Definition of Full-Time Employee and Waiting Period Part of the Affordable Care Act (ACA) December. 2013

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1 Definition of Full-Time Employee and Waiting Period Part of the Affordable Care Act (ACA) December The following provides an overview of the Waiting Period requirements, as well as the process for determining Full-Time status of employees, as outlined in the ACA. Note: The information below is based on the regulations released in The regulations addressing measuring employees hours to determine Full-Time vs. Part-Time (or other) status has not been updated to coincide with the delay in implementation of the Employer Shared Responsibility provision of the ACA (sometimes referred to as the Large Employer Mandate ). As announced in July, this provision along with the penalty for not providing affordable, minimum essential coverage to eligible full-time employees has been delayed until Waiting Period Applies to all employers (Large and Small) offering health insurance coverage A Waiting Period is defined as the period of time that must pass once an employee begins work, before coverage takes effect. Proposed regulations were released in March 2013 further clarifying the Waiting Period requirement under the ACA. The regulations state that for employers offering a health insurance plan, any Waiting Period cannot exceed 90 calendar days, including weekends and holiday. Therefore, employers will no longer be permitted to have a Waiting Period such as 1 st of the month following 90 days of service. Determining Full-Time vs. Part-Time Employee Status for Large Employers The ACA states that beginning in 2015, Large Employers (employers with 50 or more full-time employees or full-time equivalents) that do not offer affordable health insurance coverage to full-time employees who work on average 30 or more hours per week may be assessed a penalty. Reminder: Full-Time is defined as an average of at least 30 hours of service per week or 130 hours of service in a calendar month. Hours of service include hours for which an employee is paid or entitled to be paid such as paid time off, sick time, holiday time. See the Shared Responsibility overview provided by our office on 3/8/13 for a more detailed description of defining a Large Employer. Click on this link. The regulations anticipate that Large Employers will offer health insurance coverage to all existing and newly hired full-time employees. However, not all employers offer health insurance coverage to parttime or variable hour employees, or to Seasonal Employees. In addition, it is not always clear whether these employees are working an average of 30+ hours per week. Therefore, the federal government has issued regulations that permit employers to measure part-time or variable hour employees over a period of time to determine if they are working 30+ hours per week. This process is optional. Employers can 1

2 use a month-to-month process to determine potential eligibility for health insurance; however, this process may create a lot of fluctuation in eligibility status. The regulations permit employers to use the following Safe Harbor measurement processes for Existing or Ongoing Employees and for New Hires. Existing/Ongoing Part-Time, Variable Hour and Seasonal Employees This process would be used to determine which Part-Time, Variable Hour or Seasonal Employees would be eligible for coverage when an employer s health insurance plan renews beginning in 2015: The employer can establish a Standard Measurement Period to determine whether an employee has worked an average of 30 hours per week. This Standard Measurement Period is a look back period, of at least 3 but no more than 12 months. Once the employer has established the Standard Measurement Period, and has determined whether the employee is full-time (FT) or part-time (PT), the employer then establishes a Stability Period during which the employee remains FT or PT (as applicable) regardless of actual hours worked during the stability period, as long as the employee remains employed. The Stability Period is a prospective period of time (i.e., looking forward). For full-time employees, the Stability Period must be at least 6 consecutive calendar months, and cannot be shorter than the Standard Measurement Period. For part-time employees, the Stability Period cannot be longer than the Standard Measurement Period. The start of the Stability Period can be delayed for up to 90 days after the end of the Standard Measurement Period, for an Administrative Period to allow the employer to calculate an employee s hours, collect enrollment materials, etc. Note: The 2013 regulations permitted employers to apply a measurement period in preparation for the 2014 plan that is shorter than 12 months (but no less than 6 months) and still have a 12 month stability period. We believe this caveat was added to give employers more time to develop systems and processes to measure hours. However, since the employer requirement has been delayed until 2015 we are not sure if this caveat will be permitted for the 2015 plan year. In addition, there is some discussion whether non-calendar year plans will be required to comply with the employer shared responsibility provisions starting Jan. 1, 2015, or if they may wait until the plan year that begins during 2015 (i.e., effective with their plan renewal). It is not certain whether the change in compliance date for the employer shared responsibility provision affected the transition rule that would have applied to non-calendar year plans in Example A Calendar Year Plan using 12 month Measurement and Stability Periods: Preparing for 2015 Plan Year: Standard Measurement Period 1 October 5, 2013 to October 4, 2014 Administrative Period 2 October 5, 2014 December 31, 2014 Stability Period January 1, 2015 to December 31,

3 Preparing for 2016 Plan Year: Standard Measurement Period October 5, 2014 to October 4, 2015 Administrative Period October 5, 2015 to December 31, 2015 Stability Period January 1, 2016 to December 31, 2016 Here is a visual to help explain the above example: 2015 Plan Year Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q Plan Year Green = Standard Measurement Period Red = Administrative Period Blue = Stability Period Notes: 1. The Standard Measurement for the 2014 plan year is 6 months in the example above as permitted in the regulations as part of the transition process. This may not be permitted since the regulations have been delayed until The Administrative Period cannot exceed 90 calendar days, including weekends and holidays. New Full-Time Employee If an employee is expected to work full-time, then the regulations anticipate that an employer will offer the new employee health coverage as a full-time employee, and that such coverage will begin no more than 90 days after the employee s hire date (i.e., the employer cannot impose a Waiting Period longer than 90 calendar days). Effective January 1, 2015, a new employee working Full-Time but expected to work for a limited duration (e.g., Short Term employees) cannot be treated as a Variable Hour employee (see below); but must be offered coverage within 90 days of the date of hire. Note: it is unclear if this provision will be modified given that the large employer requirement to offer coverage has been delayed until New Variable Hour or Seasonal Employees This approach is used when the hours of a new employee cannot be determined. This process is also used for Seasonal Employees. The 2013 regulations do not define Seasonal Employee; instead they permit employers to use a reasonable good faith interpretation of the term through Note: It is unclear at this time whether additional guidance will be provided for the 2015 plan year. It is important to note that recent clarifications of the law indicate that the definition of a Seasonal Employee is different from the Department of Labor s definition of a seasonal worker (working no more than 120 days). Thus, an employee working more than 120 days may still qualify as a Seasonal Employee. 3

