Whether an employer is subject to the requirement to provide health insurance to employees (the "Employer Mandate") depends upon the number of the employer's full-time employees (FTEs). The Department of Treasury (the "Treasury") and IRS have provided safe harbor methods for determining FTE status for (i) ongoing employees and (ii) new employees (the "Safe Harbor Rules"). The September HR Alert addressed the safe harbor method for determining FTE status for ongoing employees. As a follow-up to last month's newsletter, this HR Alert addresses the safe harbor method for determining FTE status for new employees.
What are the Different Types of New Employees?
Under the Safe Harbor Rules, there are generally three types of new employees: (i) non-variable, (ii) variable, and (iii) seasonal. A non-variable employee is a new employee who is reasonably expected to work full-time as of his or her date of hire. A non-variable employee must be offered health coverage prior to the end of his or her initial three calendar months of employment. A variable employee is defined as a new employee who, as of his or her start date, is not reasonably expected to work at least 30 hours per week. The issue of seasonal workers was addressed in the Affordable Care Act (ACA) in the context of whether an employer satisfies the definition of an applicable large employer. For this purpose, seasonal workers are those employees who are employed for a period of no more than 120 days during the calendar year (i.e., retail workers employed during holiday seasons). However, ACA did not define how the term "seasonal employee" might be defined for purposes other than the determination of applicable large employer status. Therefore, for purposes of the Safe Harbor Rules, employers are allowed to use a reasonable, good faith interpretation of the term seasonal employee through the end of 2014.
What is the Safe Harbor Method for Determining FTE Status for New Employees?
An employer may use an initial measurement period of between three and 12 months for variable and seasonal employees. The stability period for variable and seasonal employees must be the same length as the stability period for ongoing employees. If an employee is determined to be a full-time employee during the initial measurement period, the stability period must be a period of at least six consecutive calendar months that is no shorter in duration than the initial measurement period. In addition to the initial measurement period, an employer may apply an administrative period (which cannot exceed 90 days) before the start of the stability period. However, the initial measurement period and administrative period combined may not extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee's date of hire (totaling, at most, 13 months and a fraction of a month).
In November 2013, Employer A designates the following periods for determining FTE status for new employees*:
Initial Measurement Period: 12 months from the date of hire
Administrative Period: 30 days
Stability Period: 12 months
Employer A hires New Employee B and New Employee C as follows:
New Employee B: Non-Variable
New Employee B is hired as a salaried, full-time employee on November 1, 2013. Employer A must offer New Employee B health coverage no later than December 2, 2013.
New Employee C: Seasonal/Variable
New Employee C is hired on November 1, 2013 and is expected to work more than 30 hours per week for a two-month period through the holiday season but is not expected to work at least 30 hours per week for the portion of the initial measurement period remaining after the holiday season. However, New Employee C continues to work for Employer A through 2014.
New Employee C's initial measurement period runs from November 1, 2013 through October 31, 2014. Employer A averages the hours worked by New Employee C over the 12-month initial measurement period. If New Employee C works 30 hours or more per week during the initial measurement period, Employer A must offer coverage to New Employee C for a stability period that runs from December 1, 2014 through November 30, 2015.
* Please see the September HR alert (available at: http://us7.campaign-archive2.com/?u=e8b08562499ed0c17e193d373&id=c9dde2e6af&e=#!) for the periods designated by Employer A for determining FTE status for ongoing employees.
Employer Decision Points:
Determine the length of the initial measurement period
Determine whether to include an administrative period and if so, the length of the administrative period (Note: the administrative period cannot be longer than 90 days)
Determine whether the length of the stability period for ongoing employees will be identical to the initial measurement period (Note: the stability period for new employees must be the same length as the stability period for ongoing employees and cannot be shorter than the initial measurement period).
This HR Alert was written by:
Anne Tyler Hamby
3525 Piedmont Rd NE
7 Piedmont Center, Suite 300
Atlanta, GA 30305
(678) 929-9264 (office)
(404) 861-7441 (cell)
Specializing in retirement plans, health and
welfare benefits and executive compensation law
This HR Alert is intended to provide a summary of significant developments to clients and friends. It is intended to be informational and does not constitute legal advice regarding any specific situation. This material may also be considered attorney advertising under rules of certain jurisdictions.