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Calculating Full Time Employees for the ACA's Employer Mandate
Practical Law Legal Update 6-525-6530 (Approx. 4 pages)
Calculating Full Time Employees for the ACA's Employer Mandate
by PLC Employee Benefits & Executive Compensation
| Law stated as of 09 Apr 2013 • USA (National/Federal) |
An excerpt of the Practical Law Practice Note addressing IRS guidance on how to determine full-time employees for calculating penalties under the Affordable Care Act's (ACA's) employer mandate (also referred to as the "play or pay" provisions).
Under the Affordable Care Act (ACA), effective beginning January 1, 2014, large employers must pay a penalty in certain situations, for example, if:
- They fail to offer full-time employees and their dependents an opportunity to enroll in minimum essential coverage under an employer-sponsored health plan.
- Any full-time employee is certified to receive a tax credit or subsidy for the health insurance exchanges under the ACA (see Practice Note, Health Insurance Exchange and Related Requirements under the ACA: Premium Subsidies for Individuals for Health Insurance and Cost-sharing Subsidy).
The question of who is a full-time employee is important for determining whether, and to what extent, an employer is liable for penalties under the employer mandate. This resource excerpts the Practical Law Practice Note (see Practice Note, Employer Mandate under the ACA: Determining Full-time Employees for Employer Penalties), addressing the meaning of full-time employee for purposes of calculating an employer's penalties under applicable IRS proposed regulations.
The proposed regulations include a look-back measurement method for determining full-time employees, which:
- Applies only for calculating employer mandate penalties.
- Does not apply in determining whether an employer is a large employer subject to the employer mandate (see Practice Note, Employer Mandate under the ACA: Overview).
For complete analysis of determining full-time employees for the employer mandate penalties, see Practice Note, Employer Mandate under the ACA: Determining Full-time Employees for Employer Penalties.
Ongoing Employees and Standard and Stability Measurement Periods
Under the look-back method for ongoing employees, an employer determines the employee's full-time status by looking back at the standard measurement period, which is:
- A period of at least three but not more than 12 consecutive months.
- Chosen by the employer.
Employers can choose the months when the standard measurement period starts and ends, if the determination is made on a uniform and consistent basis for all employees in the permitted category. For example, an employer that chooses a 12-month standard measurement period could select:
- The calendar year.
- A non-calendar plan year.
- A different 12-month period, for example, one that ends shortly before the start of the plan's open enrollment period.
If the employer determines that an employee was employed on average at least 30 hours per week during the standard measurement period, it must treat the employee as a full-time employee during a later stability period, which is defined as the time period that follows (and is related to) the standard measurement period. The employee is treated as a full-time employee during the following stability period:
- Regardless of his hours of service during the stability period.
- If he remains an employee during the stability period.
Results of Look-back Measurement
An employee who was employed on average at least 30 hours per week during the standard measurement period must be treated as a full-time employee for a stability period that:
- Begins immediately after the standard measurement period and any applicable administrative period.
- Must be:
- at least six consecutive calendar months; and
- no shorter than the standard measurement period.
If an employee was not employed on average at least 30 hours per week during the standard measurement period, the employer may treat the employee as not a full-time employee during a stability period that:
- Follows, but is not longer than, the standard measurement period.
- Begins immediately after the end of the measurement period and any administrative period.
Optional Administrative Period
An employer can include an administrative period of up to 90 days that:
- Begins immediately after a standard measurement period ends.
- Ends immediately before the related stability period.
The administrative period cannot reduce or lengthen the measurement and stability periods. To prevent the administrative period from causing a gap in coverage, it must overlap with the prior stability period so that ongoing full-time employees who enrolled in coverage based on an earlier measurement period are covered through the administrative period. Employers can use different administrative periods for permitted categories of employees.
New Non-variable Hour and Non-seasonal Employees
For non-seasonal employees who are reasonably expected at their start date to be full-time employees, an employer that sponsors a group health plan and offers that coverage to the employee by the end of his initial three full calendar months of employment will not be subject to an employer mandate penalty for failing to offer the employee coverage during the three month period. However, an employer that does not offer the employee coverage by the end of the employee's first three full months of employment may be subject to a penalty for:
- The first three months.
- Any following months for which coverage was not offered.