2014 Pay or Play: Safe Harbor Rule Full-Time Employee Determination Part 1

Friday, October 19, 2012

Under the Patient Protection and Affordable Care Act (PPACA), effective January 1, 2014 employers with more than 50 full time employees will be required to provide "affordable" health care with "minimum essential" benefits to all full time employees or pay a penalty. At issue will be defining who is and who is not a “full time” employee. As a benchmark, the PPACA defines a full time employee as an employee who “averages” 30 hours per week of employment.

Clearly there are ongoing employees who routinely work 30 plus hours every week and have been doing so for years. In addition, there are new employees who upon hire are “reasonable” expected to, work 30 plus hours per week. Even with “salaried” employees, there are generally “expectations” as to some minimum number of hours of work expected.

Where employers are likely to experience issues is tracking those employees whose hours vary widely due to production, staffing, and other factors, i.e., so called “variable hour” employees. For example, a number of organizations within health care often employ “per diem” workers who may accept or decline assignments at will. Attempting to pro-actively determine the likelihood that such workers will or will not average 30 hours may be extremely difficult.

In an attempt to minimize the administrative effort of organizations, the Treasury Department and Internal Revenue Service recently released Notice 2012-58 providing employers with a Safe Harbor rule for full-time employee determination. Notice 2012-58 clarifies and expands on earlier provisions of Notices 2011-36, 2011-73, and 2012-17. Basically, an employer would look back between 3 to 12 consecutive calendar months; this would be the organization’s “measurement period”. If the employee averaged 30 hours per week during the measurement period, they would be considered a full time employee during the forthcoming “stability period”. The stability period is a period of time not less than six months. During this stability period, the employee would be eligible to participate in the employer’s health care plan. In order to allow organizations additional time to identify and communicate with employees now eligible to enroll, the organization has a maximum 90 day “administrative period” to complete the enrollment process.

Employees who are considered full-time must be offered affordable and minimum essential health care via an employer’s plan, otherwise, the employer is subject to a financial penalty. However, there is no mandate that employees must enroll in their employer’s plan. They may choose to enroll in a spouse’s plan, a private individual plan or forego health care enroll entirely. Provided that an employer with more than 50 full time employees offers its full time employees "affordable" and "minimum essential" health care coverage, the employer is relieved of their obligation under PPACA for the current measurement, stability, and administrative periods only.

The guidance around determining an employee’s full time status relative to the “pay or play” rules is complex, therefore, it is highly recommended that employers begin the process of discussing these issues with their legal counsel to determine the most prudent actions needed to fully comply with their obligations under PPACA and any ensuing directives from the Treasury Department, Internal Revenue Service, and/or Health and Human Services.