By: HUB’s EB Compliance Team

Last month, HUB began a series on the Affordable Care Act (“ACA”) employer mandate, or “employer shared responsibility payment”. That article gave an overview of employers subject to the mandate (called “applicable large employers” or “ALEs”) and the potential penalties. As noted there, the penalties apply if the employer fails to offer affordable, minimum value coverage to its full-time employees. Who is a full-time employee?

Full-Time Employees

Employees are considered full-time under the ACA if, at the time they are hired into their position, they are reasonably expected to work an average of 30 hours per week or 130 hours per month. For example, if a position is advertised or described in an offer letter as “Monday through Friday from 8:30 am to 5:00 pm each day,” this would indicate the employee is “reasonably expected” to work an average of 30 hours each week or 130 hours each month.

Employees who are classified as full-time at hire can be subject to a waiting period before becoming eligible for medical coverage so long as the waiting period does not exceed 90 days.

Who else?

While this classification is simple, what about employees whose schedules are less fixed? For those employees, their hours must be measured to determine if they are full-time. The measurement methods are discussed below. However, before we can measure, we must know whose hours to measure. The ACA employer mandate rules create two categories of employees whose hours must be measured: variable hour and seasonal employees.

Variable Hour/Part-time Employees

Employees are considered variable hour (also referred to as part-time by many employers) if, based on the facts and circumstances on the employee’s start date, it cannot be determined whether the employee is reasonably expected to work on average, 30 or more hours per week. In many cases, these employees will also be part-time and their schedules may fluctuate, even if the employer’s intention is for the position to be less than a 30-hour/week position.

Seasonal Employees

Seasonal employees are defined as employees who are typically employed for a period not exceeding six months and are employed during a period of time that begins approximately the same time of year (e.g., summer or winter). Employers are not obligated to offer coverage to true seasonal employees meeting this definition, but instead may utilize some of the measurement rules that will be discussed next month which may not require them to offer coverage to avoid the penalty. 

Importantly, that the ACA employer mandate rules use two distinct definitions in the context of seasonal staffing functions. Seasonal Worker and Seasonal Employee are therefore not synonymous ACA terms. 

Employees who are hired for a specific duration, such as a six-month project, may or may not fit within the ACA definition of Seasonal Employees. For example, if ABC Corp hires Shauna for a six-month project that occurs every year in the summer, Shauna likely falls with the Seasonal Employee definition. If XYZ Corp hires Jeff to fill in for an employee out on a leave of absence, Jeff does not fall within the Seasonal Employee definition.

Outside of the Seasonal Employee exception, employees who are hired for a specific period of time should be classified as either full-time or variable hour, depending on the hours they are expected to work while employed. A more extensive discussion of this involving summer interns is available here.

Measurement Periods

An employer may use one of two methods to determine whether an employee is full-time under the employer mandate, the monthly measurement method or the look-back measurement method. Generally, the same measurement method for all employees must be used. However, an ALE may use different measurement methods for employees who are in different categories, such as hourly employees and salaried employees; collectively bargained and non-collectively bargained employees; and employees whose primary places of employment are in different states.

Look-Back Measurement Method

The Look-Back Measurement Method involves “looking back” at an employee’s hours worked over a designated Measurement Period to determine whether the employee averages 30 or more hours per week or 130 or more hours per month. The ACA permits a plan’s Measurement Period to be anywhere from 3 months to 12 months. As a general matter, most employers find relying on a 12-month measurement cycle easiest to use as it results in less administrative work than shorter measurement cycles.

Employees who average 30 or more hours per week or 130 or more hours per month are then offered the opportunity to enroll in coverage during the Administrative Period (a/k/a/ the enrollment period), which cannot exceed 90 days.

Following the Administrative Period is the Stability Period, which allows employees who averaged 30 or more hours per week or 130 or more hours per month and enroll in coverage to maintain their coverage. The Stability Period can be no shorter than 6 months and cannot be shorter than the Measurement Period. For example, employers relying on a one-year measurement period will have a corresponding one-year stability period. Employers cannot revoke their offer of coverage to the employee during the Stability Period. Therefore, even if an employee’s hours are below 30 hours/week or 130 hours/month during the stability period, the employee must be allowed to continue coverage during the stability period, absent unusual circumstances or failure to pay the premium.

Monthly Measurement Method

Under the Monthly Measurement Method, hours worked by employees are evaluated each month. For any month in which the employee works 130 or more hours, they are classified as full-time under the ACA employer mandate. Employers who do not offer coverage to variable hour employees are at risk of potential penalties any month(s) variable hour employees work 130 or more hours. Given the high potential variability of hours and the administrative complications of offering individuals coverage one month and then not the next, most employers find the monthly measurement period unworkable in the vast majority of circumstances.

Conclusion

This high-level overview of employee types and measurement periods gives a flavor for the potential complexities of the ACA employer mandate, but also some paths for potential compliance strategies. Employers who are newly finding themselves to be ALEs should consult with their HUB account team and HUB’s compliance team to understand their obligations and how to comply.

Next month: what kind of coverage does an employer need to offer?

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory.

NOTICE OF DISCLAIMER

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.