ACA Fact Sheet: Full-Time, Variable Hour and Seasonal Employees

Applicable Large Employers (ALEs) may be subject to a tax penalty under Section 4980H of the Internal Revenue Code (IRC) if (1) one of their full­time employees receives a premium tax credit or costs-sharing subsidy through a Marketplace and the ALE 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.

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.

Full-Time Employee

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.

Variable Hour Employees

The ACA defines an employee as variable hour employee 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 certain factors an ALE may want to consider in evaluating whether it is reasonable to determine that a new employee is a variable-hour employee, including but not limited to:

1. whether the employee is replacing an employee who was or was not a full-time employee,
2. the extent to which employees in the same or comparable positions are or are not full-time employees, and
3. whether the job was advertised, communicated to the new hire or otherwise documented (for example, through a contract or job description), as requiring hours of service that will average 30 or more hours of service per week or less than 30 hours of service per week

This is a fact specific inquiry, thus, no single factor is determinative and other factors may be considered. As such, you may want to consider seeking legal counsel.

Once employees have been classified as variable hour employees:

1. Their hours should be calculated during a look­back specified period of months (between 3 and 12 months) which is referred to as a Measurement Period.
2. If at the end of the Measurement Period, they worked on average 130 hours a month, their status as "full-time" benefits eligible or not full-time benefits ineligible must be locked in during a subsequent period, which is the Stability Period (between 6 and 12 months but in no event longer than the Measurement Period). The employee's benefits eligibility status during the Stability Period must remain the same, regardless of the number of hours the employee actually works during the Stability Period.*

*Although hours actually worked during the Stability Period will not affect an employee's status while locked in during the current Stability Period, those hours will be counted as part of the next Measurement Period. Thus, changes in average monthly hours worked during subsequent Measurement Periods may change an employee's benefits eligibility status during subsequent Stability Periods.

Seasonal Employees

Under the final regulations issued by the IRS and Treasury Department, 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:

1. by the nature of the position an employee typically works for a period of six months or less, and
2. the period of employment should begin each calendar year in approximately the same part of the year, such as summer or winter.

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.

Seasonal Employee and Seasonal Worker. 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 ALE Calculation).

Temporary/Short-Term Employees

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 May Exclude Hours Worked in Limited Circumstances:

Companies are not required to count or track hours worked in the following limited circumstances:

• Volunteer employees employed by a governmental or tax-exempt organization and paid via reimbursement or reasonable benefits;
• Student employees subsidized through federal or state work study programs; and
• Teachers and adjunct faculty who have a safe harbor method to calculate hours of service. For every hour teaching in the classroom the employee is credited with 2.5 hours of service.