GUIDANCE ON DETERMINING FULL-TIME EMPLOYEE EQUIVALENT STATUS FOR PURPOSES OF THE EMPLOYER MANDATE ( PAY OR PLAY

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1 GUIDANCE ON DETERMINING FULL-TIME EMPLOYEE EQUIVALENT STATUS FOR PURPOSES OF THE EMPLOYER MANDATE ( PAY OR PLAY ) and the 90-DAY MAXIMUM WAITING PERIOD The IRS, and the Departments f Health and Human Services and Labr (the Agencies ) have issued guidance t assist emplyers in determining and identifying full-time emplyees, and full time equivalent emplyees, wh must be ffered grup health cverage under the emplyer shared respnsibility prvisins ( Pay r Play ) f the Affrdable Care Act ( ACA r Health Care Refrm ). These methds are als crdinated with new guidance pertaining t the 90 day maximum waiting perid fr grup health insurance cverage established under the ACA. This cmmunicatin will address bth pieces f new guidance, as well as additinal guidance released n the Pay r Play Mandate n December 29, Part I: Determining Full-Time Emplyee / Full-Time Emplyee Equivalent Status under Health Care Refrm s Emplyer Shared Respnsibility Rules (Pay r Play) Backgrund: Beginning January 1, 2014, (r in sme cases the first plan year after January 1, 2014),Health Care Refrm requires an applicable large emplyer t ffer affrdable and cmprehensive health cverage t all f its full time emplyees r be subject t a penalty. This prvisin is widely referred t as the Emplyer Mandate sectin f Health Care Refrm r the Pay r Play Mandate. In shrt, the Pay r Play Mandate applies t emplyers that emply 50 r mre full time r full time equivalent emplyees. Under Health Care Refrm, a full-time emplyee is generally cnsidered an emplyee that regularly wrks 30+ hurs per week. These rules becme much mre cmplex when attempting t cunt part-time emplyees, variable hur emplyees and seasnal emplyees. This cmmunicatin cntains a series f FAQs in an attempt t smewhat break-dwn the cunting prcess fr different types f emplyees. One must keep in mind that even thugh sme part-time emplyees will be included t determine whether an emplyer is a large emplyer, thse emplyees will still nt be subject t the Pay r Play Mandate. In ther wrds, nly large emplyers will need t ffer cverage t full-time emplyees t avid a penalty. Such emplyers will nt have t ffer cverage t part-time emplyees. Hwever, the guidance will require emplyers t cver sme variable hur r seasnal emplyees that will fall int the categry f full time equivalent emplyees based n a frmula. FAQ#1: What is cnsidered a large emplyer under Health Care Refrm s as t be subject t the Pay r Play Mandate? Under Health Care Refrm, a large emplyer is an emplyer with at least fifty (50) full-time r full-time equivalent emplyees. FAQ #2: Wh is a full-time emplyee under Health Care Refrm? Under the emplyer respnsibility prvisins / Pay r Play Mandate f Health Care Refrm ne wh wrks, r is reasnably expected t wrk, an average f at least 30 hurs per week is a full-time emplyee. FAQ #3: Wh is a full-time equivalent emplyee under Health Care Refrm? In rder t determine the number f full-time equivalent emplyees, an emplyer will take the ttal mnthly hurs f all f its regular part time emplyees divided by 120. Ttal Mnthly Part Time Hurs / 120 = # f Full-Time Equivalent Emplyees

2 Nte: These emplyees, while included in the determinatin f whether an emplyer is a large emplyer subject t Pay r Play, will nt have t be ffered cverage as they are nt full-time emplyees. FAQ #4: D Part-Time Emplyees have t be ffered health insurance under the Pay r Play Mandate? N. (See FAQ #3) FAQ #5: When des grup health cverage begin fr a newly-hired full-time emplyee? If the emplyee is expected t wrk full-time (an average f at least 30 hurs per week) n an annual basis and des s during the first ninety (90) days f emplyment, the emplyer must ffer the emplyee grup health cverage n later than at the end f the emplyee s first ninety (90) days f emplyment. FAQ #6: What is a variable hur emplyee? If, at the time f the emplyee s start date, it cannt be determined that the emplyee will wrk an average f at least thirty (30) hurs per week, r if the emplyee will wrk an average f at least thirty (30) hurs per week but nly fr a limited duratin then the emplyee is a variable hur emplyee. FAQ #7: What is a seasnal emplyee? A seasnal emplyee generally wrks fr an emplyer fr ne hundred twenty (120) days r less during a calendar year. Generally, if an emplyer s full-time wrkfrce exceeds fifty (50) emplyees but the excess emplyees are seasnal emplyees then the emplyer wuld nt be cnsidered an applicable large emplyer fr Pay r Play purpses. Emplyers are permitted t use a reasnable gd faith interpretatin f the term seasnal fr purpses f these rules. In general, the IRS will likely cnsider the definitin t include hliday retail wrkers, varius agricultural wrkers, and ski instructrs. FAQ #8: Will cverage be required fr variable hur r seasnal emplyees under Pay r Play? It depends. The emplyer will have t perfrm analysis, cnsistent with the safe-harbr prcedures utlined in this cmmunicatin, t determine whether the emplyee in questin meets the full-time emplyee ( FTE ) requirements in rder t be cnsidered a full-time emplyee entitled t cverage under the Pay r Play Mandate. The safe harbr methds used by the emplyer t determine FTE status f variable hur and seasnal emplyees is identical. Nte: These types f emplyees are treated differently frm regular part-time emplyees. These types f emplyees can be cnsidered full-time emplyees beynd just fr cunting purpses. (See FAQ #3) FAQ #9: What is the safe harbr methd fr determining whether a seasnal r variable hur emplyee is a full-time emplyee fr Pay r Play purpses? An emplyer will use up t three (3) perids f time t determine whether an emplyee is a full-time emplyee: (1) The standard r initial measurement perid a. An emplyer is nt required t ffer health cverage, in rder t avid the Pay r Play penalty, unless the emplyee actually wrks, n average, at least 30 hurs per week. b. The emplyer can chse the measurement perid f between three (3) and twelve (12) mnths t determine the average hurs wrked by an emplyee and t determine if thse hurs exceed thirty (30).

