The IRS has issued new guidance on how to define a “full-time employee” under the employer responsibility provisions of Affordable Care Act (ACA). The Departments of Labor, Health and Human Services, and the Treasury have also issued guidance on how the 90-day waiting period limit should be implemented for certain variable-hour employees.
Under the shared responsibility provisions of the ACA (§ 4980H), beginning in 2014, employers with 50 or more full-time or full-time equivalent (FTE) employees will be required to provide “minimum essential” health care coverage for their full-time employees or pay an annual penalty. Although the statute defines “full-time” employee as one who works an average of at least 30 hours per week in any given month, much uncertainty remains as to how this definition should be calculated and applied, particularly with respect to variable-hour and seasonal employees.
The new guidance (IRS Notice 2012-58) (pdf) expands upon previously-issued guidance documents on this topic, and discusses a safe harbor method that employers can apply to newly-hired employees. IRS Notice 2011-36 described a lookback/stability period for determining the full-time status of ongoing employees. IRS Notice 2012-17 also outlined a potential process for determining the full-time status of new employees. The new guidance explains that its intent is to, among other goals, encourage employers to continue to provide (and potentially expand) group health coverage to their employees “by permitting employers to adopt reasonable procedures to determine which employees are full-time employees without becoming liable” for a penalty payment under the “pay or play” ACA design.
To this end, the new IRS notice expands the safe harbor method for assessing whether or not an employee constitutes a full-time employee as described in the earlier notices and provides other guidance. Specifically, IRS Notice 2012-58 provides the following:
- Ongoing Employees: Under the safe harbor method for ongoing employees, an employer determines each ongoing employee’s full-time status by looking back at the standard measurement period (a defined time period of not less than 3 but not more than 12 consecutive calendar months, as chosen by the employer). For an employee whom the employer determines to be a full-time employee during the standard measurement period, the stability period would be a period of at least 6 consecutive calendar months that is no shorter in duration than the standard measurement period. If the employer determines that the employee did not work full-time during the standard measurement period, the employer would be permitted to treat the employee as not a full-time employee during the stability period that follows, but is not longer than, the standard measurement period.
- Different Categories of Employees: Allows employers to use measurement periods and stability periods that differ either in length or in their starting and ending dates for the following categories of employees: (1) collectively bargained employees and noncollectively bargained employees; (2) salaried employees and hourly employees; (3) employees of different entities; and (4) employees located in different States.
- Variable and Seasonal Employees: Specifically, employers have the option to use a “look-back” measurement period of between 3 and 12 months to determine whether new variable hour employees or seasonal employees are full-time employees, without being subject to a payment under § 4980H. The stability period for such employees would be the same as for ongoing employees. An employee would be considered a variable hour employee “if, based on the facts and circumstances at the date the employee begins providing services to the employer (the start date), it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.”
- Administrative Periods: Provides employers the option to use specified administrative periods of up to 90 days between the measurement period and stability period to determine which ongoing employees are eligible for coverage and to notify and enroll employees. The employer can use an administration period of up to 90 days for new variable hour and seasonal employees, which may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of their start date.
- Transition from New to Ongoing Employee: Facilitates a transition for new employees from the determination method the employer chooses to use for them to the determination method the employer chooses to use for ongoing employees; and
- Reliance: Allows employers to rely on – at least through 2014 – the previous and new guidance that stipulates the following:
- for ongoing employees, an employer will be permitted to use measurement and stability periods of up to 12 months;
- for new employees who are reasonably expected to work full-time, an employer that maintains a group health plan that meets certain requirements will not be subject to an assessable payment under § 4980H for failing to offer coverage to the employee for the initial three months of employment;
- and for all employees, an employer will not be subject to an assessable payment under § 4980H(b) for an employee if the coverage offered to that employee was affordable based on the employee’s Form W-2 wages reported in Box 1 (often referred to as the affordability safe harbor).
Employers will not be required to comply with subsequent guidance that is more restrictive until at least January 1, 2015. The reliance covers measurement period that begins in 2013 or 2014 and the associated stability period.
The guidance also provides a number of examples to illustrate how the safe harbors apply to such employees; and seeks public input on a variety of issues to help the agencies craft a final rule on the shared responsibility provision. All comments must be received by September 30, 2012, and include a reference to the IRS Notice 2012-58. Comments may be submitted electronically to: Notice.firstname.lastname@example.org (include “Notice 2012-58” in the subject line); by mail to: CC:PA:LPD:PR (Notice 2012-58), Room 5203, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044; or via hand-delivery to: CC:PA:LPD:PR (Notice 2012-58), Courier’s Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC 20044.
90-Day Waiting Period
The IRS and DOL have also issued new temporary guidance (Technical Release No. 2012-02) on the 90-day waiting period limitation under section 2708 of the Public Health Service (PHS) Act, as implemented by the ACA. As the guidance explains, this provision “provides that, for plan years beginning on or after January 1, 2014, a group health plan or health insurance issuer offering group health insurance coverage shall not apply any waiting period that exceeds 90 days.” PHS Act regulations issued in 2004 defined a waiting period “to mean the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective.” Previously-issued guidance solicited comments as to how this limitations period should apply to variable-hour employees where the employer requires a certain number of work hours before employees become eligible for health coverage.
The instant guidance reiterates the 2004 definition of “waiting period,” but clarifies “that being eligible for coverage means having met the plan’s substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan’s terms).” The guidance explains that while the 90-day limitation remains in effect,
[o]ther conditions for eligibility under the terms of a group health plan are generally permissible under PHS Act section 2708, unless the condition is designed to avoid compliance with the 90-day waiting period limitation. Furthermore, if, under the terms of a plan, an employee may elect coverage that would begin on a date that does not exceed the 90-day waiting period limitation, the 90-day waiting period limitation is considered satisfied. Accordingly, a plan or issuer will not be considered to have violated PHS Act section 2708 merely because employees take additional time to elect coverage.
In addition, the guidance recognizes that it might take time to determine whether a newly-hired employee will work a sufficient number of hours to qualify for health coverage. To this end, the guidance explains that:
Except where a waiting period that exceeds 90 days is imposed after a measurement period, the time period for determining whether such an employee meets the plan’s eligibility condition will not be considered to be designed to avoid compliance with the 90-day waiting period limitation if coverage is made effective no later than 13 months from the employee’s start date, plus if the employee’s start date is not the first day of a calendar month, the time remaining until the first day of the next calendar month.
The document includes a number of examples with varying fact patterns to help employers understand what constitutes compliance with the 90-day waiting period limit.
This guidance will remain in effect at least until the end of 2014.
Comments on this guidance must also be received by September 30, 2012, and can be submitted electronically to: email@example.com, or by mail or hand-delivery to: Office of Health Plan Standards and Compliance Assistance, Employee Benefits Security Administration, Room N-5653, U.S. Department of Labor, 200 Constitution Avenue, NW, Washington, DC 20210.