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Health Care Reform and Full-Time Employees - Part 5: New Hires
01/04/2013

Note: This is one in a series of posts addressing new rules from the IRS that may be used to determine which employees are full-time employees for purposes of applying the play-or-pay penalties under health care reform. Although the penalties do not become effective until 2014, it may be necessary to begin collecting data on employees soon, so it's a good time to begin thinking about these rules.

Prior posts in this series have addressed the structural rules that will apply to the process of determining which employees are full-time employees - things like measurement, stability, and administrative periods. Now it’s time to start looking at how these rules will apply to some specific classifications of employees.

Employees may be initially sorted into one of two groups: new hires and ongoing employees. This post will discuss the treatment of new hires. I’ll discuss ongoing employees in the next post in this series.

New hires will be treated one of two ways.

1. New Full-Time Employees. If, based on the facts at the time of hire, the new employee is reasonably expected to work full time right away (average of 30 or more hours per week) and is not a seasonal employee, the employee must be treated as a full-time employee immediately. Employees hired as full-time employees must be offered coverage within 3 months to avoid penalty exposure.

2. New Variable-Hour Employees. If, based on the facts at the time of hire, it cannot be determined whether the employee will be full time because the employee’s hours are expected to vary or because the employee is hired in a seasonal position and may not average 30 or more hours per week when the entire initial measurement period is considered, the employee may be treated as a variable-hour employee. Whether a variable-hour employee is a full-time employee or not will be determined based on the employee’s service during the initial measurement period. If a variable-hour employee turns out to be a full-time employee during the initial measurement period, the employee must be offered coverage for all of the initial stability period to avoid penalty exposure. However, if a variable-hour employee is not a full-time employee during the initial measurement period, the employee need not be offered coverage during the initial stability period.

Examples. Here are a few examples to illustrate the rules. In each case, assume the employer uses an initial measurement period of 12 months beginning on the date of hire and an initial stability period of 12 months beginning on the first day of the month following the end of the initial measurement period.

Example 1 - New Full-Time Employee. The employer hires a new CEO. The CEO’s employment contract obligates the CEO to devote the CEO’s full time and attention during normal business hours to the performance of services for the employer. The CEO must be treated as a full-time employee upon hire and must be offered coverage within 3 months to avoid penalty exposure.

Example 2 - New Full-Time Employee. The employer hires a new receptionist. The job description for the position says the receptionist will be scheduled to work 8:00 am to 5:00 pm, five days per week. The receptionist must be treated as a full-time employee upon hire and must be offered coverage within 3 months to avoid penalty exposure.

Example 3 - New Variable-Hour Employee (non-seasonal). The employer hires a new PRN nurse. The nurse’s work schedule will vary based on the employer’s needs. There may be weeks when the nurse works 40 or more hours per week, but there may also be weeks when the nurse works very few hours, and it cannot be known at the time of hire whether the nurse’s service over the initial measurement period will average 30 or more hours per week. The nurse may be treated as a variable-hour employee and need not be offered coverage at least until the beginning of the initial stability  period.

Example 4 - New Variable-Hour Employee (seasonal). The employer, which operates a ski resort, hires a new ski instructor on November 1. It is expected that the instructor will work 40 or more hours per week during most weeks from November through March. However, the instructor’s hours will vary considerably from April through October, and it cannot be known at the time of hire whether the instructor’s service over the initial measurement period will average 30 or more hours per week. Although the instructor may be reasonably expected to work a full-time schedule immediately upon hire, the instructor still may be treated as a variable-hour employee, given the uncertainty about the average hours to be worked over the full initial measurement period. The instructor need not be offered coverage at least until the beginning of the initial stability period.

Transition to Ongoing Status. These rules for newly hired employees essentially apply until an employee has been employed for one complete standard measurement period. After that, an employee will be treated as an ongoing employee.

Rehires. If an employee is terminated and subsequently rehired, there is a question whether the employee should be treated as a new hire upon rehire or treated as continuing in the status the employee had before termination. Special rules related to rehired employees will be addressed in a later post in this series.

Next - Part 6: Ongoing Employees

Related posts:

Part 1: The Problem

Part 2: Measurement Periods

Part 3: Stability Periods

Part 4: Administrative Periods

IRS Proposes Comprehensive Regulations on PPACA's Play-or-Pay Penalties

 


Editors
Don Berner Image
Don Berner, the Labor Law, OSHA, & Immigration Law Guy
Boyd Byers Image
Boyd Byers, the General Employment Law Guy
Jason Lacey Image
Jason Lacey, the Employee Benefits Guy
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