Newly released IRS Notice 2012-58 describes the voluntary safe harbors that employers may use to identify full-time employees for purposes of the employer mandate. Employers who employ 50 full-time and full-time equivalent employees are subject to the mandate, and the number of full-time employees determines the payments due for failing to comply with the mandate. The health care reform law defines a full-time employee for this purpose as one who is employed on average at least 30 hours per week. Previous guidance acknowledged that month-by-month determinations of full-time status can be difficult and proposed safe harbors for identifying full-time employees; this latest Notice solidifies and expands on these safe harbors for ongoing employees, new variable hour employees, and new seasonal employees.
Safe Harbor for Ongoing Employees
For ongoing (not newly hired) employees, employers may use the “look-back/stability period” safe harbor. To determine full-time status, the employer looks back over a “standard measurement period” to calculate which employees averaged at least 30 hours per week. The standard measurement period is defined by the employer, but must be at least 3 and no more than 12 consecutive calendar months. Employees who averaged at least 30 hours per week during the standard measurement period are automatically treated as full-time employees during the “stability period”, which begins after the standard measurement period. This is true regardless of the employee’s actual number of hours during the stability period. For employees who qualify as full-time, the stability period must be at least 6 months and no shorter than the standard measurement period. For employees who are not full-time, the stability period cannot be longer than the standard measurement period. An “ongoing employee” is generally an employee who has been employed with the employer for at least one complete standard measurement period. The IRS expects to include rules for employees who experience a change in employment status, such as moving into full-time status during the year, in future regulations.
To accommodate the time needed to determine which employees are eligible and provide enrollment materials, employers may rely on an “administrative period” by having the standard measurement period end before the associated stability period begins. The administrative period cannot be longer than 90 days, and is subject to restrictions outlined in the new Notice.
Employers may use measurement and stability periods that differ in length or in starting and ending dates for collectively bargained employees, hourly vs. salaried employees, employees of different entities, and employees located in different states.
Safe Harbor for Newly Hired Employees: Variable Hour and Seasonal
A newly hired employee is a variable-hour employee if, based on the facts and circumstances at the employee’s start date, it cannot be determined if the employee is reasonably expected to work on average at least 30 hours per week. Through 2014, employers are permitted to use a reasonable, good faith interpretation of what constitutes a “seasonal employee” for purposes of the safe harbor described in the Notice.
Similar to the ongoing-employee safe harbor, employers may use an “initial measurement period” of between 3 and 12 months to determine whether a new variable-hour or seasonal employee averages 30 hours per week, and an administrative period of up to 90 days. The “stability period” for such employees must be the same length as for ongoing employees and begin after the initial measurement period (and any administrative period); if an employee is determined to be a full-time employee, the stability period must be at least 6 months and no shorter than the initial measurement period. If an employee is determined not to be a full-time employee, the stability period must be not more than one month longer than the initial measurement period and must not exceed the remainder of the standard measurement period (plus any administrative period) in which the initial measurement period ends.
Effect of Safe Harbor Compliance
Employers may—but are not required to—rely on the safe-harbor methods described in Notice 2012-58 for measurement periods beginning in 2013 or 2014 and the associated stability period (which may run into 2014, 2015, or 2016).
Comments Requested on Additional Issues
The IRS intends that upcoming regulations on the employer mandate will address the issues addressed in the Notice. Illustrating questions that remain outstanding with respect to identifying full-time employees, the IRS has specifically requested comments on the following:
- What safe harbor methods should be available for determining full-time status of short-term assignment employees, temporary staffing employees, and employees in high-turnover positions?
- What guidance is needed to help employers determine, as of an employee’s start date, whether an employee is reasonably expected to work at least 30 hours per week?
- How would the measurement and stability periods work following a merger or acquisition?
- How should “seasonal worker” be defined?
Comments are due by September 30, 2012.