On Friday, August 31, the Internal Revenue Services (“IRS”) issued Notice 2012-58 describing safe harbor methods employers may use to determine which employees should be treated as “full-time employees” for purposes of the shared employer responsibility (i.e., “pay or play”) provisions under the Patient Protection and Affordable Care Act (“PPACA”). In addition, the Departments of Health and Human Services, Labor and Treasury (the “Agencies”) jointly issued Notice 2012-59 which provides guidance regarding PPACA’s 90-day waiting period limitation. The Department of Labor released identical guidance regarding the 90-day waiting period limitation in Technical Release 2012-02.
The Definition of “Full-Time Employee” Under PPACA’s Pay or Play Provisions
As background, beginning in 2014, PPACA requires applicable large employers - employers who employed at least 50 full-time employees during the preceding calendar year - to provide minimum essential coverage to their full-time employees or pay a penalty. Under PPACA, a “full-time employee” is an employee who is employed to work an average of at least 30 hours per week.
In Notice 2012-58, the IRS introduces several important concepts that employers must understand in order to determine which employees qualify as “full-time employees” for purposes of PPACA. Generally, full-time employee status is determined on the based on retrospective “measurement period” of up to 12 months and a prospective “stability period.”
Notice 2012-58 contains several examples to assist employers in determining how to utilize the safe harbors described in the guidance. Notice 2012-58 can be accessed by clicking here.
We will be discussing the safe harbor methods for determining full-time employee status during our “Recent Developments in Labor and Employment, Employee Benefits and Immigration Law” webinar on September 12, 2012. To sign up for the webinar please click here.
PPACA’s Waiting Period Limitation
PPACA provides that, for plan years beginning on or after January 1, 2014, a group health plan may not apply any waiting period that exceeds 90 days. According to Notice 2012-59, “waiting period” is defined as the period of time that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of the plan can become effective. For this purpose, being eligible for coverage means having met the plan’s substantive eligibility conditions (e.g., being a full-time employee).
Based on the guidance in Notice 2012-59, an employer may still impose eligibility requirements that require a period of service that is longer than 90 days provided that such eligibility requirements are not designed to avoid compliance with PPACA’s 90-day waiting period limitation.
For example, an employer may require employees to complete a cumulative 1,200 hours of service prior to being provided with coverage under a group health plan. However, in such a case, coverage under the plan must be provided no later than the 91st day after the employee satisfies the 1,200 hours of service requirement. Allowing such a lengthy service requirement appears to be the Agencies’ response to the issue of employees who work variable or part-time schedules. The Agencies also note that an eligibility service requirement exceeding 1,200 hours would be viewed as an eligibility requirement that is designed to avoid compliance with the 90-day waiting period limitation. Additional guidance on this topic is expected.