Employers Beware: You Better Not Fire Your Employees Because of the New Mandate Waiver

March 12, 2014 — Leave a comment

Yesterday, President Obama did an interview with comedian Zach Galifianakis, on his show “Between Two Ferns,” where he tried to rally some much-needed support for Healthcare.gov. Surprisingly, the awkward interview video has become the number one site driving traffic to Healthcare.gov.

President Obama seems to be doing whatever he can these days to help muster support for his party ahead of the midterm elections. Unfortunately, Republican David Jolly won a closely watched U.S. House special election in Florida last night. Though Jolly was short on money, groups pooled money into one of the most expensive House races ever to hammer the ineffectiveness of the Affordable Care Act (ObamaCare) into voters’ minds for the win.

This repeal-ObamaCare platform won, which should make Democrats weary in a year where President’s Obama’s approval ratings struggle and where there are not many competitive seats open for them to win. With ObamaCare’s empty promises thus far and the flaky website roll-out, President Obama is trying to help Democrats hold onto seats in Congress because voters are very unhappy.

Last Monday, President Obama once again answered the Republicans repeated calls for a repeal or extended delay of the ObamaCare legislation by extending the employee mandate waiver in the hopes of quieting these angry voters.

“Once again, the president is giving a break to corporations while individuals and families are still stuck under the mandates of his health care law. And, once again, the president is rewriting law on a whim,” House Speaker John Boehner said in a statement. “If the administration doesn’t believe employers can manage the burden of the law, how can struggling families be expected to?”


What is the history behind the ObamaCare employee mandate?

Congress’ original ObamaCare bill stated that companies, with more than 50 full-time employees, needed to provide “minimum essential coverage” starting on January 1, 2014; otherwise, these employers would face steep fines. Last summer, the administration delayed the entirety of this employer mandate until the beginning of 2015 to ease the transition for businesses.

With all the troubles with Healthcare.gov’s roll-out, the administration looks to give businesses even more time when providing their own health insurance to full-time employees with the newly extended waiver.

The phasing-in of the employer mandate is designed to make “the compliance process simpler and easier to navigate,” said Mark Mazur, Assistant Secretary for Tax Policy.

Under the newest waiver, employers, with 50-99 employees, will not have to start providing their employees with health care coverage under ObamaCare until 2016. The Small Business Administration estimates that “approximately 7.8 million people (7 percent of all workers in the United States) work at companies of this size.”

Employers, with 100 or more employees, will only have to provide 70 percent of their employees with the minimum essential coverage in 2015, and then 95 percent the following year and beyond. The Small Business Association data shows that “113 million people, or 66 percent of all workers, are employed at businesses with 100 or more workers.”

Employers that have less than 49 employees will still not have to provide their employees with any coverage.

Finally, the new waiver will relax requirements on certain occupations and industries that were at particular risk of disruption. The administration has noted that volunteers, such as firefighters and adjunct faculty for example, are not full-time employees; thus, employers will not have to provide them with health insurance under ObamaCare.

What are the problems with this revised ObamaCare waiver?

Kaiser Family Foundation, a U.S.-based non-profit and non-partisan foundation that deals with health care issues, found that “99 percent of businesses with 200 or more workers offered insurance coverage in 2013. For businesses between 50 and 199 workers, the offer rate is 91 percent.”

“[T]his delay will likely amount to a relatively small, if non-existent, change,” adds Sarah Kliff for The Washington Post’s Wonkblog.

I realize that most if not all employers will not have to go to great lengths to provide their employees with health care plans as ObamaCare requires. However, there are other issues that make this revised waiver a little more legally disheartening.

There are two problems that I see with this newest revision.

  1. Businesses will be facing big moral dilemmas in the near future. The IRS will be critical of employers’ staffing decisions: the same decisions they normally would make with their businesses.
  2. President Obama seems to blatantly disregard the law that he has already signed, which the Supreme Court nor Congress has amended, by passing these waivers.

