In December 2015, the U.S. Internal Revenue Service (IRS) issued draft guidance for comment that could, if promulgated, have a significant effect on school bus contractor operations.

One of the key components of the Affordable Healthcare Act (known as “Obamacare” or ACA) is that employers with at least 50 full-time employees are now required to offer healthcare coverage to their full-time employees and their employees’ dependents or pay a penalty.

An employee reaches full-time status for this purpose by averaging at least 30 hours per week. In order to calculate that average, a 2014 IRS rule allowed employers to use a “look-back” method to average employee hours over a 12-month period. That average is computed by excluding any special unpaid leave and then averaging the remaining hours.

In separate IRS rules applicable only to educational organizations, employment break periods of at least four consecutive weeks would also be excluded from the computation, and an employee who stops working for at least 26 weeks could be treated as a new employee if the employee resumes services.

The guidance issued in December 2015 is a sharp departure from those 2014 rules and proposes to remove employment breaks from the calculation used to determine the average hours for employees who “primarily perform services” for educational organizations. This means that summer breaks, among other school year breaks, would no longer be factored into the equation when determining average hours worked. That change could have the effect of reclassifying at least some employees from part-time to full-time, thus making them eligible for the required healthcare benefits.

The greatest concern with this proposal ... is how the increased fees will ultimately be paid. If contractors are forced to provide healthcare coverage to their employees who are reclassified as full-time, then their costs will increase.

This proposal leaves far more questions than it answers. The language specific to school bus contractor operations is vague and is contained within a lengthy and complex document of questions and answers. As such, the document may well have gone unnoticed by many it would affect.

Some of the critical unanswered questions include:

•    When would the proposal go into effect?
•    Would it affect current contracts?
•    What are the implications of the number of hours an employee must work?
•    Is there any requirement to the type of job the employee must be afforded?

Given that home-to-school transportation doesn’t typically operate consistently throughout the year and that contracts vary in length, these are important questions.

Far more troubling, the proposal is offered under the guise of closing a loophole that, according to the IRS, is being exploited. Unaware of any exploitation within the school transportation industry, NSTA is more concerned that the IRS does not understand the fundamental nature of school bus contracting.

For example, many school bus drivers enjoy the seasonal nature of their job. It is unclear if this proposal would change that or if so, how. Moreover, many of those seasonal employees draw unemployment in the summer months. Again, it is unclear if or how this proposal would affect that general practice.

In addition, the IRS seems to be comparing school bus contracting operations to “third party staffing agencies,” further demonstrating a lack of understanding of contracting operations.

The greatest concern with this proposal, however, is how the increased fees will ultimately be paid. If contractors are forced to provide healthcare coverage to their employees who are reclassified as full-time, then their costs will increase. Increased contractor costs lead to increased contract costs. Contract costs are ultimately paid by taxpayers within school districts. Therefore, this proposed burden would ultimately be borne by the taxpayers.

NSTA submitted comments raising these concerns to the IRS. NSTA also encouraged all contractor and state association members to submit comments of their own, and we are pleased to report that many of them did just that. In addition, NSTA has requested a meeting with the IRS to fully discuss our concerns.