General Rules for Breaks in Service (Applicable to Both the Look-Back Method and the Monthly Method of Determining Full-Time Employees)
For purposes of these rules, a “break in service” is a period during which an employee is not credited with any hours of service. This may occur as a result of an unpaid leave of absence, or when an employee terminates employment and is later rehired.
New Hire Treatment. If an employee experiences a break in service of at least 13 consecutive weeks (or at least 26 weeks for educational organizations), then the employer may treat the employee as a new hire when he resumes services. Therefore, if the employer is using the look-back method to determine full-time employees and the employee is considered a seasonal, variable or part-time employee upon resumption of services, then (a) the employer need not treat the employee as a full-time employee during the stability period when he returns (if he would otherwise have qualified as a full-time employee for that stability period) and (b) the employer may subject the employee to a new initial measurement period, if applicable. For employers using either the monthly method or look-back method, if the employee is considered a full-time employee when he resumes services, then the employer need not offer coverage until the employee completes three full months of service as a full-time employee (or if earlier, after 90 calendar days). Please see our related newsletter entitled “Who is a “Full-Time” Employee?” for more information.
Ongoing Employee Treatment. If an employee experiences a break in service of less than 13 weeks (or less than 26 weeks for educational organizations), then the employee is treated as an ongoing employee. This means that:
For those employers using the look-back method for determining full-time employees, please keep in mind that an employee that averaged 30 or more hours of service during the look-back measurement period must be treated as a full-time employee for the entirety of the following stability period, regardless of the employee’s hours of service during the stability period. As a result, employers that normally cease to cover an employee during a leave of absence may need to reconsider that approach. Ceasing to offer coverage to an employee who is otherwise considered a full-time employee during the stability period may result in penalties for each month that the coverage is not offered.
Optional Rule of Parity (Available for Look-Back Method or Monthly Method)
An employer is permitted to adopt a more stringent “rule of parity” for purposes of determining when an employee who resumes services after a break in service can be treated as a new employee. Under this optional rule, if an employee’s break in service is for a period of at least 4 weeks, and his break is longer than his pre-break service, then he can be treated as a new hire upon resuming services. For example, if an employee terminates employment after completing 6 weeks of service and is rehired after 8 weeks, then he can be treated as a new employee. In contrast, if the general rule discussed above applies, the employee in this example would be treated as a continuing employee because his break in service is less than 13 weeks.
Continuing Employees – Special Unpaid Leave Rule (Required for Look-Back Method Only)
As mentioned above, a special rule applies to an employee whose break in service is less than 13 weeks (or who resumes services before the rule of parity period expires) and whose absence was due to a special unpaid leave. A “special unpaid leave” is a leave taken under the Family Medical Leave Act (FMLA), the Uniformed Services Employment and Reemployment Rights Act of 1994 (USERRA), or jury duty. The special unpaid leave rules apply only to an employer that applies the look-back measurement period to determine full-time employees. If during the look-back measurement period an employee takes a special unpaid leave, then the employer must either:
The result of this rule is that the employee’s average hours will be higher than in a non-special unpaid leave scenario, making it more likely that the employee will be considered a full-time employee for the next stability period.
An employer will need to ensure that its payroll or other HRIS systems are updated to accommodate these rules. In addition, an employer will almost certainly need to amend its health plan documents and summary plan descriptions to reflect these rules, especially since our experience is that many health plans otherwise do not provide detail about the effects of a break in service on an individual’s eligibility for the plan.
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Legal News is part of our ongoing commitment to providing up-to-the-minute information about pressing concerns or industry issues affecting our clients and colleagues. If you have any questions about this update or would like to discuss the topic further, please contact your Foley attorney or the following:
Katherine L. Aizawa
San Francisco, California
Casey K. Fleming
Belinda S. Morgan
Leigh C. Riley
Erik D. Vogt