The Internal Revenue Service (IRS) has issued guidance addressing the determination of full-time employees for purposes of the employer mandate under health care reform. In related guidance, the Departments of Labor (DOL), Health and Human Services (HHS) and Treasury issued guidance on the 90-day limit on waiting periods.
On August 31, 2012, the Departments of Labor (DOL), Health and Human Services (HHS) and Treasury issued guidance on the 90-day limit on waiting periods under health care reform. In related guidance, the Internal Revenue Service issued guidance addressing the determination of full-time employees for purposes of health care reform's employer mandate.Close speedread
On August 31, 2012, the Departments of Labor, Health and Human Services and Treasury (Departments) issued Notice 2012-59, which provides guidance on the 90-day waiting period limit under health care reform. In related guidance, the IRS issued Notice 2012-58, addressing the determination of full-time employees for purposes of health care reform's employer mandate.
Under health care reform's employer mandate, "applicable large employers" are subject to an assessment penalty if the employer either:
Fails to offer its full-time employees and their dependents the opportunity to enroll in minimum essential coverage under an employer-sponsored plan and a full-time employee is certified to receive a premium tax credit or cost-sharing reduction.
Offers its full-time employees and their dependents the opportunity to enroll in minimum essential coverage but that coverage is:
does not provide minimum value.
An applicable large employer is generally an employer that employed at least 50 full-time employees (including full-time equivalent employees) on business days during the prior calendar year. Notice 2012-58 provides several safe harbors that employers are permitted to use in determining whether employees are full-time employees for purposes of the employer mandate. However, employers need not use the safe harbor. The guidance builds on and revises the following, earlier guidance for purposes of the employer mandate:
Notice 2011-36, which addressed a possible voluntary "look-back/stability period safe harbor" to determine whether ongoing (as opposed to newly hired) employees are full-time employees.
Notice 2011-73, which proposed a safe harbor under which employers would not be subject to the assessment penalty if coverage offered to an employee was affordable based on the employee's Form W-2 wages, instead of household income.
Notice 2012-17, which described a potential safe harbor approach for determining the full-time status of new employees where employees' hours are variable or otherwise uncertain (see Legal Update, Agencies Issue FAQs on Automatic Enrollment, Waiting Periods and Employer Shared Responsibility under Health Care Reform (www.practicallaw.com/3-517-9864)).
Notice 2012-58 provides a safe harbor for ongoing employees under which the employer determines each ongoing employee's full-time status by looking back at a standard measurement period (SMP), chosen by the employer, that is:
At least three consecutive calendar months.
No more than twelve consecutive calendar months.
The employer must treat employees who averaged at least 30 hours each week during the SMP as full-time employees during a subsequent "stability period," regardless of the employee's number of hours of service during the stability period and provided that the employee continues to be an employee.
The stability period must:
Be at least six consecutive calendar months.
Be no shorter in duration than the SMP.
Begin after the SMP.
The employer need not treat employees who did not work full-time during the SMP as full-time employees during the following stability period. Also, an employer can structure its SMP to end before the stability period begins, to provide an administrative period of up to 90 days during which the employer can:
Determine which ongoing employees are eligible for coverage.
Notify and enroll employees.
For employees that are reasonably expected as of their start date to work full-time, an employer that offers group health plan coverage at (or before the end of) their first three calendar months of employment will not be subject to an assessment penalty for not offering the employee coverage during this three-month period (see 90-day Waiting Period).
Notice 2012-58 provides a separate safe harbor for new variable and seasonal employees for employer health plans under which employees are offered coverage only if they are determined to be full-time employees. The employer may use a measurement period similar in concept to the SMP, called the initial measurement period (IMP). However, the IMP, together with any administrative period, generally cannot extend more than 13 months (plus a fraction of a month) from the employee's start date. For employees determined to be full-time employees during the IMP, the stability period must:
Be at least six consecutive calendar months.
Not be shorter in duration than the IMP.
Begin after the IMP.
Additional rules address:
The treatment of new employees who become ongoing employees.
The definitions of seasonal (for example, a camp counselor) and variable (for example, a retail worker) employees.
Employers can rely on the following aspects of Notice 2012-58 for compliance with the employer mandate at least through the end of 2014:
The safe harbor method for ongoing employees (see Safe Harbor for Ongoing Employees).
The rule for new employees reasonably expected to work full-time (see New Employees Reasonably Expected to Work Full-time).
The safe harbor method for new variable hourly and seasonal employees (see New Employees: Safe Harbor for Variable and Seasonal Employees).
Employers may also rely, through 2014, on the safe harbor based on Form W-2 wages set out in IRS Notices 2011-73 and 2012-17. Notice 2012-58 reliance applies to:
Measurement periods that begin in 2013 or 2014.
Associated stability periods, which may extend into 2014, 2015 or 2016.
Employers are not required to comply with any more restrictive guidance on these issues until at least January 1, 2015.
Under health care reform, group health plans and insurers are prohibited, for plan years beginning on or after January 1, 2014, from applying a waiting period that is more than 90 days. Notice 2012-59 provides temporary guidance regarding the 90-day limit on waiting periods. It defines a waiting period as the period of time that must pass before coverage for an employee or dependent who is otherwise eligible under the plan terms can become effective.
The guidance permits an extended coverage effective date for group health plans:
That condition eligibility on an employee's regularly working a specified number of hours (or working full time).
For which it cannot be determined whether a newly hired employee is reasonably expected to work the requisite number of hours each period (or work full-time).
In that case, the plan is permitted a reasonable amount of time to determine whether the employee meet's the plan's eligibility conditions, which can include measurement periods consistent with those under Notice 2012-58 (see Full-time Employees for Purposes of Employer Mandate), regardless of whether the employer is an applicable large employer subject to the employer mandate. Coverage generally must be made effective no later than 13 months from the employee's start date, and should not include a waiting period that is more than 90 days after any measurement period.
Under Notice 2012-59, other eligibility conditions are generally permitted, unless designed to avoid compliance with the 90-day waiting period limit. Employers, plans and insurers can rely on Notice 2012-59 at least through the end of 2014.
Although the voluntary safe harbors set out in Notice 2012-58 will be helpful to employers in determining who are full-time employees, they come with a significant amount of administrative complexity, particularly in structuring the measurement and stability periods. In addition, the guidance indicates that employers will need to notify employees of their plan eligibility status after the measurement period.
According to the IRS, additional guidance will address the treatment of employees who experience a change in employment status. Notice 2012-58 also requests comments on several unresolved issues, including:
Whether safe harbor methods should be available for short-term assignment and temporary staffing employees, and employees in high-turnover positions.
Coordination rules for the mergers and acquisitions context where employers have chosen different measurement and stability periods.