationwide Current caseload of over 5,000 litigations and approximately 300 class actions Founding member of L&E Global 3

This presentation provides general information regarding its subject and explicitly may not be construed as providing any individualized advice concerning particular circumstances. Persons needing advice concerning particular circumstances must consult counsel concerning those circumstances. Indeed, health care reform law is highly complicated and it supplements and amends an existing expansive and interconnected body of statutory and case law and regulations (e.g., ERISA, IRC, PHS, COBRA, HIPAA, etc.). The solutions to any given business’s health care reform compliance and design issues depend on too many varied factors to list, including but not limited to, the size of the employer (which depends on complex business ownership and employee counting rules), whether the employer has a fully-insured or self-funded group health plan, whether its employees work full time or part time, the importance of group health coverage to the employer’s recruitment and retention goals, whether the employer has a collectively-bargained workforce, whether the employer has leased employees, the cost of the current group health coverage and extent to which employees must pay that cost, where the employer/employees are located, whether the employer is a religious organization, what the current plan covers and whether that coverage meets minimum requirements, and many other factors. IRS Circular 230 disclosure: Any tax advice contained in this communication (including any attachments or enclosures) is not intended or written to be used, 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 addressed in this communication. (The foregoing disclaimer has been affixed pursuant to U.S. Treasury regulations governing tax practitioners.) 4

Two programs to cover final regulations issued by the IRS on February 10, 2014 and February 24, 2014 Emphasize changes made by final regulations to the proposed regulations Discuss transition relief 5

This webinar will: o Explain transition relief from 2013 and 2014 o Lay a foundation of basic concepts o Determine applicable large employer status o Which workers to count/how to count the worker for large employer status o Full-time vs. part-time/what does it mean for large employer status o Controlled group rules 6

The April webinar will provide a deep dive into: o Measurement and stability periods o Full-time/part-time – what does it mean for penalty purposes o Calculating penalties o Minimum value and affordability o Final reporting rules issued by the IRS on March 5, 2014 (Code §§ 6055 and 6056) 7

On July 2, 2013, Treasury Department extended to 2015 (from 2014) the ACA requirement that employers provide health coverage to employees or pay the penalties (employer shared responsibilities penalties) 8

What does the extension do? o No penalties for 2014 ($2,000/$3,000) o Major effects Affordability not an issue in 2014 Minimum value not an issue in 2014 Full-time vs. part-time vs. seasonal not an issue in 2014 (i.e., who to cover) Large employer status not an issue in

What does the extension not do? o Basically all other PPACA rules still apply o Individual mandate and related penalty on individuals for failure to attain coverage o Plan provisions, e.g., annual and lifetime limits, preexisting conditions, waiting periods o PCORI and reinsurance fees o Does not eliminate availability of premium tax credit (subsidy) for qualifying individuals who use the Exchange 10

Mid-size Employers o full-time equivalent employees (FTE) o Not subject to ACA penalties until plan year beginning 2016 Employers must certify that they have not laid off employees or reduced work hours to drop below 100 Employer must not eliminate or materially reduce coverage offered as of February 9, 2014 Employer can use a 6 month period in 2014 to determine if it meets 100 employee threshold 11

Large Employers o 100 or more FTE for 2015 o Determine status based upon preceding year To determine status for 2015 can use 6 months in and thereafter, determine large status on 12 month basis of prior year 12

Large Employers (cont.) Applicable large employer must offer minimum essential coverage to “substantially all” FT employees to avoid $2,000 penalty o “Substantially all” equals 95% per proposed regulations o 70% is substituted for 95% until 2016 PY begins in 2016 $2,000 penalty only; not $3,000 penalty o The first 80 (rather than 30) FT employees will be excluded from the $2,000 penalty for

Large Employers (cont.) o Not required to offer dependent coverage in 2015 if: Do not currently offer coverage to the dependents or category of dependents Take steps in 2014 or 2015 (as applicable) to offer coverage to such dependents Applies on a plan year basis for non-calendar year plans 14

Large Employers (cont.) o Non-calendar year plans are subject to the penalty tax based on the start of the 2015 plan year if certain conditions are met: Affordable, minimum value coverage must be offered to FT employees on the first day of the 2015 plan year Applies to all employees who were eligible for coverage under the terms of the plan in effect on December 27,

Large Employers (cont.) Plan was not modified after December 27, 2012 to begin at a later calendar date If employer has more than one non-calendar plan, on December 27, 2012, employees of calendar year plan may be transferred to non-calendar year plan –“Significant percentage” of employees were covered by non-calendar year plan Midsize employers do not get this break for

Large Employers (cont.) o Employer not subject to penalties for employees covered by multiemployer plan o For 2015, an applicable large employer can use a 6 month measurement period (even with a 12 month stability period) 17

Large Employers (cont.) o Excise tax is payable upon IRS notice and demand IRS will collect various data from exchanges, employers and insurers IRS will notify employer if excise tax is due from employer Employer will have opportunity to challenge assessment, e.g., affordable, minimum essential coverage was offered to an employee who claimed exchange subsidy 18

If you are an applicable large employer o Required to offer substantially all full-time employees and their dependents minimum essential coverage that is affordable, and provides minimum value in order to avoid any potential penalties o Penalty is applicable for plan years beginning in 2015 (2016 for mid-sized employers) 19

