IRS Attempts to Clarify Scope of Employer Health Insurance Mandate for Variable-Hours Employees

The Affordable Care Act requires employers with 50 or more employees to provide full-time employees with health insurance coverage or face a tax penalty. This rule sounds straightforward, but what should an employer do if it cannot readily determine whether an employee will work full time? The IRS recently attempted to resolve this confusion by clarifying how to determine whether variable-hour employees work full or part time, and by establishing a safe harbor for employees whose status is not known at their time of hire.Full-Time Status
The IRS defines a full-time employee as one who works an average of 30 or more hours per week. If an employer reasonably expects a new hire to work an average of 30 or more hours per week, health insurance coverage must be provided within 90 days of the employee’s hire. However, if circumstances prevent an employer from reasonably expecting a variable-hour employee to work full time, the employer may postpone making a coverage determination (subject to the safe harbor described below). (The IRS provides examples of how these determinations should be made at pages 11-15 of Notice 2012-58.)

Safe Harbor for Variable-Hour Employees
An employer may wait up to 13 months to retroactively determine the status of variable-hour employees. To fall within this safe harbor, the employer must choose a “measurement period” of between three and 12 consecutive months to calculate hours worked. If the employee averaged at least 30 hours per week during the measurement period, the employer must treat the employee as full-time by providing health insurance coverage during a subsequent “stability period.” The “stability period” cannot be shorter than the “measurement period” and must be at least six consecutive months. An employee who receives coverage during a stability period must continue to receive coverage during that period regardless of the employee’s number of hours worked during the stability period.

Limited Administrative Period Permitted
The IRS permits employers an “administrative period” of up to 90 days between the end of the measurement period and the beginning of the stability period. But the administrative period cannot reduce or lengthen the measurement period or the stability period, and it may not create gaps in coverage — it must overlap with any prior stability period so that covered employees continue to receive coverage while their status going forward is under review. (The IRS provides examples of how this may work at pages 7-8 of Notice 2012-58.)

Public Comment and Topics Left for Future Clarification
The IRS has requested public comment and has promised further clarification regarding several related topics, including employees who experience a change in employment status during the year, temporary staffing issues, high-turnover positions, and factors employers should consider when determining whether a new hire is “reasonably expected” to work full time.