Recently, there has been a flurry of commentary on the Supreme Court arguments on the constitutionality of the Patient Protection and Affordable Care Act's (ACA) requirement that individuals maintain health coverage or pay a penalty. In addition to the individual mandate requirement, and not in dispute in the current litigation, the ACA also requires certain employers to provide health coverage to their full-time employees. Under the requirement—which is referred to in various circles as the "employer shared responsibility requirement," "employer mandate," or the "play or pay mandate"—employers that employ at least 50 full-time employees must offer health coverage to their full-time employees (and their dependents) or face a possible penalty. The ACA defines "full-time" for these purposes as working, on average, at least 30 hours per week.
The Internal Revenue Service, Department of Labor, and Department of Health and Human Services have issued a series of notices and other guidance that summarize their intended direction in implementing the employer shared responsibility requirement and related ACA requirements. Most recently, IRS Notice 2012-17 and DOL Technical Release 2012-01 address the ACA employer shared responsibility requirement, automatic enrollment requirement, and waiting period limitation in a series of frequently asked questions and answers. Importantly for employers that might be subject to the employer shared responsibility mandate, the guidance issued to date suggests that the agencies intend to allow a look-back/stability period during which an employer may determine which of its employees are full time. This means that, for current employees, the agencies are considering allowing employers to determine whether an employee has averaged at least 30 hours a week by looking back up to 12 months. Employers with highly mobile employees or work that varies seasonally may find that this look-back approach helps avoid classifying temporary or seasonal employees as full time.
The agencies have suggested a different, shorter period for
determining whether new employees are full-time employees. For new hires, an employer generally must determine whether (1) as
of the date of hire, the employee is reasonably expected to work an
average of at least 30 hours per week, and (2) as of the end of the
employee's first three months of employment, the hours worked
during that three-month period are reasonably viewed as representative
of the average hours the employee is expected to work on an annual
basis. If a newly-hired employee is expected to work
full time on an annual basis, and the employee does in fact work
full time during the first three-month period of employment, the
newly hired employee is treated as full time and must be offered
health coverage as of the end of that first three-month period.
What if, based on the facts and circumstances at the time of hire, the employer cannot reasonably determine whether a newly hired employee is expected to work full time on an annual basis? In general, the guidance provides that, when such an employee works at least 30 hours per week during the first three-month period and those hours are reasonably considered representative of the average hours expected to be worked by the employee on an annual basis, the employee is considered full time at the end of the three-month period. If, on the other hand, the employee averages 30 or more hours per week during the first three-month period, but those hours are not considered as representative of the average hours expected to be worked by the employee on an annual basis, the employer may take an additional three month period to determine the employee's status. Thus, it appears that employers will have up to six months to determine whether a new hire is a full-time employee.
The recent guidance may be helpful for employers when considering
benefit plan designs for 2014 and beyond. That said, the
guidance provided by the agencies on the application of the
employer shared responsibility requirements is not binding and
could change when they issue proposed regulations.
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