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Do you Know Your Employee Types?

Tuesday October 28th, 2014

Estimated time to read: 2 minutes, 15 seconds

Prior to the Affordable Care Act (ACA) entering the picture, an employer generally considered a full-time employee as one that worked 40 hours a week and received health benefits, paid time off and perhaps even retirement contributions.  The ACA has required applying a new meaning not only to full-time but also other employee types for health care compliance.

Under the ACA, a full-time (FT) employee is reasonably expected to work an average of at least 30 hours of service per week; 130 hours of service per month is equivalent. This means even variable hour and seasonal employees may be considered FT under the ACA.  To determine FT status, employers may measure over a period of time (3-12 months) or monthly.

A part-time (PT) employee is reasonably expected to work an average of less than 30 hours of service per week upon their start date.

Variable hour employees are determined at time of hire.  A new employee is variable hour only if it can’t be determined that the employee is reasonably expected to work at least 30 hours per week during the initial measurement period.  Seasonal employees are treated as variable hour. Most seasonal employees will not be FT.  The 120-day/4 month rule applies for seasonal employee exception from applicable large employer (ALE) determination.

To determine an employee type, the employer counts hours of service each calendar month.  The employer has until the end of the third full calendar month following the change to FT to offer coverage (non-assessment period, applies once per period of employment).    The monthly calculation is generally best used for salaried employees, it can be difficult for hourly employees.  Most employers will use the measurement period for hourly employees.

The look-back period is a three to twelve month employer selected period used to determine if employees average at least 30 hours per week.  An employee is treated as FT or not FT during the period following the look-back period, regardless of hours worked (stability period). A stability period is the longer of six months or the measurement period. 

Will you play or pay?

There is no exception to the play or pay mandate for a temporary employee.  Employees are either FT, PT, variable hour or seasonal.  An employer may not consider that employee may quit before the end of the initial measurement period.  Employees who do not remain employed beyond the last day of the third full calendar month are in a limited non-assessment period and will not trigger a penalty or be counted as a FT for penalty purposes.

When there is no employer offered insurance

  • Insurance not offered to at least 95% of FT employees and children (70% in 2015)
  • At least one FT employee obtains subsidized coverage on exchange
  • 2,000 × each FT employee, reduced by first 30 (80 for 2015)
  • Penalty assessed monthly on EIN basis

When employer offered insurance is not affordable or does not meet minimum value (60%)

  • Affordable insurance not offered to all FT employees and children
  • At least one FT employee obtains subsidized coverage on exchange
  • $3,000 × each FT employee who obtains subsidized coverage on exchange
  • Penalty assessed monthly on EIN basis

Effective January 1, 2015, play or pay applies to applicable large employers (ALE) that employs 50 or more full-time equivalents (FTEs) in preceding year.  To determine 2015 ALE status, use any consecutive six-month period in 2014.  Play or pay has delayed implementation for 50–99 FTE and offers transition relief for fiscal year plans.  Keep in mind that if you have 50-99 FTE and a brief reprieve from penalties, you’ll still need to comply with the ALE reporting requirements for 2015.

The ACA continues to challenge employer’s compliance and workforce management.  With the right system and technology, employers can easily determine employee types, hours worked and more to confirm their ACA compliance.

What will be your biggest challenge with this ACA requirement?