Benefits & Compensation News

4 keys to calculating full-time employees under Affordable Care Act

Employers have little time left to nail down just how many full-time employees they have before Obamacare’s employer mandate kicks in. The problem is, the law’s formula is tricky. To help with the math, 15-year benefits compliance vet Sheryl Southwick has some advice for employers.

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Under the Affordable Care Act’s (ACA) shared responsibility provision, a large employer (who employs at least 50 full-time equivalent employees on average) must offer affordable medical coverage to at least 95% of its full-time equivalent employees and their dependent children age 26 or younger — or face stiff penalties.

But who exactly is a “full-time equivalent employee?” Under the ACA rules, generally an employee is considered full-time if he or she is reasonably expected to work on average at least 30 hours per week, or 130 hours per month. Variable hour and seasonal employees may also be considered full-time under the new ACA rules.

With the employer mandate in full effect, here are four steps you should take to determine how many of your employees are considered full-time under the law and otherwise comply with the employer mandate:

1. Add up the low-hanging fruit, first

If an employee is expected to work 30 or more hours per week, he/she is classified as a full-time employee. You can immediately put all of these employees in one bucket.

2. Decide how you’ll track hours for variable-hour or seasonal employees

An employee is a variable-hour employee if his/her weekly schedule fluctuates above and below 30 hours, and it cannot be immediately determined whether the employee works an average of 30 hours per week.

An employee is considered a seasonal employee, and is allowed to be excluded from the full-time employee calculation, if employed on a seasonal basis (e.g., during the holidays) or works no more than 120 days. If, during the year, a seasonal workforce pushes you over the 50 full-time employee threshold, you’ll want to make sure your seasonal workers work less than 120 days if you want to avoid having to deal with the employer mandate.

Generally, the rules that apply to variable-hour employees also apply to seasonable employees.

The IRS has proposed a safe harbor method for employers to determine each employee’s full-time status by counting employee hours using a look-back/stability period.

Under this safe harbor method, an employer can look back at a defined period (the “measurement period”) to determine whether the employee should be counted as a full-time employee. If the employer determines that the employee worked an average of 30 hours per week during the measurement period, the employee is then treated as a full-time employee during a subsequent “stability period,” no matter how many hours that employee actually works during the stability period.

There are two types of measurement periods: (i) the initial measurement period for new employees and (ii) the standard measurement period for ongoing employees. The measurement period must be between three and 12 consecutive calendar months.

If a variable-hour employee averages at least 30 hours per week during the measurement period, then the employee will be considered full-time during the following stability period (which cannot be longer than the measurement period). The employee’s status is “locked in,” regardless of the average hours worked during the stability period.

The stability period always begins immediately after the end of the measurement period and must be at least six consecutive months or the duration of the measurement period, whichever is greater. For example, if the employer used a 12-month look-back period, the duration of the subsequent stability period must be 12 months.

If a company requires time after a measurement period ends to determine eligibility and allow employees to elect coverage, it may establish an administrative period of up to 90 days after the end of each measurement period. Note that to prevent a gap in coverage, the administrative period must overlap with the stability period.

3. Review your plan’s eligibility definition

The ACA full-time employee definition differs from the 40-hour per week full-time eligibility requirement that many companies currently use. A plan amendment, summary plan description update and employee communications may be needed to get your plan in compliance with the employer mandate.

4. Assess the potential impact to your company

What if the number of employees that will be considered full-time and eligible to elect your company’s benefits increases significantly? You may need additional resources during open enrollment to communicate with employees, answer questions and process new enrollments. Your company may also need to increase the amount of money budgeted to fund the company’s contribution towards healthcare benefits.

While you still have a little time, now may be a good time to review and adjust your company’s strategy to comply with the provisions of the ACA. A little forethought will help you keep your company’s benefits plan in compliance and potentially save you future headaches.

Sheryl Southwick has over 15 years of experience in the field of retirement and benefits, helping ensure that companies are in compliance with state and federal laws. As director of compliance at TriNet, Sheryl helps small and medium-sized businesses navigate complex compliance issues.

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  • Jimmy

    Companies can have an admin period up to 120 days if they have a bonafide orientation period such as on the job training.

  • Jan

    How does this effect substitute teachers, who have previously retired from the state ?