Beginning in 2015, the Affordable Care Act imposes a penalty on applicable large employers (ALEs) that do not offer health insurance coverage to substantially all full-time employees and dependents. These penalties are often referred to as “pay or play” and take effect for many ALEs on January 1, 2015.
In addition, there have been changes to what has been traditionally defined as a full-time employee. This article defines the term full-time employee and gives a brief overview of the two methods for identifying full-time employees.
Defining a Full-Time Employee
A full time employee is an employee who was employed, on average, at least 30 hours of service per week. In addition, the final IRS regulations treat 130 hours of service in a calendar month as the monthly equivalent of 30 hours of service per week.
Monthly Measurement Method
The monthly measurement method is a month-to-month analysis where full-time employees are identified based on their hours of service for each calendar month. This method is not based on averaging hours of service over a prior measurement period. If there are employees with varying hours and employment schedule, month-to-month measurement may cause some practical difficulties for employers. In addition, it could result in employees moving in and out of health plan coverage on a monthly basis.
Look-back Measurement Method
Under this method, an employer counts an employee’s hours of service during one measurement period to determine his or her full-time status for a future stability period. This method gives an employer greater predictability for determining full-time employee status. The details of this method are complex. This method also varies based on whether employees are ongoing or new and whether new employees are expected to work full time, seasonal, part-time, or variable hours.
If you would like some guidance in selecting the right type of measurement period for your company, please contact AUI by clicking here.
Documenting the Method
In addition, the final regulations form the IRS do not require ALEs to document the measurement method they use for identifying full-time employee status and determining when employees are eligible for coverage. However, maintaining a description of the selected measurement method and a record of the method’s outcomes for individual employees may help an ALE demonstrate its compliance with the shared responsibility rules and avoid a pay or play penalty.
In addition, to comply with ERISA, the health plan’s plan document and SPD must describe the plan’s eligibility requirements. This description should include the measurement method the employer uses to determine employees’ full time status. The SPD’s description of the measurement method should explain how an individual can determine if she or he is eligible under the plan. This description must be understandable to the average participant.
The rules for tracking employee hours are complex. Please keep in mind that this blogpost is just a general overview of how the rules work. More complex rules may apply depending on an ALE’s situation. Please contact AUI for more information about measurement.
Disclaimer: The intent of this analysis is to provide general information regarding the provisions of current healthcare reform legislation and regulation. It does not necessarily fully address all your organization’s specific issues. It should not be construed as, nor is it intended to provide, legal advice. Your organization’s general counsel or an attorney who specializes in this practice area should address questions regarding specific issues.