In our ongoing series on the Affordable Care Act’s impact on agricultural employers, we explain how you will determine which employees must be offered coverage.
The regulations refer to “applicable large employers” (or ALE’s, as we will abbreviate it here). These are employers that the penalties apply to if health insurance is not offered to their full time employees. This is important to remember, because if you miss-classify an employee and/or do not make an offer of coverage that should have been made in the time periods required by the law, and that employee purchases insurance coverage through a state or federal exchange, your business could be subject to substantial penalties.
Update 9/4/2014: After fielding questions from customers and re-examining the regulations, this article has been substantially reorganized to make the differences between the Monthly Measurement Period and the Look-Back Measurement Period clearer and some new information has been added.
Part-time vs. Full-time
ALE’s are required to offer health insurance coverage to their full-time employees. For ACA purposes, a full-time worker must work 30 hours per week or 130 hours per month.
ALE’s are not required to offer coverage to their part-time employees. Based on our experience, agricultural employers do not typically offer part-time work; many ag workers are working the maximum 60 hours per week (before overtime must be paid) or close to that. It may be unlikely that you would ever categorize any ag workers as a part-time employee.
Once a full time employee is deemed eligible, the ACA specifies that the employee must be offered coverage within three calendar months (effectively 90 days). This 90 day period is referred to as a “eligibility waiting period”. The employer sets the waiting period:
“In reading the codes, however, it is important to remember that the relevant code sections only apply to California’s insurers. Therefore when the amended law states that a health plan “shall not impose any waiting or affiliation period,” the law has been amended to tell California’s HMOs and PPOs that they can’t apply waiting periods. This frees up employers to set their waiting periods at whatever they deem appropriate as long as it complies with PPACA’s 90-day (or maybe 90-days plus a month, more on that here) limit.”
In California, there is an important exception. AB 1083 enacted a maximum 60-day waiting period. So you must offer coverage sooner if you are a California employer. The exception, as noted in the link, is that this 60-day waiting period doesn’t apply to self-insured plans. If you implement a self-insured plan, then you are still covered by the 90-day waiting period specified by the ACA.
Update 8/29: California has repealed the 60-day waiting period, bringing California into agreement with the federal ACA rules.
The big question is: How do you determine whether an employee is full time or part time, especially in a situation where employees may work varying number of hours from week to week or month to month? The IRS regulations outline two methods for determining an employee’s status, and therefore whether an employer is required to make an offer of coverage.
Before we get into the two methods, there is one other wrinkle to this: You can use different methods of determine full-time status for different categories of employees. There are four allowable categories:
- Collectively bargained employees and non-collectively bargained employees.
- Each group of collectively bargained employees covered by a separate collective bargaining agreement.
- Salaried employees and hourly employees.
- Employees whose primary places of employment are in different states.
The salaried vs. hourly employees categories are likely the only possible categories for the majority of our customers.
Monthly Measurement Period Method
The first method is to use a monthly measurement period. For each month, you total the hours of service for each employee to determine the employees status as either a full-time or part-time employee. If an employee worked at least 130 hours in the month, they he or she is considered a full-time employee. Once an employee is first categorized as a full-time employee, you must make an offer of coverage within three months to avoid being subject to the ACA’s penalties.
Normally, hours are totaled for the calendar month. This is important, because the first and last pay periods of the month may include hours worked in the prior or next month.
There is an alternative to using the calendar month hours to determine the employee status. You can use a weekly period (i.e. your normal pay period) to determine the full-time or part-time status. Using this method, employees must work an average of 30 hours per week to be considered full-time. When using this method, you may have either four or five pay periods to measure, so employees will qualify as full-time with either 120 hours or 150 hours, depending on the number of weeks in the month.
Another consideration is how to handle employees that are rehired or otherwise have gaps in their employment. In general, if it has been 13 weeks since the employee last worked for you, you can treat them as a new hire and any past status, whether it is full-time or part-time, does not carry over. For shorter time periods, the employee is considered a continuing employee, and their prior status still applies when they are rehired. The regulations require that for employees who where previously determined to be full-time, they must have an offer made by the first day of the month after they resume service.
You can also implement a “rule of parity”, where employees who have not worked for a time shorter than 13 weeks can be treated as a new employee for ACA purposes, as long as the time period that they did not work is not exceeded by their last employment period. This parity rule period can be as few as four weeks.
