Identifying Full-Time Employees for Purposes of the Shared Responsibility Rules

by King & Spalding
Contact

Author, Mark Kelly, Atlanta, +1 404 572 2755, mkelly@kslaw.com.

Starting in 2014, the Patient Protection and Affordable Care Act (PPACA) will impose shared responsibility penalties on large employers that fail to offer health coverage to all of their full-time employees (or offer health coverage to full-time employees that is deemed to be unaffordable or inadequate).  IRS Notice 2012-58 provides a safe harbor for the identification of full-time employees for purposes of the shared responsibility penalties.

PPACA defines a full-time employee with respect to any month as an employee who works at least an average of 30 or more hours per week.  Because monthly re-determinations of an employee’s status would be burdensome and could lead to frequent (and disruptive) changes in eligibility for health coverage, the IRS proposed a safe-harbor that allows full-time status to be determined on the basis of a retrospective measurement period of up to 12 months and applied during a prospective stability period.

Safe Harbor Applicable to Ongoing Employees

Standard measurement and stability periods

To determine whether ongoing employees are full-time  employees, employers may use a safe harbor based on a standard measurement period and a stability period.An “on-going employee” isan employee who has been employed for at least one standard measurement period (a defined period of time chosen by the employer of between 3 and 12 consecutive calendar months). An ongoing employee's full-time status is determined by retroactively determining the average hours worked by the employee during the standard measurement period.  An employer has the flexibility to determine when the standard measurement period starts and ends, as long as it is made on a uniform and consistent basis for all employees in the same category. For example, if an employer wants to use a 12 month standard measurement period, the employer could chose the calendar year, the plan year, or any other 12-month period, such as one that ends the month before the plan's annual open enrollment period.  If the employee averages at least 30 hours per week during the standard measurement period, the employee is treated as a full-time employee during the subsequent stability period, so long as he or she remains an employee, without regard to the employee’s actual hours during the stability period. 

The stability period is the length of time that coverage must be provided to an eligible employee who is determined to be full-time during the standard measuring period.  For those employees who are determined to be full-time, the stability period must be at least 6 calendar months long, cannot be shorterin duration than the standard measurement period, and must begin after the standard measurement period (plus any applicable administrative period, discussed below). For those employees who are determined not to be full-time employees, the stability period cannot be longerthan the standard measurement period.  An employer may use measurement and stability periods that differ in length or have different starting/ending dates for the following categories of employees:

  • collectively and non-collectively bargained employees;
  • salaried and hourly employees;
  • employees of different entities; and
  • employees located in different states.

Optional administrative period

Because employers may need some time to notify and enroll employees who are determined to be full-time employees, the notice permits the employer to add an administrative period of up to 90 days between the standard measurement period and the associated stability period.  However, to prevent any gaps in coverage, the administrative period must overlap with the prior stability period.

EXAMPLE: Employer selects a 12-month standard measurement period beginning October 15 and ending the following October 14, and a stability period based on the calendar year. Employer also selects an administrative period between October 15 and December 31 to determine which employees worked an average of 30 hours a week during the standard measurement period, to notify them of their eligibility and to enroll those employees who elect coverage.

Bob worked full-time during the standard measurement period beginning October 15, 2014 and ending October 14, 2015. Bob is an ongoing employee for the stability period that starts January 1, 2016 and must be offered coverage for the entire 2016 stability period, even if Bob ceases to work full-time during 2016.  

Mary was previously determined to be a full-time employee and enrolled in the plan in prior years.  However, during the standard measurement period beginning October 15, 2014 and ending October 14, 2015, Mary is determined not to be a full-time employee and is not required to be offered coverage for the associated stability period that starts January 1, 2016. However, Mary's coverage must continue through the end of 2015 stability period, including the administrative period October 15, 2015 to December 31, 2015.

Safe Harbor Applicable to Newly-Hired Employees

Newly-hired full time employees

If a newly-hired employee is reasonably expected to work an average of at least 30 hours a week, no penalties will be assessed if the employee is offered coverage not later than the 91st day after the start of the employee's employment.  IRS Notice 2012-59, which provides guidance on the 90-day waiting period limitation of PPACA, is discussed in a separate Alert.

