• Do You Know if Your Employees with Variable Hours or Seasonal Employees Must be Covered for Purposes of Health Care Reform? The Time to Find Out is Now!
  • October 9, 2012 | Authors: Dan S. Brandenburg; Joanne G. Jacobson
  • Law Firm: Saul Ewing LLP - Washington Office
  • The Internal Revenue Service, jointly with the Departments of Labor and Health and Human Services, recently issued Guidance1 regarding how to determine the “full time” status of employees for purposes of the imposition of the “pay or play” rules on employers under the Affordable Care Act (“ACA”). The Guidance also addresses the 90-day waiting period limitation for participation in a health plan. This Article summarizes the key points of recent Guidance and addresses what employers need to do now, in preparation for the application of the pay or play rules in 2014.


    Effective in 2014, in order to avoid a penalty, an employer with 50 or more full time employees or full time equivalents (collectively, “full time employees”) during the preceding calendar year must offer full time employees the opportunity to enroll in a health plan providing “minimum essential coverage”2 that “provides minimum value”3 and is not “unaffordable.”4 Employers that fail to provide minimum essential coverage are subject to a penalty5 of $2,000 per year per full time employee (excluding the first 30 employees). For employers that fail to provide affordable coverage or minimum value (i.e., deemed inadequate), the penalty is $3,000 per year per full time employee that actually receives subsidized health coverage through an exchange. In addition, employer-sponsored group health plans cannot provide an enrollment waiting period in excess of 90 days. Generally, the ACA defines a “full time employee” as any employee working on average at least 30 hours per week.

    Recent Guidance

    Safe Harbor for Ongoing Employees. Notice 2012-58 provides safe harbor methods for determining which ongoing6 employees must be treated as full time employees. The Guidance allows employers to look at a “standard measurement” or “look-back” period over a 3-12 consecutive month period to determine if the employee averaged 30 or more hours per week. The employer can then rely on those results to determine whether coverage should be offered to that employee during a subsequent 6-12 month “stability” period to avoid the penalty. (The stability period cannot, in any event, be shorter than the measurement period.) The employer must treat an employee that averages 30 or more hours per week during the standard measurement period as a full time employee during the stability period, regardless of the actual number of hours worked.

    The Guidance also provides an “administrative period” between the standard measurement period and the stability period in which the employer may notify and enroll employees, but does not have to cover the employee. The administrative period may not exceed 90 days and does not affect the measurement or stability period. Ongoing employees who were full time employees in the standard measurement period must continue to be offered coverage during the administrative period.

    Safe Harbor for New Employees. If a new employee is reasonably expected to work full time, in order to avoid a penalty, the employer must offer coverage to the employee within three calendar months of his or her start date. For newly hired “variable hour”7 including “seasonal”8 employees, the “initial measurement” period is between 3-12 months followed by a “stability period” of at least six consecutive months but not shorter than the initial measurement period. The measurement period and the administrative period combined cannot extend past the last day of the first calendar month that begins on or after the one-year anniversary of the employee’s start date (totaling, at most, 13 months and a fraction of a month). For example, if an employee’s start date is September 15, 2012, the combined measurement and administrative periods cannot extend beyond October 31, 2013.

    An employer may apply an administrative period for up to 90 days between the initial measurement period and subsequent stability period. The administrative period includes all periods between the date of hire of a new variable (including a seasonal employee) and the date the employee is first offered coverage under the employer’s group health plan, other than the initial measurement period. The combined length of the initial measurement period and the administrative period cannot extend beyond the last day of the first calendar month beginning on or after the first anniversary of the employee’s date of hire (i.e., 13 months). So, for example, if the initial measurement period is 10 months, the administrative period can be three months; if the initial measurement period is 12 months, the administrative period can be one month.

    Transition from New Employee to Ongoing Employee. Once a new employee has been employed for an initial measurement period, the employee must be tested for full time status at the same time and under the same conditions as other ongoing employees. So, for example, if the employer uses a calendar year standard measurement period and also uses a one year initial measurement period from the date of hire, an employee who is hired effective March 1 (initial measurement period of March 1 through February 28 of the following year) would be tested on the basis of the initial measurement period and then again based on the standard measurement period (January 1 through December 31 of the year following the date of hire). If an employee is determined to be a full time employee during the initial measurement period, he or she must receive coverage during the stability period, even if the employee is later determined to not be full time based on the standard measurement period.

    What Must Employers Do Now?

    Depending on the length of the measurement, stability, and administrative periods elected by the employer, the first measurement period may begin as early as October 1, 2012. For example, if an employer elects a 12-month measurement period (beginning October 1, 2012), a 90-day administrative period (beginning October 1, 2013) and a 12-month stability period, coverage must be provided to full time employees beginning January 1, 2014. Therefore, to avoid the penalties that may be assessed in 2014, it is necessary for employers to start now to determine whether or not the health coverage provided is sufficient and evaluate whether or not the current employees, including variable/seasonal employees, will be required to be covered.

    1 Notices 2012-58 and 2012-59 (DOL Technical Release 2012-02 and HHS Bulletin entitled “Guidance on 90-Day Waiting Period Limitation under Public Health Service Act § 2708”)

    2 Minimum essential coverage does not include “excepted benefits” such as stand-alone vision or dental benefits. Note that in the event that even one full time employee is not offered coverage (a “failure to provide coverage”) and subsequently receives coverage through an exchange, the penalty applies to all full time employees, not just the employee that does not receive employer-sponsored health coverage.

    3 Coverage provides “minimum value” if it pays for at least 60% of the required minimum covered expenses.

    4 Coverage is deemed “unaffordable” if the premium paid by the employee for self-coverage exceeds 9.5% of the employee’s household income. Under Notice 2011-73 the employer can rely on the employee’s W-2.

    5 The penalty is imposed under the Shared Responsibility Provision of Internal Revenue Code Section 4980H.

    6 An “ongoing” employee is one that has been employed for an entire standard measurement period.

    7 An employee is a “variable hour employee” if it cannot be determined at the employee’s employment start date whether the employee is expected to work on average at least 30 hours per week. A new employee who is expected to work initially more than 30 hours per week may still be a variable employee if the period of employment at more than 30 hours per week is expected to be of limited duration.

    8 Employers may use a reasonable, good faith interpretation of the term “seasonal” employee. Examples of seasonal employees include: ski instructors, holiday sales assistants or agricultural workers that work for certain seasons. The IRS has asked for comments to provide a definition for that group.