3 (2) The stability perid a. If a variable hurs r seasnal emplyee wrks the required number f hurs during the measurement perid, then the wrker must be treated as a full-time equivalent emplyee during a subsequent stability perid. b. The stability perid must be a perid f at least six (6) mnths c. The stability perid cannt be shrter than the initial measurement perid. d. If the variable hurs r seasnal emplyee des nt wrk enugh hurs t satisfy the FTE requirements, during the initial measurement perid, then his r her stability perid cannt be mre than ne (1) mnth lnger than the initial measurement perid. e. During the stability perid, an emplyer will nt be subject t the Pay r Play penalty if such wrker is nt prvided with health cverage, even if the individual wrks, n average, at least thirty (30) hurs r mre per week. (3) The administrative perid a. An emplyer may adpt an administrative perid f up t ninety (90) days in between the measurement perid and the stability perid t give emplyers time t determine which f the eligible emplyees will be eligible fr cverage and t ntify and enrll emplyees. b. EXAMPLE: I. An emplyer adpts a 12 mnth measurement perid, which begins n Octber 15 f Year One and ends n Octber 14 f Year 2. Then, instead f immediately beginning the stability perid n Octber 15 f Year 2, the emplyer culd adpt an administrative perid and begin the stability perid n January 1 f Year 3. c. Any administrative perid between the standard measurement perid and the stability perid may neither reduce nr lengthen the measurement perid r stability perid. d. T prevent any administrative perid frm creating gaps in cverage, it must verlap with the prir stability perid, s that, fr nging emplyees, during any such administrative perid applicable fllwing a standard measurement perid, thse emplyees wh are enrlled in cverage because f their status as full-time emplyees based n a prir measurement perid will cntinue t be cvered. e. The initial measurement perid and the administrative perid, cmbined, may nt extend beynd the last day f the first calendar mnth beginning n r after the ne-year anniversary date (ttaling, at mst 13 mnths and a fractin f a mnth). f. The safe harbr methd can be different fr nging emplyees and newly-hired emplyees. FAQ #10: What safe harbr methd culd an emplyer use t determine the full-time status f nging emplyees? An emplyer culd use a standard lk-back measurement perid. This wuld reflect the same prcedures utlined in FAQ #8 except the emplyer-defined time perid f six (6) t twelve (12) cnsecutive calendar mnths wuld be a lk back perid f time in which the emplyee has already wrked. This wuld be fllwed by a stability perid f at least six (6) mnths, whereby the emplyee s status wuld be lcked in thrughut the perid. Fr instance, if an emplyee meets the definitin f a full-time emplyee during the

