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.
Now that we’ve got a handle on the general rules - measurement periods, stability periods, new hires, and ongoing employees - let’s look at a couple of nuanced points: rehired employees and employees who change job classifications.
Rehires - General Rule. Here’s the basic question with a rehired employee: Should the employee be treated as a new hire (meaning she starts over on plan eligibility) or should the employee retain the classification she had when she terminated?
For better or worse, the rule on this is pretty clear. If the period of time between termination and rehire is at least 26 weeks, then the employee is treated as a new hire. If not, then the employee generally retains the same classification she had when she terminated, at least for the remainder of that stability period.
Example 1. A long-term employee terminates employment on February 10, 2014. At the time of termination, the employee was being treated as a full-time employee for a 12-month standard stability period that began January 1, 2014. The employee is then rehired on June 30, 2014. Because the rehire date is less than 26 weeks after the termination date, the employee retains the same classification she had upon termination. Thus, she must be treated as a full-time employee immediately upon rehire. She will retain that classification for the remainder of the stability period that ends December 31, 2014.
Example 2. Assume the same facts as Example 1, except the employee is not rehired until October 15, 2014. Because the period of termination exceeded 26 weeks, the employee does not need to be offered coverage unless and until she satisfies the requirements for obtaining coverage as a new hire. If the employee is rehired in a variable-hour or seasonal position, this may mean the employee will have to wait an entire initial measurement period before it can be determined whether she is full time and, thus, eligible for coverage.
Rehires - Rule of Parity. In a limited exception to the 26-week rule, a rehired employee who returns in less than 26 weeks may nonetheless be treated as a new hire, if the period of termination exceeds the number of weeks the employee was previously employed (or, if greater, four weeks).
Example. An employee is employed for 10 weeks, terminates, and then is rehired after 13 weeks. Even though the period of termination is less than 26 weeks, the employee may still be treated as a new hire, because the period of termination is at least four weeks and exceeds the number of weeks the employee was previously employed.
Changes in Position or Employment Status. Sometimes things change. Employees get promoted, demoted, transferred, etc. Does that have an impact on how the look-back measurement rules apply and whether the employee must be offered health coverage? It can, but it depends. (You knew it couldn’t be that simple, right?)
Here again, it’s useful to distinguish between new hires and ongoing employees.
Ongoing Employees. For ongoing employees, the rule is fairly straightforward: A change in position or employment status does not affect the employee’s full-time status or health-plan eligibility. We look solely at the employee’s status as of the most recent standard measurement period, and the employee retains that status throughout the associated stability period, without regard to job-related changes that occur during that stability period.
New Hires. For newly hired variable-hour and seasonal employees, a change in position or employment status can make a difference. If, during the employee’s initial measurement period, the employee moves into a job that is a full-time job (i.e., one where the employee is reasonably expected to work 30 or more hours per week), then the employee must be offered coverage by the first day of the fourth month after the change in status or, if sooner, when the initial measurement period ends. In other words, the employee must be treated at least as well as she would have been treated had she been initially hired into that full-time position.
The rules do not address a new-hire situation where the change works the other way - such as a full-time employee who moves to a variable-hour position. Presumably, this means the employee must be allowed to retain the coverage she was offered when she was hired into the full-time position. Any change will occur, if at all, after the end of the standard measurement period, when it can be determined whether the employee was full-time (or not) during that measurement period.
Next - Part 8: Putting It All Together
Part 1: The Problem
Part 2: Measurement Periods
Part 3: Stability Periods
Part 4: Administrative Periods
Part 5: New Hires
Part 6: Ongoing Employees
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