Newly-hired variable hour and seasonal employees

With respect to newly-hired variable hour and seasonal employees, employers may use a safe harbor to determine whether the new employee is a full-time employee based an initial measurement period of between 3 and 12 months.  For those employees who worked an average of 30 hours per week during the initial measurement period, and are therefore determined to be full-time employees, the stability period must be the same length as the stability period applicable to ongoing employees. For those employees who are determined not to be full-time employees during the initial measurement period, the stability period will be the shorter of (a) the initial measurement period plus one month, or (b) the remainder of the standard measurement period that includes the last day of the employee's initial measurement period.

An employee is a variable hour employee if based on the facts and circumstances at the employee's start date, it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week over an initial measurement period. PPACA does not provide a definition of seasonal employee for this purpose, so at least through the end of 2014, an employer is permitted to use a reasonable, good faith interpretation of the term.

Transition rule from the newly-hired employee rules to on-going employee rules

The Notice provides rules to transition employees from the safe harbor for new employees to the safe harbor for on-going employees.  These rules apply once a newly-hired employee has been employed for (i) an initial measurement period and (ii) an entire standard measurement period; in such case, the employee must be tested for full-time status beginning with that standard measurement period, in the same manner as other ongoing employees.

Under the transition rule, an employer using a 12-month measurement period will need to test employees for full-time status at least twice during a single 12 month period:  at the end of the initial measurement period and again as of the end of the standard measurement period for on-going employees.  Since those periods will often overlap, an employee may, due to changes in his or her work schedule, be determined to be a full-time employee in one measurement period but not the other:

  • An employee who is determined to be a full-time employee during the initial measurement period must be treated as a full-time employee for the entire associated stability period, even if he or she is determined not to be a full-time employee during the overlapping or immediately following standard measurement period. In that case, the employee would be treated as not full-time only after the end of the stability period associated with the initial measurement period.
  • In contrast, an employee who is determined not to be full-time during the initial measurement period, but who is full-time during the overlapping or immediately following standard measurement period must be treated as a full-time employee during the entire stability period corresponding to the standard measurement period, even if it begins before the end of the stability period associated with the initial measurement period.

Optional administrative period

Like with on-going employees, an employer is permitted to apply an administrative period before the start of the stability period.  An administrative period may not exceed 90 days, taking into account both the period of time following the employee's start date before the beginning of the initial measurement period, and the period of time between the end of the initial measurement period and the date the employee is first offered coverage. In addition to the outside limits for the length of the initial measurement period (12 months) and the administrative period (90 days), the combination of the initial measurement period and the administrative period cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee's start date (i.e., no longer than 13 months).

EXAMPLE:  Employer uses a 12 month initial measurement period beginning on the date of hire of a new variable hour employee, a 12-month standard measurement period beginning October 15 and ending the following October 14, and an optional administrative period not to exceed 90 days.  John, a variable hour employee, is hired May 10, 2014.

If John averages 30 hours per week during 12-month initial measurement period (May 10, 2014 - May 9, 2015), John’s employer must offer coverage starting not later than July 1, 2015, assuming John is still employed on that date.

If John does not average 30 hours per week during the 12-month initial measurement period (May 10, 2014 - May 9, 2015), John’s employer does not have to offer him coverage.  However, John’s status must be re-determined based on John’s hours in the standard measurement period (October 15, 2014 - October 14, 2015).  Then, if John averages 30 hours per week during the 12-month standard measurement period (October 15, 2014 - October 14, 2015), John’s employer must offer coverage within a standard administrative period not in excess of 90 days (i.e., no later than January 12, 2016), assuming John is still employed on that date.  Of course, John’s employer would probably pick a standard administrative period of 79 days so that John’s coverage could start on January 1, 2016. 

Reliance

Employers may rely on the guidance provided in Notice 2012-58 at least through 2014, and will not be required to comply with any subsequent guidance that is more restrictive until January 1, 2015.  The Notice clarifies that the reliance covers a measurement period that begins in 2014, and the associated stability period which may extend past January 1, 2015.  The Notice requests comments on several issues, including whether safe-harbor rules are needed for temporary or other short-term employees, whether special rules are needed for mergers and acquisitions, and how seasonal workers should be defined.

King & Spalding would be pleased to provide you with additional information regarding the rules for determining full-time employees under PPACA and to assist you with any comments you may wish to make in response to this guidance.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© King & Spalding | Attorney Advertising

Written by:

King & Spalding
Contact
more
less

King & Spalding on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.
Feedback? Tell us what you think of the new jdsupra.com!