IRS Issues Rules on "Full-time Employees" and 90-day Waiting Period Limitation under the Affordable Care Act


[authors: Martha Zackin and Alden J. Bianchi]

In a much anticipated move, the IRS recently issued a set of important proposals aimed at helping employers identify their full-time employees for purposes the Affordable Care Act’s “employer shared responsibility” rules.  These are the 2014 rules that require employers with 50 or more full-time equivalent employees to offer health coverage or pay money to the government.  Penalties, or “assessable payments” in the parlance of the law, are based on the number of “full-time” employees.  So it’s important for employers to know who these folks are.  At the same time, the IRS expanded on a separate but related feature of the Act that imposes a 90-day limit on waiting periods in group health plans.

The centerpiece of the IRS’s approach to defining the term “full-time employee” is a “look-back/stability period” safe harbor under which employers are permitted to select up to a 12-month look-back (or “measurement”) period for both ongoing and newly hired employees to determine whether an employee is full-time during the measurement period.  If so, the employer must make an offer of coverage during a corresponding “stability period” or face the prospect of a fine. 

While the treatment of ongoing employees is not new, the expansion to new hires is.  Specifically, new rules are provided for a sub-set of new hires called “variable hour employees.” A new “variable hour employee” is defined generally to mean “an individual who, based on the facts and circumstances on the individual’s start date, the employer cannot reasonably determine will work full-time (i.e., average of at least 30 hours per week) . . ..”  The rules for determining the full-time status of new variable hour employees are similar in many respects to those that apply to tax-qualified retirement plans.  New hire are first tested based on their service during their initial year of employment; they then transition to testing based on plan year service, with special rules that deal with the overlap. 

This recently issued guidance is important, to be sure.  And, while it is generally favorable to employers, it is not the last word on the subject.  There are other aspects of the employer shared responsibility rules for which guidance has either not been issued (e.g., how the rules apply to multiemployer plans), or, if issued, is either incomplete (e.g., what constitutes essential health benefits) or the subject of contention (e.g., whether affordability is based on self-only coverage or, in appropriate instances, family coverage). 

For a copy of the look-back/stability period safe harbor guidance, along with separate guidance explaining how the look-back rules coordinate with the 90-day waiting period provisions of the law, click here and here.   For a copy of Mintz Levin’s client advisory on the subject, please click here.


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