This post was authored by Heather DeBlanc
The Affordable Care Act (ACA) will require large employers (i.e. those with over 50 full time equivalent employees) to offer “substantially all” of their full-time employees (and their dependents) the opportunity to enroll in affordable health coverage. A full-time employee is one who averages 30 hours or more of service per week in any given month. Employers who fail to comply, risk incurring penalties anytime a full-time employee obtains subsidized coverage through California’s Health Benefit Exchange.
The ACA provides for an optional Look Back Measurement Method Safe Harbor, which allows employers to determine whether an employee is full-time or part-time for purposes of the “assessable payment” (the “penalty”). The benefit of this safe harbor is that it allows an employer to average an employee’s hours of service over a longer period of time called a “measurement period” (e.g. up to one year). Without the safe harbor, the Internal Revenue Service (“IRS”) will make the penalty determination on a monthly basis. Large Employers with numerous seasonal employees who average over 30 hours of service per week in any given month will also benefit from this safe harbor.
According to this safe harbor, employers are required to establish a standard measurement period and stability period for ongoing employees. The safe harbor also requires that an employer establish an initial measurement period and stability period for new variable hour employees. The IRS will consider employees who average 30 hours or more of service per week over a measurement period to be full-time during the associated stability period. Likewise, the IRS will consider employees who average less than 30 hours of service per week over a measurement period not to be full-time during the associated stability period.
Employers may also establish optional administrative periods. The administrative period allows an employer time to evaluate which employees qualified as full-time during a measurement period, determine who will be offered coverage during the stability period and address any administrative plan requirements for enrollment.
There are specific legal restrictions regarding the timing and length of the periods an employer may establish under this safe harbor.
Employers with calendar year plans who intend to adopt this safe harbor for determining full-time status will need to start tracking (or “measuring”) employee hours of service by July 1, 2013, at the latest, assuming they do not adopt an administrative period. Employers with calendar year plans who plan to adopt an administrative period of 30 days will need to start measuring employees’ hours of service on June 1, 2013.
Employers should start planning now by assessing their current workforce and potential penalties, determining the best plan of action and taking steps to implement any safe harbors they wish to use to minimize penalties.