Prepare Now for the Obamacare Employer Mandate
While 2014 is still technically “next year,”
employers of 50 or more people should be mindful that, in determining their
liability for the health insurance mandate, the government will rely on 2013
Starting in January 2014, the
Patient Protection and Affordable Care Act (or “Obamacare”) will require
employers with 50 or more full-time employees (or the combined part-time
equivalent, explained below) to provide health insurance or pay a tax.
While 2014 is still
technically “next year,” it is important to recognize that, in determining
whether an employer will be liable under that provision, the government will
rely on data about the composition of employers’ workforces this year.
The bottom line: Employers need to adjust or manage the makeup of their
current proposed regulations can be found on the IRS website. As few employers look forward
to wading through the 144-page document that contains the proposed regulations,
we offer the following, somewhat shorter, summary and invite you to contact us with any questions.
Generally, to determine the number of full-time
employees in a given month, an employer will add the number of persons who work
30 or more hours on average per week in a given month to the number of full-time
equivalent employees in that same month. The number of full-time equivalent
employees in a given month is calculated by adding the total number of hours
worked by part-time employees in a given month (those who work 29 hours or less
on average per week in that month) and dividing by 120 hours.
administrative burden of monthly determinations of full-time status, and the
possibility of employees moving in and out of employer (or exchange) coverage as
frequently as monthly, the IRS allows employers to make the full-time
determination based upon a measurement period of no less than 3 months and no
more than 12 months (also known as a “look-back measurement period”), although
during the “transition period” (calendar year 2014, based on time worked in
2013) the look-back measurement period is slightly different. In the transition
period, employers may use a look-back measurement period that is shorter than 12
months but no less than 6 months (rather than 3 months), so long as the
look-back measurement period begins no later than July 1, 2013, and ends no earlier
than 90 days before the first day of the plan year beginning on or after January
1, 2014. The look-back measurement period in the transition period may begin
after July 1, 2013, if the employer is using a measurement period of 12 months.
Generally, any employee who qualifies as full-time
during the look-back measurement period (not including the part-time employees
who make up the calculation for full-time equivalent employees) will be
considered full-time for the subsequent period of the same duration (the
“stability period”), regardless of how many hours that employee works in the
stability period, so long as the employee remains employed in the stability
Tax on Non-Sponsors
The alternative is to pay a tax of 1/12th of $2,000 per
full-time employee in a given month (where no insurance is offered) or 1/12th of
$3,000 per full-time employee in a given month (where some kind of insurance is
offered, but it does not meet all the requirements of the statute). The 1/12th
of $2,000 tax applies to all full-time employees in a given month so long as at
least one of them successfully enrolls in a qualified health plan for which an
applicable premium tax credit or cost-sharing reduction is allowed or paid,
whereas, the 1/12th of $3,000 tax only applies to each full-time employee so
enrolled. An employer required to pay the higher tax will not, however, be
required to pay any more tax than the product of the total number of its
full-time employees times 1/12th of $2,000 (which equates to the tax for not
providing insurance at all).
Obamacare allows employers to
have a waiting period of no more than 90 days before offering health insurance
to eligible employees. For ongoing employees, the waiting period is permitted to
run after the applicable measurement period. The guidance for the waiting time
provision, which applies to 2014 only, explains that a waiting period based
solely on the lapse of a time period (e.g., 90 days) is permissible.
Accordingly, as a practical matter, Obamacare does not apply to employees who work less than 90 days.
Should an employer elect to
use a look-back measurement period for determining whether employees are
full-time, in order to prevent the waiting period from creating any potential
gaps in coverage for ongoing employees, the waiting period must overlap with the
prior stability period so that those ongoing employees who are enrolled in
coverage because of their full-time status based on a prior measurement period
will continue to be covered. After the initial measurement period, the 90-day
waiting period may be applied to new employees reasonably expected to work an
average of 30 hours or more per week in a month (no look-back measurement period
should be included).
In 2014 only, for
variable-hour employees (i.e., whose hours are reasonably expected to average
less than 30 hours per week, or whose full-time status will be of limited
duration and cannot reasonably be determined in advance), the rule is the same
as for full-time ongoing employees: the employer may use a look-back measurement
period to determine full-time status. Regardless of the length of the
measurement period for variable employees, however, the measurement period plus
the 90-day waiting period may not extend beyond the last day of the first
calendar month beginning on or after the one-year anniversary of the employee’s
start date (or 13 months).
For employees who may be
terminated and rehired as full-time employees in a given year, the employer may
restart the measurement period under certain circumstances. If the lapse in
service is for at least 26 consecutive weeks, then the measurement period may be
re-started. Or, for periods of less than 26 consecutive weeks, the employer may
re-start the measurement period if the lapse in service is at least 4
consecutive weeks and is longer than the employee’s period of employment
immediately preceding the period in which the lapse in service occurred.
example, the employer may re-start the measurement period where an employee is
terminated after 6 weeks of service and is rehired 13 weeks later. That is
because the 7-week lapse in service consists of at least 4 consecutive weeks and
is greater than the 6 weeks for which service was previously provided.
The look-back measurement
period rules also apply to seasonal workers. A “seasonal worker” is one “who
performs labor or services on a seasonal basis as defined by the Secretary of
Labor, including workers covered by Section 500.20(s)(1) of Title 29, Code of
Federal Regulations and retail workers employed exclusively during holiday
seasons.” The regulations require employers to construe the term “seasonal
worker” reasonably and in good faith.
The Obamacare regulations specifically
invite comments regarding whether a definition of “seasonal worker” should be
adopted based on a specific time period, such as 6 months. It is argued that
such a definition would give employers more certainty and is consistent with
other laws such as the definition of a seasonal employee for purposes of
self-insured medical reimbursement plans.
The Obamacare regulations
briefly discuss the issue of “short-term” employees who are expected to work
full-time, but for a limited duration. As explained above, Obamacare does not
apply to employees who work for less than 90 days. With respect to “short-term”
employees expected to work more than 3 months, employers have requested that
special rules be adopted for determining the full-time status of such employees.
As with the definition of “seasonal worker”, the regulations invite comments
regarding what rules may be appropriate for “short-term” employees. The
government’s main concern, and the reason it has not adopted special rules for
“short-term” employees thus far, is that the potential for employers to abuse
any such rules outweighs the administrative burden on employers who are required
to provide health insurance to “short-term” employees based on the monthly
hourly average system currently in place.
The Obamacare regulations
also briefly address how to handle positions that are not compensated in a
traditional way, such as adjunct professors who are paid on a credit hour basis.
The Obamacare regulations advise that employers that compensate employees on a
unique basis must use a “reasonable” basis to determine whether the employee
qualifies as a full-time employee. An example given is that an employer should
not only count an adjunct professor’s hours spent in providing instruction in
order to avoid reaching full-time status; rather, time spent for preparation and
other related activities should also be considered/included. As with the
definition of “seasonal worker” and how “short-term” employees should be treated
under Obamacare, the regulations invite employers that may wish to compensate
their employees on a more unique basis to submit comments on whether any special
rules would be appropriate.
In the likely event that you
have questions about any of the issues discussed above, please contact any
member of Sacks Tierney’s employment law practice group. In addressing Obamacare
issues, our employment group works hand-in-hand with the firm’s tax attorney,
John Hanson, who is also a certified public accountant. You are invited to email
the members of our
employment group –
Sharon Moyer and
– or call them at 480-425-2600.