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.
As we’ve noted, these rules on full-time employees apply differently depending on whether the employee in question is a new hire or an “ongoing employee,” and we've looked previously at the impact on new hires. So let’s look at them in the context of ongoing employees. Here's the good news: It’s pretty straightforward.
Ongoing Employee Defined. We first need to start with a definition of “ongoing employee,” so we know how to distinguish them from new hires. An ongoing employee is an employee who has been employed for one full standard measurement period. That’s it. So once you know what your standard measurement period is, you know how to identify your ongoing employees.
Test Everyone, Every Period. All ongoing employees will be tested for full-time status during each standard measurement period. It doesn’t matter whether they were previously full-time or not. At the end of each standard measurement period we’ll look back at the hours worked by each ongoing employee during that period and determine whether they averaged 30 or more hours per week. If so, they must be treated as full-time for the associated stability period. If not, they don’t.
See, that’s not so bad.
Transition Between New Hire and Ongoing Employee. Ok, so there’s one little wrinkle. In most cases, there will be some overlap between a variable-hour employee’s initial measurement and stability periods and that employee’s first standard measurement and stability periods, so we need to know how to handle that transition. Here’s the basic idea: They get the best of whatever treatment might be available to them.
A couple of examples will help illustrate this principle.
Example 1. Assume a new variable-hour employee has a 12-month initial measurement period beginning August 1, 2014 and ending July 31, 2015, with an associated initial stability period beginning August 1, 2015 and ending July 31, 2016. The plan runs on a calendar year and uses a 12-month standard measurement period that begins October 15 each year, with an associated 12-month standard stability period that begins January 1 each year. The employee is determined to be full-time after her initial measurement period, so she is offered (and takes) coverage beginning August 1, 2015. However, at the end of her first standard measurement period (the 12-month period ending October 14, 2015), it is determined she is not a full-time employee and does not need to be offered coverage for the stability period beginning January 1, 2016. What happens then? She gets to keep coverage for the remainder of her initial stability period (through July 31, 2016), but coverage will end at that point. In other words, her failure to qualify as a full-time employee during her first standard measurement period doesn’t prevent her from keeping coverage for all of her initial stability period - she gets the better of the two.
Example 2. Assume the same facts as Example 1, except the employee is not full-time during her initial measurement period but is full-time during her first standard measurement period. She doesn’t have to be offered coverage beginning August 1, 2015, but she will have to be offered coverage beginning January 1, 2016, even though that is still within her initial stability period. In other words, her failure to qualify as a full-time employee during her initial measurement period doesn’t hold her out of the plan for her entire initial stability period if she qualifies as a full-time employee during her first standard measurement period.
Next - Part 7: Rehires and Changes in Job Classification
Part 1: The Problem
Part 2: Measurement Periods
Part 3: Stability Periods
Part 4: Administrative Periods
Part 5: New Hires
IRS Proposes Comprehensive Regulations on PPACA's Play-or-Pay Penalties