Healthcare Reform Update: IRS Regulations Address Full-Time Status Of Nine-Month Education Employees

This post was contributed by Eric N. Athey, Esq., a Member in McNees Wallace & Nurick LLC's Labor and Employment Practice Group.

The Patient Protection and Affordable Care Act ("PPACA") requires "large employers" (i.e., those regularly employing 50 or more full-time equivalents) to provide "affordable" health coverage of "minimum value" to "full-time employees" and their dependents. The term "full-time employee" is defined to include those who are employed "an average of at least 30 hours of service per week." Effective January 1, 2014, large employers who fail to provide such coverage to all of their full-time employees and dependents may be subject to "shared responsibility" monetary penalties. These penalties will be triggered whenever a full-time employee (or his or her dependent) of a large employer qualifies for and uses a tax subsidy or credit to purchase coverage on a health care exchange.

School districts, colleges and other educational organizations preparing to comply with PPACA should begin by analyzing whether all of their "full-time employees" (as defined in the law) are offered coverage that is affordable and of minimum value. A common question raised by schools and colleges is whether summer break periods may be counted when calculating whether a 9-month (or 10-month) employee is employed an average of 30 hours per week. Until recently, the answer appeared to be yes. However, proposed regulations issued by the Internal Revenue Service ("IRS") on December 28, 2012 state otherwise.

The new proposed regulations provide that employers may use "initial measurement periods" and "standard measurement periods" of up to 12 months in duration for purposes of calculating whether new and ongoing employees are employed for an average of at least 30 hours of service per week. However, the regulations further state that "educational organizations" may not account for "employment break periods" of at least four consecutive weeks in duration when making calculations as to average hours of service. 

The proposed regulations permit educational organizations to take either of two approaches with respect to employment break periods (e.g., summer break periods) when making determinations as to average hours of service: 1) the employment break period may be excluded when calculating average hours during the measurement period; or 2) the employee may be credited with hours of service during the employment break period at a rate equal to his or her average hours of service during non-break periods. When calculating average hours of service, no more than 501 hours of service during employment break periods are required to be excluded (or credited) by an educational organization per employee each calendar year.

Notably, shorter break periods of less than four consecutive weeks may be factored into average hour of service determinations. However, the proposed regulations make it clear that "hours of service" are not limited to hours actually worked.  The new regulations define an "hour of service" to include "each hour for which an employee is paid, or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence…." For this reason, shorter breaks will be treated as "hours of service" to the extent they are paid.

The proposed regulations contain a number of other clarifications regarding PPACA's shared responsibility provisions; however, the "employment break period" requirements will surely be of greatest interest to educational organizations. Additional information regarding the new regulations will be posted on our blog at www.palaborandemploymentblog.com. Although the proposed regulations are not yet final, the IRS has indicated that employers may rely upon them until additional guidance is issued. The IRS has invited public comments to the new proposed regulations. Comments may be submitted in written or electronic form on or before March 18, 2013.