Applicable large employers, or ALEs, must offer affordable, minimum essential health coverage only to eligible full-time employees (and their eligible dependents). They do not have to offer coverage to part-time employees, even if those part-time employees (when factored into the calculation of employer size) subjected the employer to coverage.
- Forget about full-time equivalents — they are not real employees, and so you cannot offer them insurance!
IRS Notice 2012-58 goes into detail regarding the methods a covered employer may use (but is not required to use) to determine which employees should be treated as full-time (FT) for purposes of the “shared responsibility provisions.” Although Notice 2012-58 specifically states that employers aren’t REQUIRED to use the methods set forth in the Notice, the use of one of the methods would clearly provide more of a “safe harbor” in the event of a dispute as to whether an employee should have been classified as FT, and thus, offered benefits. The Notice provides guidance for two methods of making this calculation – the “monthly method” and the “look-back method.”
Many employers become confused about how to treat employees who may work 30+ hours on occasion, but are not “regular, full-time.” This is where the two methods of calculating hours come into play. Note that the IRS used the term “hours of service” in the proposed rule instead of “hours worked,” because they intend for hours in which an employee is not working, but is entitled to be paid (holidays, vacation, jury duty, etc.), to be included when counting hours for determining whether they work an average of “30 hours/week.”
Employers that have seasonal employees, variable hour employees (who average less than 30 hours of service per week during an initial measurement period), and part-time employees (who average less than 30 hours of service per week during an initial measurement period but aren’t seasonal or variable) will be able to measure these employees’ hours of service over longer time periods than those available under the Monthly Method to determine coverage eligibility.
With regard to using the “look back method,” the IRS Notice specifically states that this “option” is being provided to employers to use in determining “whether new variable hour employees or seasonal employees are full-time employees,” with respect to the ACA requirements. If a worker is truly “seasonal,” they will likely not be employed long enough to get to the point of offering them benefits, if the employer uses the “look back method,” which most employers are choosing to do. However, their hours will be used to calculate full-time “equivalent” employees, only for the purpose of determining whether the employer is an “applicable large employer.”
When using the “look back method,” it is very important to memorialize and document the use of this method and incorporate the adopted rules and measurement periods into your policies, procedures, etc. Furthermore, employers will have to accurately track each hour of service worked (or its equivalent) in order to justify its offer of coverage or lack of coverage for each seasonal, variable hour or part-time employee. Of course, this tracking may require additional administration.
The primary benefit of the Look-Back Method is that an employer is allowed to measure employees who are not easily determined to be full-time (e.g. hired to be full-time from the beginning, working at least 30 hours per week on average). During the determining measurement period an employer is not required to offer coverage and is not subject to the ESR penalties even where these individuals go to a health insurance exchange and receive subsidized coverage.
IRS Notice 2012-58 specifically states that employers can rely on its guidance “at least through the end of 2014.” We are now into 2016 but no additional guidance has been promulgated regarding these issues.
Updated May 3, 2016, by Jamie M. Brabston, senior counsel with Lehr Middlebrooks Vreeland & Thompson, P.C.
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