Many employers rely on seasonal employees to augment the regular workforce and support the organization through its busiest times of the year. Under health care reform, employers will be required to offer full-time employees compliant health coverage or face a penalty.
Although the new health care reform law does not directly require employers to inform employees of their employment status (e.g., whether seasonal worker, variable hour employee, or regular full-time) there are important reasons to consider doing so. HUB International recommends proactive communication as a best practice in this situation. By providing employees a formal notice that requires their acknowledgement and signature, you will help establish appropriate expectations and limit misunderstandings about changes that will be triggered by the health care reform law.
These notices should provide clear definitions of the employee's role as a variable hour or seasonal employee as well as explain how your company will comply with Federal law in tracking and determining future eligibility for health plan coverage. If you are a HUB International client, ask your benefits advisor to provide you a template for this communication.
Following are key definitions that should be communicated to employees:
Variable hour employment
Variable hour employment refers to individuals who may be competing for available shifts and working hours that fluctuate from month-to-month. These workers are not generally expected to work more than 30 hours per week on average in a month. Variation in hours worked is considered a normal part of the job so that required work hours can sometimes exceed 30 hours per week for an extended period of time.
The IRS has issued guidance to clarify what seasonal employment means. Work must be tied to actual "seasonality". In other words, work is considered to be seasonal if job duties can only be performed during certain times of the year. The IRS mentions the holiday season for the retail industry, skiing season for ski instructors, and some agricultural jobs during harvest times. Other types of seasonal employment should be judged against the same criteria. Is this a job that can be performed at a different time of year?
For both variable hour and seasonal employees, the following points should be emphasized:
- Hours may fluctuate depending on business needs and schedules.
- Increases in hours worked does not mean a change in status to full-time for benefits nor does it indicate a promotion.
- All changes to full-time positions will be documented with a formal notice.
Key points to be communicated about eligibility for benefits:
- Hours will be tracked over a 12-month period starting with the first day of the first month following date of hire. Options exist for a shorter tracking period, but virtually all employers will find it advantageous to use the full 12-month period.
- If at the end of the 12-month measuring period, an employee is determined to be eligible for health coverage because they averaged at least 130 hours per month, they will be offered plan coverage for the following 12 months. (The 12-month period in which a health coverage offer is owed is referred to as a "stability" period.) Coverage is never available retroactively.
- If group coverage is selected, employees must pay their share of the premiums. Federal law generally requires that coverage must be kept in place for the stability period, even if hours dipped inside the stability period. Only under very limited circumstances would an employee be permitted to drop coverage mid-year.
- If an employee is unable to pay the premiums, their coverage will terminate following a 30-day grace period provided by law. Health coverage ends when employment ends.
- Employee hours will be tracked for each subsequent plan year to determine future eligibility for coverage.
Many employers prefer to use electronic transmission to reach employees when federal or state law compels disclosure. Although federal law contains specific rules that allow an employer to communicate in such fashion, those rules impose significant conditions that must be satisfied before valid disclosure is achieved.* Given the sometimes difficult standards attached to electronic disclosure, many employers will find it easier to use traditional hard copy paper documents.
Establishing an understanding with your employees of their relationship to the company and related expectations is a crucial step in preventing misunderstandings and potential legal action. Employers should also make sure job descriptions and actual administration of these positions are consistent. If you have questions, contact your HUB benefits advisor.
* Electronic distribution rules will vary significantly depending on the type of employer workplace. Such rules generally center on two types of employers: (1) those with workforces that have only employees who use computers in their daily work activities, and; (2) those that may not offer computer access to all (e.g., a manufacturing facility). Electronic disclosure is available to workers without on-the-job computer access, but the employer must first obtain worker authorization to use electronic disclosure. Also, electronic confirmation of delivery is needed (e.g. return receipt), and all recipients must have the option to request paper copies free of charge.