Beginning in 2014, many employers will be required to expand their current health insurance coverage to more employees or face stiff penalties resulting from the Patient Protection and Affordable Care Act. This is because, for purposes of the "shared responsibility" (aka "pay or play") requirements, full-time employees include any employee who works, on average, at least 30 hours per week (or 130 hours per month). This definition is a significant departure for those employers who have traditionally looked to the 40-hour work week as the threshold for full-time employee status.
Under Section 4980H of the ACA, failure of "applicable large employers" to provide "substantially all" of their full-time employees and their child dependents with "minimum essential coverage" that is both "affordable" and provides "minimum value" will trigger an employer penalty if at least one full-time employee receives premium tax credits or a cost-sharing reduction for health insurance coverage through a federal or state exchange.
The shift to the 30-hour work week for health care eligibility will have a significant cost impact on employers, particularly those in the hospitality and retail industries, where there is a high volume of hourly and high-turnover positions. Not surprisingly, major players in these industries have recently been in the headlines for lobbying for the definition of full-time employee status to be increased to 40 or more hours per week, or have, alternatively, announced their intention to slash employee hours to keep employee schedules below the 30-hour threshold.
In addition, beyond the cost impact of the ACA's definition of full-time employees is the daunting task for employers to identify all full-time employees to ensure that no such employee slips through the cracks for coverage eligibility, etc. This is particularly an issue for hourly employees who work in a variable or seasonal capacity. To address this issue, the agencies responsible for implementing health care reform have issued comprehensive regulations, which provide employers with the option of using a safe-harbor approach to measuring hours.
Employers must act now and plan their strategy to address the new health care reform requirements relating to full-time employees, which are generally effective on January 1, 2014. The following are key considerations:
Do the requirements relating to full-time employees apply to my company?
It depends. The provisions apply only to those employers who employed, on average, at least 50 full-time employees in the prior year. To make this determination, the employer must count the actual hours of service of all employees in the prior year, taking into account full-time and full-time equivalent employees. To determine the total number of full-time and full-time equivalent employees for a particular month, the employer must add together (a) the total number of full-time employees for the month (using the 30-hour-per-week threshold), and (b) a number that is equal to the total number of hours worked in a month by part-time employees, divided by 120. The number of employees is determined on a "controlled" group basis.
How does an employer determine which of its employees are full-time?
At least through the end of 2014, employers may, but are not required to, rely on the use of a safe-harbor method for determining full-time employees, which uses a look-back "measurement period" for counting hours of service, a "stability period" during which coverage may have to be provided (depending on full-time employee status during measurement period), and an "administrative period" that allows time for communication to enroll or end coverage, as applicable.
Standard measurement period: the look-back period for calculating the hours of service of ongoing employees. The period cannot be less than three months or more than 12 months.