Henry H. Robinson and Ezra R. Kuenzi
Under the Affordable Care Act, a covered large employer (at least 50 employees, under a definition accounting for full-time and non-full-time employees) is potentially subject to a monthly “assessable payment.” The determinations of liability for and the amount of each assessable payment depend, in large part, on a distinction between full-time and non-full-time employees. An employee is not full-time unless he/she averages at least 30 hours of service per week. A large employer is not liable for a monthly assessable payment unless during the month at least one full-time employee goes to an exchange where he/she both enrolls in a health insurance plan and is allowed or paid a government subsidy. There are two equations for calculating assessable payment dollar amounts. For large employers that during a month offer all full-time employees and their dependents the opportunity to enroll in employer-sponsored health coverage, one equation produces a relatively low assessable payment for that month. For large employers that during a month do not offer coverage to all full-time employees and their dependents, another equation produces a relatively high payment for that month.
The full-time versus non-full-time distinction has troubled large employers. Each month, do large employers have to make a new determination about whether each employee is full-time or not? If an employee is on vacation and does not average 30 hours during one month, is he/she a non-full-time employee for that month? Should variable-hour employees whose hours fluctuate above and below 30 hours per week be categorized as full-time or part-time? Overlaying these practical issues is the fact that health plan subscriptions are generally for a year, but assessable payments are determined and may change on a monthly basis. It is not practical to offer health coverage to an employee for one month, not for a second month, and then to offer coverage again during the third month.
The Internal Revenue Service has issued temporary regulations ameliorating these practical concerns. While an employer is free to make monthly determinations about each employee’s full-time status, the regulations provide a “look-back measurement method” that an employer may apply to determine whether an employee will be categorized as full-time or non-full-time during a future fixed period (“stability period”). This method will allow large employers to avoid the time and expense that otherwise would be involved in making monthly determinations.
An employer may apply this methodology to determine full-time status for “ongoing employees,” “variable hour employees” (defined as an employee who will work variable or uncertain hours, causing the employer to be unable to determine whether the employee is reasonably expected to average 30 hours during the initial measurement period), and “seasonal employees.” The look-back measurement method may not be applied to new hires reasonably expected to average 30 hours per week. For ongoing employees, an employer may establish a “standard measurement period” from three to 12 months. If an employee averages 30 or more hours per week during this measurement period, he/she has full-time status during a subsequent stability period. The stability period must be at least six months and no shorter than the measurement period, except that for employees who have been found not to be full-time during the measurement period the stability period may be no longer than the measurement period.
The practical effect is that, if the employee averages less than 30 hours per week during the measurement period, then he/she does not have full-time status during the subsequent stability period (even if he/she averages 30 hours per week during that stability period); during the stability period this employee will not subject the employer to an assessable payment even if he/she goes to an exchange and receives a subsidy. Conversely, if the employee averages 30 hours per week during the measurement period, then he/she has full-time status during the stability period (even if he/she averages less than 30 hours per week during the stability period); during that period this employee may subject the employer to an assessable payment if he/she goes to an exchange and receives a subsidy. The rules also provide for an “administrative period” of up to 90 days between the measurement and stability periods. The administrative period allows for administrative tasks such as enrolling the employee.
Similarly, an employer may establish an “initial measurement period” of three to 12 months to determine whether variable hour (as defined above) or seasonal new hires should be categorized as full-time. The stability period for new variable hour or seasonal employees may not be longer than the measurement period. The administrative period for new variable hour or seasonal employees may extend up to 90 days, but the combined measurement and administrative periods may not exceed 13 months. In counting whether an employee has averaged 30 hours, all paid time is counted in computing the 30 hours, including paid vacation time and holidays. There are special rules for unpaid leave. In conclusion, the so-called employer mandate does not take effect until 2015. Between now and 2015, large employers should evaluate the desirability of establishing measurement and stability periods. These periods may differ for hourly and salaried employees or for employees whose primary places of employment are in different states. In addition, large employers planning to reduce hours so as to increase the number of part-time employees should do so prior to 2015 in order to minimize retaliation claims.
Henry H. Robinson is a partner and Ezra R. Kuenzi is an associate at Kelly Hart & Hallman LLP. www.kellyhart.com