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EmploymentUpdates and News

February 2013

How to Determine if an Employee is Full-Time for Purposes of the PPACA

By Susan K. Chelsea, Esq.

An applicable large employer is required to offer affordable health care coverage only to its full-time employees. For many employers, including staffing companies, retail establishments, and restaurants, it is not always clear if a current or new employee is full-time or part-time. The U.S. Treasury Department issued on January 2, 2013 proposed regulations “providing guidance under section 4980H of the Internal Revenue Code with respect to the shared responsibility for employers regarding employee health coverage.” Section 4980H is the penalty provision of the Patient Protection and Affordable Care Act (“PPACA.”)

The proposed regulations include safe harbor procedures employers may use to determine if variable schedule employees are full-time or part-time for purposes of offering affordable health care coverage and paying penalties under the PPACA. These proposed regulations, set forth at 26 CFR Part 54, were developed after the IRS issued various notices and received public feedback. The proposed regulations are subject to revision prior to becoming final, but provide the best guidance available to employers.

The safe harbor provisions do not apply when an applicable large employer reasonably expects an employee to work more than 30 hours of service per week. However, if the employer reasonably expects the employee to work a variable schedule that may not average more than 30 hours of service per week, or the employee is a seasonal employee, the employer can utilize the safe harbor rules. The proposed regulations use the term “hours of service” instead of “hours worked.” “Hours of service” include hours when work is performed and an employee is paid, and hours for which an employee is paid or entitled to payment even when no work is performed.

There are two different safe harbor procedures –one for ongoing employees, and one for new employees. An “ongoing employee” is defined as an employee who has been employed for at least one standard measurement period. For ongoing employees, an employer must designate a “standard measurement period,” a “stability period,” and an optional “administrative period.” The standard measurement period must be between 3 and 12 consecutive months. After selecting the time frame for the standard measurement period, the employer calculates the total hours worked during the standard measurement period and determines the average hours worked to determine if the employee is part-time (works less than 30 hours of service per week on average), or is full-time (works more than 30 hours of service per week on average).

If the employee works more than 30 hours of service per week on average then the employer treats the employee as full-time during the stability period, regardless of the employee’s hours of service during the stability period. The stability period follows the standard measurement period and must be the greater of six consecutive months or the same number of consecutive months as the standard measurement period.

During the stability period, the employer must provide affordable health care coverage to employees deemed to be full-time during the standard measurement period. Employers can also opt for an administrative period of up to 90 days between the end of the standard measurement period and the commencement of the stability period for purposes of determining if an employee is full-time or part-time as measured by the standard measurement period, and provide any employees determined to be full-time an opportunity to enroll in a health care plan.

If the employer determines that an employee is part-time during the standard measurement period, then the employer may treat the employee as not full-time during the immediately following stability period. Once more, the stability period may be no longer than the associated standard measurement period. While not discussed in the proposed regulations, it is likely that the stability period for an employee deemed to be not full-time would also function as a new standard measurement period.

The method for evaluating new employees varies depending on whether the new employee is reasonably expected to work full-time (and are not seasonal), or are variable hourly employees or seasonal employees. For new employees, if the employee is reasonably expected to be full-time, there is no penalty if the employer offers coverage to the employee at or before the conclusion of the employee’s initial three calendar months of employment. If an employer uses the look-back measurement for its ongoing employees, it may also use the optional method for new variable hour employees and for seasonal employees. A new employee is a “variable hourly employee,” if, “[b]ased on the facts and circumstances at the employee’s start date it cannot be determined that the employee is reasonably expected to be employed on average 30 hours per week.”

For new employees, employers may utilize an “initial measurement period.” An initial measurement period is the timeframe that an employer uses to determine if the new employee is full-time or part-time for purposes of the PPACA. However, the initial measurement period plus the administrative period may not be longer than the last day of the first calendar month beginning after the employee’s one year anniversary.

The standard measurement period and the stability period selected by the applicable large employer must be uniform for all employees, but different measurement periods, stability periods, and administrative periods may be used for collectively bargained employees covered by separate collective bargaining agreements, collectively bargained and non-collectively bargained employees, salaried employees and hourly employees, and employees whose primary place of employment are in different states.

The term “seasonal worker” is defined as a worker who performs labor or services on a seasonal basis, as defined by the Secretary of Labor, including, but not limited to workers covered by 29 CFR 500.20(s)(1), and retail workers employed exclusively during holiday seasons. Employers are permitted through 2014 to use a reasonable, good faith interpretation of the term “seasonal worker” and 29 CFR 500.20(s)(1) for purposes of section 4980H.

The Treasury Department is also looking into special rules for commission workers and temporary staffing agencies. Until the Treasury Department provides further guidance, employers of employees compensated on a commission basis, adjunct faculty, transportation employees, and analogous employment positions must use a “reasonable method for crediting hours of service that is consistent with the purposes of section 4980 H.”

Klinedinst will provide updated information in upcoming Newsletters as that information becomes available. In addition, Klinedinst’s employment law attorneys can assist employers in navigating the safe harbor procedures discussed in this article and implementing compliant procedures for determining if your variable schedule employees are part-time or full-time. For more information, contact Susan K. Chelsea or Greg A. Garbacz at (619) 239-8131.

 

Klinedinst Employment Law Update

The opinions expressed in this employment update are general in nature, and are not meant to provide specific legal advice. For more information, please contact a Klinedinst attorney. No attorney/client privilege is created or assumed by reading this newsletter.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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