4 standard measurement perid, then the emplyee is a FTE under Pay r Play and the emplyer wuld be required t ffer that emplyee cverage r face a penalty thrughut the subsequent stability perid. Likewise, if an emplyee des nt wrk full-time during the standard measurement perid, the emplyer wuld be permitted t lck in the emplyee s status as NOT a FTE during the subsequent stability perid that fllws. This wuld alleviate the emplyer frm any bligatin t prvide cverage fr the emplyee during the stability perid. Again, the subsequent stability perid cannt be lnger than the initial standard measurement perid. FAQ #11: What safe harbr methd culd an emplyer use t determine whether newly-hired variable hur and seasnal emplyees are full-time emplyees fr health cverage purpses? The emplyer can use an initial measurement perid (between three (3) and twelve (12) mnths) during which the emplyee s hurs are tracked. The resulting classificatin (part-time r full-time) will then stay with the emplyee fr a subsequent stability perid, regardless f the hurs wrked by that emplyee during the stability perid. In ther wrds, the emplyee will be lcked in t their status during the stability perid. A stability perid must be at least six (6) cnsecutive calendar mnths lng, but cannt be shrter than the initial measurement perid. FAQ #12: When is an emplyer required t ffer health cverage t an emplyee wh averaged 30+ hurs per week during the standard r initial measurement perid? The emplyer shuld ffer cverage during the subsequent administrative perid (up t 90 days), if any, r during the stability perid. It is imprtant t nte that cverage des nt need t be ffered t emplyees in the measurement perid. FAQ #13: Can an emplyer apply different measurement, stability and administrative perids fr different emplyees? Generally, the standard measurement perid and stability perid selected by an applicable large emplyer must be unifrm fr all emplyees; hwever, the applicable large emplyer may apply different measurement, stability and administrative perids fr the fllwing categries f emplyees: Each grup f cllectively bargained emplyees cvered by a separate cllective bargaining agreement; Cllectively and nn-cllectively bargained emplyees; Salaried emplyees and hurly emplyees; and Emplyees whse primary places f emplyment are in different states FAQ #14: Can an emplyer make adjustments t a measurement perid t accmmdate payrll perids? Yes. The prpsed regulatins allw emplyers t begin and end measurement perids with the beginning and ending f regular payrll perids if each f the payrll perids is ne week, tw weeks, r semi-mnthly in duratin. Fr example, an emplyer using the calendar year as a measurement perid culd exclude the entire payrll perid that included January 1 (the beginning f the year) if it included the entire payrll perid that included December 31 (the end f the same calendar year), r, alternatively, culd exclude the entire payrll perid that included December 31 if it included the entire payrll perid that included January 1. FAQ #15: Can an emplyee rehired after terminatin f emplyment be treated as a new emplyee?

5 Yes, in sme instances. If the perid fr which n hur f service is credited is at least 26 cnsecutive weeks, then the emplyer may treat an emplyee as a new emplyee. An emplyer may als apply a rule f parity fr perids f less than 26 weeks. This wuld nly apply t determining whether the emplyee is a full-time fr emplyers using the lk back methd and nt fr any ther purpse. Part II: Guidance Relating t the Applicatin f the Maximum 90-Day Eligibility Waiting Perid General Rule: Under Health Care Refrm, if an emplyer chses t ffer health cverage the grup health plan r insurance issuer cannt apply an eligibility waiting perid that exceeds ninety (90) days, fr plan years beginning n r after January 1, FAQ #16: Hw is eligibility waiting perid defined? After the plan s substantive eligibility cnditins are met, the eligibility waiting perid is the perid f time that must pass befre cverage fr an emplyee r dependent wh is therwise eligible t enrll under the terms f the plan can becme effective. FAQ #17: Can an emplyer exceed the ninety (90) day waiting perid t determine an emplyee s eligibility under the plan? Yes. The emplyer can implement ther cnditins fr eligibility under the terms f the plan, (example: determining FTE status) unless the cnditins are designed t avid cmpliance with the ninety (90) day waiting perid limitatin. FAQ #18: Hw much time des an emplyer have t determine whether an emplyee will be full-time in situatins in which the emplyee was initially hired t wrk part time r fr seasnal wrk? Up t thirteen (13) mnths. If an emplyer uses a twelve (12) mnth measurement perid and determines a variable hur r seasnal emplyee is a FTE, then cverage must be made effective n later than the first day f the first calendar mnth after the measurement perid r n later than thirteen (13) mnths after the emplyee s start date. FAQ #19: What if an eligible emplyee cmpletes the enrllment frms after the ninety (90) day waiting perid is ver? As lng as the emplyee is permitted t enrll in the plan within ninety (90) days the emplyer is in cmpliance with the law. An emplyer will nt be penalized fr an emplyee s inactin. CBA will cntinue t mnitr the release f additinal guidance regarding these specific issues, as well as all aspects f Health Care Refrm. In the meantime, if yu wuld like mre infrmatin abut Health Care Refrm, please cntact us at (888) This cmmunicatin is prvided fr infrmatinal purpses nly and des nt cnstitute legal advice. It cntains nly a summary f the applicable legal prvisins and des nt purprt t cver every aspect f any particular law, regulatin, r requirement. Crprate Benefits Alliance, Inc. (CBA) serves emplyers and

6 prducers in Pennsylvania. Infrmatin cntained in this cmmunicatin is applicable t federal and Pennsylvania laws and regulatins. Depending n the specific facts and lcatin f any situatin, there may be additinal r different requirements. Please use this cmmunicatin as a guide and nt as a definitive descriptin f yur cmpliance bligatins The Crprate Benefits Alliance, Inc. (CBA) Grup, Inc. All Rights Reserved.