May 24, 2018

Every summer, employers across the country hire summer interns. Internships come in many varieties, some are paid while others are unpaid, some may be part of formal for-credit internship programs and others are less formal, and they happen at various times of the year.  No matter the type of internship, employers need to be conscious of the Affordable Care Act (“ACA”) requirement of offering health coverage to full-time employees and how it applies to interns. 

Background

The ACA requires employers who had 50 or more Full-Time Equivalent employees (“FTEEs”) in the prior year to offer affordable, minimum value health coverage to their full-time employees or pay a penalty.  These are Applicable Large Employers (“ALEs”). Full-time under the ACA means those employees who at the time of hire are reasonably expected to work on average at least 30 hours or more per week – they are not measured and are not subject to a look-back period. Additionally, eligible employees of ALEs need to be offered health coverage no more than 91 days after date of hire. 

Interns are Just Employees by Another Name

Importantly, the IRS’s view is that ALEs should treat interns like any other employee.  This means that if the intern is paid and expected to work 30 hours per week or more, on average, (i.e,  full-time intern) he or she should be offered coverage.  

If the intern is not full-time, the intern’s hours should be measured, just as the ALE would do for any variable hour or part-time employee.  This means that the intern’s hours will be measured over a measurement period selected by the employer of between three and 12 months.  During that measurement period, the employer does not have to offer coverage.  If an employee is determined not to be full-time over that period, then the employer does not have to offer coverage to that employee.  

There are several nuances to the measurement period rules that are beyond the scope of this article (and there is also a monthly measurement period option).  Practically, however, most employers pick a long measurement period.  That way, even if interns who are not expected to be full-time happen to work enough to be considered full-time interns, they will usually have left the company (because the internship has ended) before coverage has to be offered.

For a great many employers, the bottom line is that interns should just be treated like other employees.

Seasonal Employees?

There is a possible (and very narrow) exception: the “seasonal employee.”  A “seasonal employee” is one (whether or not an intern) whose customary employment must be six months or less. Additionally, in the IRS’s view, by the nature of the position, the period of employment should begin each calendar year in approximately the same part or time of the year, such as summer or winter.

Note that “in certain unusual instances,” the IRS says, the employee can still be a seasonal employee even if the employment is extended in a particular year beyond six months.  This, however, usually occurs because of an extension of the season and should be the exception, rather than a common practice.

(Confusingly, the ACA has a different definition for “Seasonal Workers,” which may be used in determining whether an employer is an ALE. This will be discussed in another article.)  

If a full-time employee (including an intern) is a seasonal employee, then they do not have to be offered coverage within 91 days after date of hire.  Instead, they are treated like a variable hour employee.  This means that their hours will be measured over a measurement period selected by the employer discussed above, even if the intern is expected to work 30 or more hours per week. 

Are Your Interns Really Seasonal? 

Is the customary annual employment for your interns six months or less? Some, but not all internships, may meet this requirement.  If every year interns (whether or not they are the same people) work more than six months, the “seasonal employee” exception probably doesn’t apply.  For example, if an employer has interns that perform the same or similar work year-round, then the intern position is probably not seasonal, even if different individuals fill the internships at different times of the year.

Do your internships, by the nature of the job, begin each calendar year in approximately the same part of the year, such as summer or winter? This requirement specifically focuses on the reoccurring nature of the position. If some or all of your interns are hired only during the same time of year (say summer or tax season), this requirement could possibly be met.  An intern is also far more likely to be a seasonal employee if they are hired to address seasonal business needs.  An intern could also be seasonal if the internships are only available during a certain time of year due to other external factors.  For example, law firms typically hire law students during the summer as part of the law firm’s regular recruiting calendar because law school is out. These “summer associates” may be seasonal, if they meet the other requirements.

If on the other hand an employer just happens to need extra help one summer, or needs a temporary employee to fill in for an employee on maternity leave, calling these employees “interns” would not make them seasonal employees.

Regardless, the analysis of whether interns are seasonal employees is very fact-specific.  In many cases, interns will not qualify because the nature of the position does not require them to start at the same time every year or work for six months or less. 

PROCEED WITH CAUTION.  

What’s the risk? Why not simply classify all interns as seasonal? Being wrong can be costly!  The ACA employer mandate requires that ALEs offer coverage to at least 95% of their full-time workforce or pay a penalty of up to $2,320 (for 2018) per year for each full-time employee (minus the first 30 full-time employees).  Therefore, if full-time interns are a significant part of your workforce, and you fail to offer them coverage, it can be costly.  Even if full-time interns are a small part of your workforce, you could still be liable for a penalty if you fail to offer coverage to an intern who should have been offered coverage. 

Practical Tips

  • Offer coverage to full-time interns.  If you aren’t sure your full-time interns are truly seasonal or you want to be sure you avoid any risk of facing a costly penalty, then it may be best to offer your interns health insurance coverage.  As a practical matter, most of them are likely on their parents’ plans and won’t take it, so this is a “better safe than sorry” approach.   In many cases, internships may not last long enough to complete the waiting period.  Additionally, if you decide to hire them full-time out of their internship, you’ve already made an offer, so you don’t have to make a second offer again until the next open enrollment.
  • Analyze and document your findings.  If you want to attempt to apply the seasonal employee definition to your interns, be sure to do a careful analysis.  You should also document whether interns (or particular groups of interns) are seasonal employees and how you arrived at this result to defend yourself in any IRS audit.
  • Not all internships are created equal.  Even if you are comfortable that some of your intern positions are truly seasonal, others may not be.  For that reason, a position-by-position analysis is advised.
  • Watch out for “season creep”. If your interns (or any “seasonal” employees, for that matter) regularly work more than six months, then they really aren’t seasonal for ACA purposes.  Be on the lookout for requests for extensions of time or jobs that regularly extend their service beyond the six month limited window.
  • Making interns wait. Some employers who do not have a 90-day waiting period may impose a 90-day waiting period on interns only.  This may be permissible, but care should be taken any time a particular employee group is singled out as it may raise discrimination and other concerns.
  • Make the necessary adjustments. However you ultimately decide to address interns, be sure to adjust payroll, HRIS, and enrollment systems to accommodate your intended treatment of interns.

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.