Even employers who are not applicable large employers are impacted if the employer provides health coverage 2014 is the year to determine: o Is the employer an applicable large employer o Whether employer will play or pay o What actions employers will take, e.g., reduce employees’ hours 20

“Large” means the employer had an average of 50 or more full-time and full-time equivalent employees on business days in prior calendar year (100 or more for 2015 only) Employer status is determined on controlled group basis; different EIN ≠ different employer 21

Excise tax is imposed separately on each member of a controlled group The 30 (80 for 2015) exclusion is allocated among members of the controlled group Employee employed by more than one member of group is treated as employee of the employer with most hours worked Special rules for predecessor employers and new employers Anti-abuse rules 22

A full-time employee is an individual who is expected to work at least 30 hours per week or 130 hours per month The hour threshold did not change Hours of all other part-time employees must be counted to determine how many “Full-Time Equivalent” employees exist o Part-time employees are considered to determine whether an employer is “Large,” part-time employees do not need to be offered coverage 23

o Fractional employees are counted for determining how many full- time equivalent employees exist o Calculation of “Full-Time Equivalent” = The aggregate hours of service in a month of all employees who work an average of less than 30 hours per week (up to 120), divided by 120 hours. The result is the number of Full-Time Equivalent employees for that month 24

Non-employee directors, sole proprietors, partners, 2% S Corporation shareholders and leased employees (if they are not common law employees) are not considered employees Disregard work performed outside of the United States Employees living and working abroad are not taken into account Student workers, immigrants lawfully entitled to work in the U.S., and members of collective bargaining unit all are counted in the applicable large employer analysis 25

Three primary factors— o Behavioral controls Who controls the timing, job functions, place and manner and means of the work? o Financial controls Who controls what is charged; when the worker is paid; what expenses are reimbursed; and what tools and supplies are purchased? o Type of relationship Is the relationship exclusive and long-term? Is the worker “key” to the product or service the employer provides to clients? 26

A staffing business may be treated as a common law employer The specific facts and circumstances determine whether workers are staffing company’s employees and/or recipient company’s employees Staffing company’s offer of coverage is treated as offer by recipient company if the staffing fees are higher when coverage is provided 27

Full-time = employed on average for 30 hours of service per week (130 hours per month) Calculation of hours of service o Hour of service is each hour for which an employee is paid or entitled to payment o Includes hours for which no services are performed, but payment is owed by employer (i.e., on-call or paid leave time) o Employer may use different calculations for different categories of employees 28

Certain hours excluded o Services rendered by “bona fide volunteers” – disregard stipends, travel expenses – and including volunteer firefighters o Certain student employee services – only certified federal work study programs or similar state work study programs But includes paid interns and externs o Use “reasonable method” for adjunct faculty, airline workers, on- call employees (note layover time is counted if paid) o Adjunct professors – safe harbor of 2 ¼ hours for each hour of classroom time plus additional actual hours 29

Hourly – count actual hours Non-hourly – count actual hours or use equivalency rules Daily – any time during a day equals 8 hours Weekly – any time during a week equals 40 hours 30

Applicable large employer definition is avoided if all employees in excess of 50 were employed 120 days or fewer during the calendar year; and o The employees were “seasonal” as defined by the Secretary of Labor under 29 CFR (s)(1); or o The employees were agricultural or retail employees working only during the holiday seasons 31

1)Count your full-time employees (including seasonal) for each month in 2014 (transition rule for 2014 can use 6 months) 2)Count your full-time equivalents (including seasonal) for each month in 2014 a)Add total hrs for non full-time employees but count no more than 120/mo for any one non full-time employee b)Divide # obtained in substep a) by 120; the result is the number of full-time equivalents for that month 3)Add the two #s obtained in steps 1) and 2) above for each month 4)Add the twelve sums obtained in step 3) and divide the total by 12; the result is the average number of full-time employees/equivalents 5)If the # in step 4) is at least 50, determine whether seasonal employee exception applies 32

Small employers that become applicable large employer – If the employer offers coverage on or before April 1 st of the first year, the employer will not be subject to an ACA penalty for failure to offer minimum essential coverage for the first three months o Three month grace period by final regulations 33

Parent-subsidiary group – an entity has an 80% or more controlling interest in another entity Brother-sister group – same 5 or fewer people (or trusts/estates) together own at least 80% of each entity and, taking into account the ownership interest of each owner only to the extent identical with respect to each entity, the owners hold more than 50% of each entity Affiliated service group – service organizations (e.g., medical practice, architectural firm) where one performs services for the other or management function group Attribution rules apply 34

P owns 100 percent of S-1 and S-2 For all of 2014, P has 10 full-time employees, S-1 has 40 full- time employees and S-2 has 60 full-time employees P, S-1, and S-2, collectively, are an applicable large employer and each one is an applicable large employer member 35

OwnerAxel CorpBearing CorpIdentical Ownership William65%20% Xavier10%50%10% Yolanda15% Zoe10%15%10% Total100% 55% 36

February 24, 2014 Final Regulations Plan cannot provide waiting period of greater than 90 consecutive calendar days $100/day excise tax with self-reporting Effective for plan years beginning in

Plans can impose “reasonable and bona fide employment based orientation period” which may result in a greater than 90 day waiting period o Final does not specify what is “reasonable and bona fide” o Proposed regulations (issued with final regulations) propose one month as a maximum orientation period Rehire can be treated as new hire for 90 day waiting period o Cannot be a subterfuge 38

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