4 The employer may use an Initial Measurement Period between 3 and 12 months to measure the average hours worked per week. This Initial Measurement Period is similar to the Standard Measurement Period used for ongoing employees, except that it covers the first 3 to 12 months of employment. The Initial Measurement Period begins on any date between the employee s start date and the 1 st day of the calendar month following the start date. The employer can also apply an Administrative Period after the end of the Initial Measurement Period, not exceeding 90 days in length, to allow for time to offer coverage to the employee, complete enrollment forms, etc. 1. At the end of the Initial Measurement Period (and any Administrative Period), if it is determined the employee worked an average of 30 or more hours per week, the employee is classified as a Full-Time Employee for the Stability Period. The Stability Period is a prospective period of time (i.e., looking forward). For full-time employees, the Stability Period must be at least 6 consecutive calendar months, and cannot be shorter than the Standard Measurement Period. The Stability Period for Variable Hour and Seasonal employees must be the same length as the Stability Period for ongoing employees. If it is determined after the Initial Measurement Period that the employee is not working an average of 30 or more hours per week, the employee is then classified as a Part-Time Employee for the Stability Period. For part-time employees, the Stability Period cannot be more than one (1) month longer than the Initial Measurement Period. Each new Variable Hour or Seasonal Employee would have his/her own Initial Measurement Period, Administrative Period and Stability Period based on date of hire. Example - New Hires with an 11 month Initial Measurement Period Employee hired on May 15, 2014 Initial Measurement Period 1 June 1, 2014 to April 30, 2015 (11 months) Administrative Period May 1, 2015 to June 30, 2015 (Determine FT or PT) (2 months) Stability Period July 1, 2015 to May 31, 2016 (Stays FT or PT based on results of Initial Measurement Period) (12 months) Here is a visual to also explain the above example: Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Hired 5/15/14 Note: An employer could impose a 12 month Initial Measurement Period, followed by a 1 month Administrative Period and a 12 month Stability Period. Notes: 1. The Initial Measurement Period combined with the Administrative Period cannot exceed 13 months plus a fraction of a month (i.e., it may not extend beyond the last day of the first calendar month beginning on or after the one-year anniversary of the employee s start date). 4

5 Adding the New Employee into the process for measuring Existing/Ongoing Employees Each new employee will also be incorporated into the measurement process for existing/ongoing employees. When you incorporate the new hire into the Measurement Period for existing/ongoing employees, it could look like this: Example - New Hires with an 11 month Initial Measurement Period Employee hired on May 15, 2014 Initial Measurement Period 1 June 1, 2014 to April 30, 2015 (11 months) Administrative Period May 1, 2015 to June 30, 2015 (Determine FT or PT) (2 months) Stability Period July 1, 2015 to May 31, 2016 (Stays FT or PT based on results of Initial Measurement Period) (12 months) The new employee also is added to the Standard Measurement Period for ongoing employees beginning in October 2014 to determine potential eligibility for the 2016 plan year Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Hired 5/15/14 Plan Year 2016 Other related questions Can an Employee s Status Change During the Stability Period? The new interim regulations address that if a new variable hour or seasonal employee changes status during the Initial Measurement Period and that employee becomes a full-time employee, the employer is expected to offer health coverage to that employee after the Waiting Period. This requirement only applies during the Initial Measurement Period, and not when the employee is an Ongoing Employee. Can an employer establish different Measurement Periods and Stability Periods for different categories of employees? An employer can establish different Measurement Periods and Stability Periods for the following categories of employees: - Each group of collectively bargained employees covered by a separate collective bargaining agreement; - Collectively bargained and non-collectively bargained employees; - Salaried employees and hourly employees; and - Employees whose primary places of employment are in different states. 5

6 How do I treat employees that are rehired after termination of employment or resuming service after other absence? If a person is rehired and his/her break in service is greater than 26 weeks the regulations permit the employer to treat the person as a new employee. If the break in service is less than 26 weeks, special rules apply. Further guidance is expected to help employers better understand their obligations around offering health insurance coverage in We at EBS will continue to update our clients as this guidance is issued. As always, please note that EBS is sharing this information to assist you with your compliance planning. We recommend that you contact your legal counsel and/or accounting resource with specific questions relating to this law. Sources: 1. Federal Register, January 2, 2013, 26 CFR Parts 1, 54 and EBIA Webinar, Tracking Full-Time Employees Under Health Care Reform, Understanding and Applying the IRS Safe Harbors, March 21, Buck Consultants, Guidance issued on employer shared responsibility requirements, January 30, Ninety-Day Waiting Period Limitation and Technical Amendments to Certain Health Coverage Requirements Under the Affordable Care Act, 26 CFR Part 54, 29 CFR Part 2590, 45 CFR Parts 144, 146, and 147, 78 Fed. Reg (Mar. 21, 2013) 5. Drinker Biddle, IRS Proposed Regulations Provide Additional Guidance for Compliance with the Employer Shared Responsibility Rules, April Perkins Cole (SHRM), Some Employers Need to Start ACA Measurement Periods in 2013, September December