Employers’ Moral Dilemmas

The Obama administration believes that with the extended delay for the employer mandate, employers near the 100 employee threshold will purposely fire employees to reach this threshold. Taking these measures would allow employers to avoid the mandate until 2016: two years beyond what Congress had written.

If we remember correctly, the Supreme Court recently ruled that ObamaCare mandates are lawful taxes. Officers have responsibilities to their shareholders and to their company. They will make the decisions that will help their businesses flourish, so they will have to look at this waiver to see what they would gain or loss by following it.

Businesses look at costs all the time: labor costs, tax costs etc. Once again, this mandate exists because it is a tax. The waiver is essentially turning these regular staffing decisions into crimes if an employer choses to make changes to run a more efficient business next year. Does the government need to get involved in these staffing decisions?

“So, figure out what that means,” Marc Thiessen of the American Enterprise Institute added. “American businesses have to justify their hiring decisions and firing decisions to the IRS. So, if you have 101 employees and you lay off two people (to get into the 50- to 99-employee category), you have to tell Big Brother why you did it. And you have to justify it. I mean, that is Orwellian.”

To qualify for this relief and to avoid penalties for another year, a company must “not reduce the size of its workforce or the overall hours of service of its employees in order to satisfy the workforce size condition set forth in paragraph (1) of this section XV.D.6.

Here are some examples of “bona fide business reasons” that the IRS will accept staffing changes:

  • business activity such as the sale of a division,
  • changes in the economic marketplace in which the employer operates,
  • terminations of employment for poor performance, or
  • other similar changes unrelated to eligibility for the transition relief provided in this section XV.D.6.

An employer will have to certify to the IRS, under penalty of perjury, that it did not cut its workforce solely to fall in the 50-99 employee threshold to avoid the mandate. You can avoid the law, but only if you promise not to say so.

To point out the obvious, the government presents a fake incentive to lay off workers, and then it punishes the business, with a criminal offense, for doing what the incentive led it to do when making a business decision.

President Obama’s Disregard for What is the Law

Though the President has already signed the Affordable Care Act, he continues to manipulate aspects of the law without Congressional approval. It is ironic that the Harvard Law graduate and Constitutional Law professor seems to forget that his duty is to faithfully execute those laws that Congress passes and not to faithful re-write them. When balancing the powers of our federal government, Congress writes the laws and the President enforces the laws; the balance of powers seems to be slightly unbalanced here.

As seen here, delays to the employer mandate can matter politically. ObamaCare is the law, and the President should not amend it without Congressional approval. Its implementation has had a tough road, and If it dies, it dies. Though the waiver is temporal, President Obama and his administration do not have the authority to amend a signed piece of legislation to help their near political landscape.

This particular waiver could cause more trouble than benefits since employers can fire employees if the employers are willing to lie to the IRS. This could cause unintended consequences such as cost increases to taxpayers since more individuals would be looking to the ObamaCare exchanges for subsidized coverage. Wasn’t ObamaCare supposed to be more beneficial than troublesome?

What is the response to these potential IRS inquiries?

Senator Rand Paul has threatened to sue the President. However, it is difficult to sue the President or even the IRS because you would need to have standing for the Court to hear your case, as Slate.com describes. In this case, it would mean that the plaintiff would need to be a business, and it would have to show that its injury is exclusively tied to the policies of either President Obama or the IRS.

Even if a business is able to show standing, commentators like Rush Limbaugh point out that these cash-strapped businesses will not want to sue since they would have to go up against the behemoth Justice Department and federally appointed judges.

To conclude, it is clear that businesses do not have to do much to adjust to the mandate’s requirements. Nevertheless, it seems that the President’s newest waiver does not seem to make the compliance process simpler and easier to navigate like his administration says; it looks like his administration is trying to carve out a better election landscape for this November instead.

JDKatz: Attorney's At Law

JDKatz, P.C. is a full-service law firm focused on tax lawbusiness and transactional lawestate planning and elder law. We are dedicated to minimizing your existing liability and risks while providing valuable tax planning to streamline your tax issues in the future. Please call us at 301-913-2948 to schedule an appointment to meet with one of our trusted attorneys, or visit http://www.jdkatz.com.

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