Example #1: An employer set the parity rule period at six weeks. An employee that worked for eight weeks, then is laid off for six weeks, after which he is rehired, is considered an continuing employee because the period of their prior employment (eight weeks) is longer than the parity rule period.
Example #2: An employer set the parity rule period at six weeks. An employee that worked for five weeks, then is laid off for six weeks, after which he is rehired, is considered a new employee for ACA status purposes because the period of their prior employment (five weeks) is shorter than the parity rule period.
Look-Back Measurement Period
The second method for determining the status of variable hour employees is the look-back measurement period. The requirements for determining full-time vs. part time are still the same (130 hours/month or 30 hours/week) but the time period that you measure can be longer, from three to twelve months. This time period is referred to as the measurement period.
After the measurement period, there is an administrative period. During this time, an offer of coverage must be made to employees who are determined to be full-time. There is a limit (roughly thirteen months) to the combined total of the measurement and the administrative period.
After the administrative period, there is a third period called the stability period. During the stability period, the status of the employee which has been determined based on their hours of service during the measurement period (i.e. full time vs. part time) cannot change. The stability period cannot be shorter than six months or the length of the measurement period, whichever is greater.
There are two look-back periods, the initial period (which applies to new hires) and the ongoing period (which applies to ongoing employees). Once an employee has worked for one full ongoing measurement period, their status can be re-evaluated.
Types of employees
When you use the look back measurement period, there are four different categories for employees:
Each employee must be assigned a type. (Notice that if you use the Monthly Measurement Period, these types are not used.) Part-time employees of course are not eligible for an offer of coverage. But variable-hour and seasonal employees must have their hours of service evaluated to see whether they meet the threshold for a full-time employee and should receive an offer of coverage. These categories may be used in situations where an employee is hired and you may not be sure whether the employee will meet the 30 hour per week/130 hour per month minimum to be considered a full-time employee.
Full-time employees are automatically eligible for an offer of coverage. This offer must be made within three months, starting on the first day of the first full calendar month of employment.
When variable-hour and seasonal employees have their average hours calculated at the end of the measurement period, part-time employees are also analyzed. This is too make sure that an employee who may have been hired as part time isn’t actually working full-time hours and thus should receive and offer of coverage.
Practically speaking, there is no difference in the regulations that cover variable hour and seasonal employees. Seasonal employees are expected to work a maximum of six months, although some flexibility exists here. The regulations recognize that “seasonal employees” might work longer than six months. In our ACA articles, anytime we refer to “variable hour” employees that includes the seasonal employee category as well.
Changes in Status
Special rules apply if an employee is transitioning from full-time to part-time status between the initial measurement period an the ongoing measurement period. If an employee is determined to be full-time during the initial measurement period but part time during the ongoing measurement period, the employee retains their full-time status for the remaining of the initial stability period. If an employee is determined to be part-time during the initial measurement period but full time during the ongoing measurement period, the employee may be immediately considered a full-time employee and an offer of coverage must be made.
Just as with the monthly measurement period, you can either use a calendar month or weekly evaluation of the hours worked to determine full or part time status. The 13 week rehire rule also applies and you can also use a parity rule, which will determine if the employee’s initial or ongoing measurement period is still in effect or whether you can able to start a new initial measurement period.
Using the monthly measurement period, you are likely to get employees eligible for insurance more quickly and more employees will participate in the health insurance plan. This method is simpler to implement and understand than the look-back method (the regulations for the monthly measurement period take up two pages while the regulations for the look-back method take up more than nine pages). However, costs for health insurance will likely be higher since coverage is offered sooner than under the look-back period which can span up to 12 months. Covering a larger percentage of your workforce will likely lower the probability of an IRS audit.
Using the look-back measurement period may limit the number of employees that are eligible (and thus your costs for providing health insurance), especially if employment is highly seasonal and you have a large turnover in your workforce. But doing this may also make finding a plan more difficult (since insurance companies will normally want to maximize participation). And it may also invite more scrutiny from the IRS if you are employing a large number of workers but only reporting a small percentage of employees with coverage. (Depending on the seasonality of your workforce, it may be easy to design a look-back period where the majority of employees don’t qualify for an offer of coverage.) In this case, it is important to make sure you understand all of the rules that are in place for the look-back period and have everything clearly documented in the case of an audit of your health insurance coverage.
With this background out of the way, the next article in this series will take a look at how Datatech’s Human Resource Management Software helps you keep track of eligibility waiting periods and determine full-time vs part-time status for variable hour employees with both the monthly and look-back measurement methods.