Member question: Can you clarify the approach to employee worksite and employee residence?
Three-part response: As you read these responses, "hear them" as if you were listening to experts on a panel discussion sharing their knowledge and commenting at least in part on what other panelists are saying.
Remote workers
Part 1
If the employer is large and subject to ACA’s employer mandate, there is flexibility to use residence or work site for “affordability” purposes, but that is obviously separate. Employee primary worksite is used to determine funding/affordability.
Employees residence is used to determine impact of the employer funding on the employee.
There are several administrators saying that you can have different funding for employees that say work in Rating Area 9 of a State, but live in Rating Area 7… this is not true.
An ICHRA must offer the same contribution amount (but for exceptions such as age and family size) within a class, and there is no separate class for employee residence.
Part 2
When the IRS created the location safe harbor, they did address the definition of primary worksite as it relates to those who work from home or have a hybrid arrangement.
Here are the details:
Clarification on those who primary location to those who telecommute:
- Hybrid work location - In the case of an employee who regularly works from home or at another worksite that is not on the employer's premises but who may be required by his or her employer to work at, or report to, a particular worksite, such as a teleworker with an assigned office space, the worksite to which the employee would report to provide services if requested is the applicable primary site of employment.
- Solely work from home - in the case of an employee who works remotely from home or at another worksite that is not on the employer's premises and who otherwise does not have a particular assigned office space or a worksite to which to report, the employee's residence is the primary site of employment.
Remember that use of any of the safe harbors is optional for an ALE member, and an ALE member may choose to apply the safe harbors for any class of employees, provided it does so on a uniform and consistent basis for all employees in the class of employees.
Part 3
The final rules allow a class of employees to be based on the rating area of the employees' primary work site. It lists one class option as, "employees whose primary site of employment is in the same rating area, as defined in 45 CFR 147.102(b)."
The individual zip codes are used to determine the affordability of the plan for that individual. Here, the departments also introduced an optional location safe harbor based on primary worksite to alleviate the burden on employers of the affordability determination.
In Notice 2018-88, the IRS expressed concerns that this may be onerous for employers to determine affordability since it would need to be done per employee and employees changing their residence or may not notify employers timely, which may inadvertently cause noncompliance in meeting affordability requirements. In the notice, they proposed a safe harbor allowing an ALE to use the lowest cost silver plan for the employee for self-only coverage offered through the Exchange in the rating area in which the employee's primary site of employment is located, instead of the lowest cost silver plan for the employee in the rating area in which the employee resides (the location safe harbor).
According to the IRS, use of the employer location is more consistent with how employers offer plans, i.e., rates are not based on individual location but the location of the plan. Any variance is solely based on age and family coverage.
As a result, Treasury and IRS conclude that it is a reasonable proxy to use employee’s primary site of employment for employee residence.
“Therefore, the proposed regulations provide that for purposes of section 4980H(b), an employer may use the lowest cost silver plan for the employee for self-only coverage offered through the Exchange where the employee's primary site of employment is located for determining whether an offer of an individual coverage HRA to a full-time employee is affordable. Further, the proposed regulations provide that the location safe harbor may be used in combination with the other safe harbors provided in the proposed regulations.” (Application of the Employer Shared Responsibility Provisions and Certain Nondiscrimination Rules to Health Reimbursement Arrangements and Other Account-Based Group Health Plans Integrated With Individual Health Insurance Coverage or Medicare – 9/30/19) https://www.federalregister.gov/documents/2019/09/30/2019-20034/application-of-the-employer-shared-responsibility-provisions-and-certain-nondiscrimination-rules-to
