April 23, 2018

Even though Spring Break has just wrapped up in some areas and it’s still snowing in others, summer will be here before we know it. While teachers breathe a sigh of relief for summer break, their employers (if they are subject to the Affordable Care Act (“ACA”) employer mandate) need to make sure they do not inadvertently kick their employees off of health coverage.

Background

As a reminder, the employer mandate requires employers who employed at least 50 full-time and full-time equivalent employees in the prior year to offer coverage to their full-time employees or pay a penalty. These employers are called “applicable large employers.” For this purpose, a full-time employee is one that averages at least 30 hours per week of service.

The IRS allows employers to adopt lookback measurement periods to measure hours of employees who, for example, work variable schedules. Under these lookback measurement periods, the employer measures an employee’s hours over a period of time, usually 12 months (although it can be as short as three months). If the employee averages at least 30 hours per week over that period, then he or she has to be offered coverage for the “stability period” following the measurement period (and, if the employer chooses, a buffer called an administrative period). Usually, the stability period is as long as the measurement period, but it cannot be less than six months.

Summertime

Of course, during the summer, many employees of educational organizations do not work for their educational organizations. An employer using these measurement rules cannot simply give their employees a zero for hours (not) worked over the summer. Instead, the employer has to use one of two methods:

  1. Eliminated Summer. Under this method, the average hours are calculated without regard to the summer break period. For example, if summer is eight weeks, the employee’s average hours for the measurement period would be calculated based on 44 weeks instead of 52.
  2. Average Summer. Under this method, the employer gives the employee credit for the average hours worked during the rest of the year. For example, if during the rest of the measurement period, the employee averaged 44 hours per week, the employee would be credited with 44 hours per week for each week of summer break.

Under this method, no more than 501 hours has to be excluded or credited for all employment break periods in a calendar year. To determine how many hours you exclude under the Eliminated Summer option you calculate the average hours worked for the rest of the measurement period (like you would under the Average Summer option). Once you hit that cap, you can give the employee a “0” for hours for the rest of the employment break period.

The 501 limit is an important rule because, while the above discussion is limited to summer break, these same rules would apply to other break periods, like winter and spring break.

Educational organizations can also use the “eliminate” or “average” approach for unpaid leaves under the FMLA, under the Uniformed Services Employment and Reemployment Rights Act, and for jury duty. However, those leaves are not subject to the 501-hour cap.

First Day of School?

Educational organizations also have a special rule for determining under what circumstances an employee who has been on an extended break may be considered is a new hire. Normally, an employer can treat an employee as a new hire if he or she does not earn an hour of service for at least 13 straight weeks. However, because educational organizations often have long break periods, they have to use 26 weeks instead of 13.

Educational organizations can use a rule of parity as well. Under this rule, an employee is treated as new if he or she does not earn an hour of service for a period that is:

  • at least four weeks long; and
  • is longer than the number of weeks of employment the employee had before the no service period.

For example, assume a new employee is hired and works eight weeks. Then the employee quits. If the employee comes back in seven weeks, he is not treated as a new hire. However, if he comes back in nine weeks, he is.

The challenge with this rule of parity is keeping track of weeks worked by employees. In addition, there are times when an employee might be credited with hours of service even if he or she is not working if he or she is being paid or if the employer uses a permissible equivalency.

Educational Employers Only

These are special educational organization rules and cannot be used by other employers. Under IRS rules, educational organizations have to be primarily about education and include both public and private educational organizations.

Takeaway

Educational employers that use measurement periods should keep these special rules in mind for their break periods. If they use a vendor to do their ACA measurements, they should check with their vendor to make sure the vendor is implementing these rules properly. If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.
 

NOTICE OF DISCLAIMER

The information herein is intended to be educational only and is based on information that is generally available. HUB International makes no representation or warranty as to its accuracy and is not obligated to update the information should it change in the future. The information is not intended to be legal or tax advice. Consult your attorney and/or professional advisor as to your organization’s specific circumstances and legal, tax or other requirements.