For benefits plan years beginning in 2016, applicable large employers (ALEs) may be subject to a tax penalty under Section 4980H of the Internal Revenue Code (IRC) if: 1) a full-time employee receives a premium tax credit or costs-sharing subsidy through a Marketplace and 2) the company failed to offer minimum essential health care coverage (that meets the ACA’s minimum value and affordability requirements) to at least 95% of its full-time employees and their dependent children up to age 26. The offer of coverage threshold was 70% of full-time employees for benefits plan years beginning before 2016.
In order to avoid potential penalties, it is important for ALEs to understand how to determine which employees are “full-time” under the ACA and should be eligible for benefits.
A full-time employee is an individual reasonably expected to work at least 30 hours per week. For this purpose, “hours” include each hour for which an employee is paid or entitled to payment for performing duties for the employer or entitled to payment even if no work is done (e.g. holiday, vacation or sick time).
Employees with variable hours may also be considered full-time, benefits eligible employees if they work an average of 30 hours or more per week during a look-back measurement period. Temporary (short-term) employees and seasonal employees may also be considered full-time.
The ACA defines an employee as variable hour if, based on the facts and circumstances on the employee’s start date, an employer cannot determine whether the employee is reasonably expected to work an average of at least 30 hours per week during the initial measurement period because the employee’s hours are variable or uncertain.
There are a number of factors to consider in evaluating whether it is reasonable to determine that a new employee is a variable-hour employee, including but not limited to:
No single factor is determinative and other factors may be considered.
ALEs identify which variable hour employees should be treated as “full-time” and benefits eligible by:
*Although hours worked during the stability period will not affect an employee’s status while he is locked in during the stability period, those hours will be counted as part of the next measurement period. Changes in average weekly hours worked during future measurement periods may change an employee’s benefits eligibility status during subsequent stability periods.
Under the final regulations issued by the IRS and Treasury Department in February 2014, new seasonal employees are treated the same as new variable-hour employees under the look-back measurement period method. To be considered seasonal, an employee must be hired into a position for which the customary annual employment is six months or less. “Customary” means that:
An ALE (who is using the look-back measurement method) will generally not be liable for ACA employer shared responsibility penalties if it fails to offer health coverage to seasonal employees during an initial measurement period, even if those employees end up working full-time hours during that measurement period (unless a short cycle look-back measurement period is used and such employees remain employed into the subsequent stability period). ALEs will apply the initial measurement period to seasonal employees, even if they are expected to work more than 30 hours per week when they are hired.
In certain unusual instances, an employee can still be considered a seasonal employee even if the seasonal employment is extended in a particular year beyond what is customary. For example, if golf instructors at a resort have a customary period of annual employment of six months, but are asked in a particular year to work an additional month because of an unusually long season, they would still be considered seasonal employees.
|The terms “seasonal employee” and “seasonal worker” are used in the employer shared responsibility provisions in two different contexts. The term “seasonal employee” is relevant for determining an employee’s status as a full-time employee under the look-back measurement method. The term “seasonal worker” is relevant for the ALE calculation (please refer to the ACA Fact Sheet: ALE Calculation).|
Temporary employees (referred to as short-term employees under the ACA) are those employees hired into a position that is less than 12 months in length. The IRS has confirmed that there is not an exemption under the IRC Section 4980H penalties for temporary, short-term employees (unless the employee meets all of the seasonal employee requirements as outlined above).
If temporary/short-term employees do not meet the seasonal employee requirements and are expected to work more than 30 hours per week, then under applicable ACA rules they should be classified as full-time, benefits eligible employees.
Companies are not required to count or track hours worked in the following limited circumstances:
The final regulations exclude hours worked as a “bona fide volunteer.” Bona fide volunteers include any volunteer who is:
A. An employee of a governmental entity or a tax-exempt organization;
B. Whose only compensation from that entity or organization is:
a. in the form of reimbursement (or an allowance) for reasonable expenses incurred in the performance of volunteer services, or
b. reasonable benefits (including length of service awards) and nominal fees customarily paid by similar entities in connection volunteer service.
Companies are not required to count hours of service performed by students in positions subsidized through the federal work study program or similar state programs. However, all hours of service for which a student employee of an educational organization (or of an outside employer) is paid or entitled to payment in a capacity other than through the federal or state work study program are required to be counted as hours of service for purposes of determining benefits eligibility.
Teachers and adjunct faculty present challenges since compensation is typically not directly tied to the number of hours that they work. For example, compensation often is tied to classroom hours and does not take into account time based on non-classroom activities such as preparing lessons, grading papers and exams, or counseling students.
The IRS provides a safe harbor method to track hours for teaching staff and adjunct faculty until further guidance is issued. This method credits 2.25 hours of service for each hour of teaching or classroom time. In other words, for each hour spent teaching in the classroom, the company would credit an additional 1.25 hours for activities such as lesson planning and grading. In addition, the company credits one hour of service for each additional hour the faculty member spends on other non classroom duties (such as office hours or required faculty meetings). While this may not be the only reasonable method for tracking hours for adjunct faculty, companies are advised to consider using this safe harbor until further guidance is issued.