2014 Pay or Play: Safe Harbor Rule Full-Time Employee Determination Part 2

Friday, October 26, 2012

The Patient Protection and Affordable Care Act (PPACA) will require employers with more than 50 full time employees to offer those employees "affordable" and "minimum essential" benefits or face a penalty.

The PPACA defines a full time employee as an employee who “averages” 30 hours per week of employment. Internal Revenue Service Notice 2012-58 provides employers with a “voluntary” Safe Harbor rule for full-time employee determination by defining permissible “measurement”, “stability”, and “administrative” periods. Employers would be permitted to devise their own methodologies, provided those methodologies are compliant with the law and regulations. Organizations should consult with their legal counsel on all such matters.

Where this Safe Harbor rule (IRS Notice 2012-58) may prove to be helpful to employers is in addressing those employees who have an unpredictable work schedule which varies greatly from one time period to another. It may prove difficult for an employer to “reasonablely” expect the employee to average 30 hours when the demands of the job fluctuates week to week and/or day to day. Consider retail, food service, and other service sector jobs where customer demand differs by day of week or even hour of day.

Ongoing Employees: Safe Harbor

Employers would be allowed to use the Safe Harbor method associated with the “standard measurement” and “stability” periods chosen by the employer and described in IRS Notices 2011-36 and 2012-17. An “ongoing employee” is an employee who has been employed for at least one standard measurement period. Employers determine the ongoing employee’s full-time status by looking back at a standard measurement period between 3 and 12 months, as selected by the employer.

Once the employer has determines that an employee has averaged 30 hours per week during the standard measurement period, the employer treats the employee as a full-time employee during a subsequent “stability period”, regardless of the employee’s number of hours of service during the stability period, so long as they remain an employee. For an employee who has been determined to be full-time during the standard measurement period, the stability period would be a period between 6 months but not less than the standard measurement period.

Employers are allowed to use measurement and stability periods of differing lengths and/or starting/ending dates for the following categories of:

• collectively and non-collectively bargained employees;

• salaried and hourly employees;

• employees of different entities;

And

• employees located in different States.

Since employers may need time between the measurement and stability periods to determine eligibility and for communications and enrollment processes, employers may provide for an “administrative period”. However, this administrative period may not exceed 90 days. In order to prevent gaps in coverage the administrative period must overlap the prior stability period. This would allow ongoing employees who are eligible for coverage to maintain that coverage without a break.

While organizational requirements, demands, and philosophies differ from employer to employer, it will be essential that companies plan for measuring and tracking of ongoing employees whose work schedules may result in their hours fluctuating above and below 30 plus hours per week during their employment.