Determining full-time employees
IRS Notice 2012-58 provides safe harbor methods that large employers may use (but are not required to) to determine who is an FTE for purposes of ACA shared responsibility rules. The guidance is only effective for the year 2014, and more restrictive guidelines may apply to future years.
If a large employer hires someone expecting him or her to work at least 30 hours per week, that person is eligible for healthcare coverage within 90 days of being hired or penalties will be imposed in 2014. If you hire variable-hour workers (e.g., school bus drivers) and are unsure of meeting the 30-hour average, the safe harbor rules can be used to determine if they should be classified as FTEs. The remainder of this article assumes variable-hour workers and large employers.
An ongoing employee is someone employed for at least one “standard measurement period” (SMP). The SMP is the timeframe (between three and 12 months, as selected by the employer) in which an employer measures if an employee is working an average of 30 hours per week. The timeframe selected must be used uniformly and consistently for all employees within the same category. Using a 12-month SMP captures annual work variations (holidays, summer sessions, seasonal activity trips), thus providing the contractor the truest profile.
An employer also establishes a “stability period” (SP), the timeframe during which insurance coverage must be provided. The SP is the greater of six months or the SMP timeframe. Thus, using a 12-month SMP (testing period) dictates a 12-month SP (coverage) timeframe.
An Administrative Period (AP) can be slotted between the SMP and SP timeframes, allowing time to determine who is eligible for coverage as well as notifying and enrolling employees. This period cannot exceed 90 days.
A suggested model is:
• SMP (measurement) timeframe: Oct. 1, 2012, to Sept. 30, 2013
• AP timeframe: Oct. 1, 2013, to Dec. 31, 2013
• SP (coverage) timeframe: Jan. 1, 2014, to Dec. 31, 2014
If the SMP testing classifies a worker as an FTE, then coverage must be provided during the SP period regardless of the number of hours worked during the SP period. Thus, a qualified FTE during the SMP period who drops to part-time hours during the SP timeframe is still eligible for coverage until the end of the SP period, so selecting the appropriate SMP timeframe and knowing the rules are critical.
Annual analysis for variable-hour workers is necessary until the employee gains FTE status. However, in a typical contractor’s business model, with school bus drivers dominating the employee count, this administrative burden remains.