The IRS has issued Notice
2012-58, on how employers should determine which employees are
full-time for purposes of the employer shared responsibility
provisions (i.e., the employer mandate) of the Patient
Protection and Affordable Care Act ("PPACA"). In particular,
the Notice provides several safe harbors that employers may use to
determine who is a full-time employee.
PPACA's employer mandate applies to employers
with at least 50 employees. Under the employer mandate, an employer
may be assessed a penalty if it either:
does not offer full-time employees and their dependents the
opportunity to enroll in minimum essential health plan coverage and
at least one full-time employee is certified to receive a federal
premium tax credit or cost-sharing reduction; or
offers full-time employees and their dependents the opportunity to
enroll in health plan coverage but the coverage is
"unaffordable" or fails meet minimum standards.
Safe Harbor for
The Notice provides a
safe harbor for ongoing employees (as opposed to new hires) whereby
an employer determines each employee's full-time status by selecting
a standard measurement period ("SMP") of three to twelve
consecutive months. Employers must treat employees who average at
least 30 hours each week during the SMP as full-time employees during
a subsequent "stability period," regardless of the
employee's actual hours of service during the stability period,
provided the employee remains employed.
The stability period must:
(i) be at least six consecutive calendar months; (ii) be no shorter
in duration than the SMP; and (iii) begin after the SMP. Employers
are not required to treat employees who do not work full-time during
the SMP as full-time employees during the following stability period.
Employers can end the SMP up to 90 days before the stability period
begins to provide an administrative period for determining which
employees are eligible for coverage and to notify and enroll such
New Employees Expected to
Work Full Time, Variable Hours, or Seasonally
Employers will not be
penalized for new employees who are reasonably expected to work
full-time, if they are offered group health plan coverage within
three months of employment.
The Notice provides a
separate safe harbor for new variable hour and seasonal employees.
For these employees, employers may use a measurement period similar
to the SMP, called the initial measurement period ("IMP").
However, the IMP, together with any administrative period, cannot
extend beyond the last day of the first calendar month beginning on
or after the first anniversary of the employee's start date.
Employers may rely on the
Notice's guidance at least through the end of 2014. Therefore, this
guidance would apply to any measurement period that begins in 2013 or
2014 and the associated stability period (which may extend into 2014,
2015 or 2016).
While the Notice's guidance
may help employers determine who is a full-time employees for
purposes of the employer mandate, the safe harbors involve a
significant amount of administrative complexity in structuring the
corresponding measurement and stability periods. Moreover, employers
must be sure to notify employees of their eligibility status after
the measurement period. To avoid costly errors, employers should
consider retaining qualified benefits counsel to ensure that their
compliance obligations under the employer mandate are satisfied.