Stand and Be Counted: Determining Full-Time Employees Who Must Be Offered Affordable Health Benefit Coverage Under The Employer Mandate

by BakerHostetler

The article "Start Counting," published in the June 3, 2013, edition of the Benefits Broadcast discussed how employers must "count" themselves into compliance with the ACA, and how the number of employees affects whether an employer is subject to the ACA Employer Mandate, is eligible to purchase coverage in the Marketplace (formerly known as "Exchanges") or is subject to various fees. Another aspect of counting your way into compliance involves determining who is a full-time employee that must be offered affordable health coverage by an employer that is subject to the Employer Mandate.

As explained in the introduction to this special edition of the Benefits Broadcast, the enforcement of the Employer Mandate has been delayed until 2015. Despite that delay employers need to understand how to determine who is a full-time employee soon in order to be ready to comply with the Employer Mandate in 2015.

Under ACA, a full-time employee is defined as an individual who is employed for an average of 30 hours per week or 130 hours per month. For this purpose, all hours for which pay is received count; thus, hours include paid time off (PTO). If an employee is expected to work full-time (30 hours per week or more), counting of hours is necessary. That type of employee is presumed to be full-time and must be offered affordable coverage within 90 days of employment.

Identifying Variable Hour Employees

Part-time, seasonal and other "variable" hour employees for whom it is uncertain whether they will average 30 hours per week must have their actual hours counted. This means that employers must either maintain a record of the hours such employees actually work or for which they are compensated, or they will be required to use an equivalency based on crediting eight hours for each day worked or 40 hours for each week. Different equivalencies can be used for different classifications of employees, as long as it is consistent and reasonable to do so. One of the available equivalencies cannot be used, however, if it would substantially understate the actual hours worked, such as where an employee regularly works a ten-hour shift. Using an eight-hour per day equivalency would not be reasonable in that case.

Designating the Measurement Period

For purposes of counting hours of service, each employer can designate a "measurement period" during which it will look back and determine the hours worked by variable hour employees. The measurement period has to be a minimum of three months and a maximum of 12 months long. In general, it will be preferable to select a 12-month look-back measurement period as hours worked will be averaged over that length of time. If a shorter measurement period is selected and happens to coincide with an unusually busy work period, it is more likely that many variable-hour employees will exceed the 30 hours threshold and have to be offered coverage. In addition, a longer measurement period delays for a longer period of time the date by which coverage must be offered, if the employee does average 30 hours per week.

The Administrative and Stability Periods

After the end of the measurement period, the employer may use an "administrative period" of up to 90 days during which all employees who meet the hours requirement are then offered enrollment in a group health plan. Once enrolled, the employee must be offered the coverage for a fixed "stability period" that is not less than six months long and also no shorter than the measurement period. Thus, if a 12-month measurement period is used, then, once eligible, a variable hour employee must be offered coverage for at least the next 12 months.

The measurement, administrative and stability periods should be established on a set basis for ongoing employees so that the employer can determine who must be offered coverage in time for the annual open enrollment period. For example, if the group health plan operates on the calendar year, open enrollment will typically start around November 1. If the employer establishes a measurement period of 12 months beginning on October 15, full-time employees can be identified in time for open enrollment and can be processed through an administrative period of less than 90 days running from October 16 through December 31. Anyone who is eligible will then be enrolled in the group health plan for the entire next plan year (January 1 through December 31), even if the employee's hours drop below 30 during that period of time.

Each variable-hour employee will be subject to re-evaluation of his or her average hours of service on an ongoing basis over the same 12-month measurement period, which will then determine whether the individual is eligible to participate in open enrollment for the next calendar year. Note that you cannot drop employees from coverage in October if you determine they are not meeting the requirements for the current measurement period. Their removal from or enrollment in the group health plan must always occur on January 1 (in this example), the beginning of the 12-month period of coverage.

New Hires

New hires are handled a little differently. Each new employee who is hired on a full-time basis must be enrolled within 90 days. If the individual is a variable-hour employee and it is uncertain if he or she will average 30 hours, then a separate measurement period begins no later than the first of the month after date of hire. The measurement period can again last up to a year, but the measurement period and administrative period together cannot extend beyond the end of the first full month after the anniversary of the employee's date of hire.

So, for example, if the employee is hired on March 15, 2014, his measurement period could run from April 1, 2014, through March 31, 2015, assuming a 12-month measurement period. The administrative period is then only one month long (April 1 through April 30, 2015) and the employee must be offered enrollment in the health plan by May 1, 2015, if he averaged 30 hours of service per week during the measurement period.

Once enrolled, a new hire's coverage continues for at least a year, or, in the above example, through April 30, 2016. The employee is also tested for the hours requirement on the next overlapping standard measurement period for ongoing employees.

When these rules were scheduled to take effect in 2014, the regulations permitted the use of a shortened, six-month transition measurement period beginning no later than July 1, 2013, and ending no more than 90 days before the 2014 plan year. Many employers may not have been prepared to perform this hours counting exercise this year. To that end, the enforcement delay provides some breathing room, but not much.

Transition Period Likely Unavailable for 2015

There is nothing to suggest that a similar transition period will be applicable for compliance in 2015. As a result, if your plan, like most, operates on the calendar year, you probably should get ready to start counting hours of service beginning sometime in October 2013. That way, as described above, you will have the data for a full 12-month measurement period that ends shortly before open enrollment for the 2015 plan year when the Employer Mandate will become enforceable.

Our "Top-10" List

The delay in the enforcement of the Employer Mandate does not translate into a delay in implementing systems and procedures for counting hours and identifying full-time employees for the Employer Mandate in 2015. There are many details to absorb, but perhaps the following are the "top-10" items employers need to know about determining who is a full-time employee eligible for affordable health coverage:

10. The rules for determining whether an employer has 50 full-time equivalent employees and thus is subject to ACA are not the same as the rules used to determine whether any individual employee averaged 30 or more hours of service per week and has to be offered affordable coverage. Employers cannot exclude certain seasonal workers and do have to count and average their hours over a standard measurement period.

9. If an employee is hired on a full-time basis, no hours counting is needed; employees expected to work full-time (as defined by ACA) have to be offered coverage within 90 days.

8. To determine if a variable hour employee is "full-time," an employer must either count actual hours of service or use an equivalency based on eight hours per day or 40 hours per week worked.

7. Hours of service generally equal all hours for which an employee is paid; paid time off therefore counts as time worked.

6. All employers under common control are treated as a single employer; an employee who moves from one to the other must have his or her hours aggregated.

5. Different methods of counting hours can be used for different classifications of employees, provided the basis for using a different method is reasonable.

4. An employer can also establish different measurement and stability periods for groups of employees on the basis of being collectively bargained or not, salaried versus hourly or being located in different states. There are no other special rules or exemptions for collectively bargained employees.

3. If an employee terminates and is rehired within the same measurement period, you can treat him as a "new" employee only if the break in service was at least 26 weeks (six months) long.

2. If an employee's status changes in the middle of a stability period, it is largely ignored. So, a full-time employee becoming part-time does not lose coverage. However, a part-time employee moving to a full-time position does have to be enrolled no later than the first day of the fourth month after the change.

1. And, finally, the number one thing employers need to know as they approach the time for complying with these hour counting requirements is that current legislative proposals to increase the hours necessary to be full-time from 30 per week to 40 per week are not likely to be successful, especially given the deadlock in Congress.

Accordingly, the time to start counting is now!

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.

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