Employee Benefits Compliance, Employer Mandate

Government Issues HCR Guidance on 90-Day Waiting Period & On Determining Which Employees are Full-Time

This article is an expanded version of the article on the same topic originally posted on Sept. 4, 2012.
On August 31, 2012, the government issued important guidance to help “large employers” (those who employ at least 50 full-time employees) determine which employees are full-time for purposes of the employer shared responsibility provisions of the health care reform law (aka the “play-or-pay” provisions or the “employer mandate,” codified at IRC section 4980H).   The guidance issued by the IRS was Notice 2012-58, and identical guidance was issued simultaneously by the Department of Labor (DOL) and by the Department of Health and Human Services (HHS).The guidance provides a “safe harbor” method that large employers may (but are not required to) use to determine which employees are full time and as of what date.  The IRS also issued Notice 2012-59, whichprovides temporary guidance on the 90-day waiting period under section 2708 of the Public Health Service Act (PHS Act).  Both Notices state that employers can rely on this and prior guidance through the end of 2014, even if upcoming guidance is more restrictive.

Employers for whom these safe harbors will be most useful are those who hire seasonal employees and/or employees whose hours will fluctuate and it cannot reasonably be determined at date of hire whether they will work full-time or part-time (the guidance calls these “variable hour” employees).  Typical examples of seasonal employees are those employed in retail, agriculture and ski resorts or other resorts, and typical examples of variable hour employees are those in the construction industries or at temporary staffing agencies.  Employers who will not likely need to know the details of these Notices are those who primarily hire employees who are clearly either full-time or part-time.

This article explains the different categories of employees and the methods by which an employer can determine if and when employees in different categories are considered to be full-time. PPACA defined “full-time” as working on average at least 30 hours per week, determined on a month-by-month basis.  In response to comments by numerous employers, this and prior guidance allows employers to determine full-time status by tracking employees’ hours during a “measurement period” and then to offer benefits during an associated “stability period” to those employees who were full-time during the measurement period, regardless of hours actually worked during the stability period.  Additionally, the Departments have said they intend to issue regulations to allow employers to use either 130 hours per month or 30 hours per week as the threshold for full-time.

WHY IT MATTERS WHICH EMPLOYEES ARE FULL-TIME

In 2014, large employers (those who employ at least 50 full-time employees and full-time equivalents) must offer health coverage that meets certain requirements to all full-time employees (and their dependents) or face potential penalties.  An employer’s determination of which employees are full-time, and as of what date they are considered full-time, has significant ramifications in several areas.  It determines:
  • To which employees the employer must offer health coverage, and when
  • Which employees the employer must count in calculating the “non-offering employer” ($2,000) penalty amount, if it applies
  • Which employees might qualify for a subsidy if they buy coverage in the exchange
  • Whether the employer will be penalized if the employee buys coverage in the exchange and receives a subsidy
SUMMARY OF EMPLOYER OBLIGATIONS FOR DIFFERENT CATEGORIES OF EMPLOYEESThe following matrix summarizes the categories of employees defined in Notice 2012-58 and the employer’s obligations for each category.

Category of Employees
Large Employer’s Obligation
Newly-hired employees who are reasonably expected to work at least 30  hours/week 

Offer health coverage to employees & dependents, by the end of the third calendar month of employment 

Newly-hired employees who are reasonably expected to work less than 30  hours/week 

No obligation to offer health coverage

Newly-hired employees whose hours cannot reasonably be determined as of the date of hire (called “variable hour” employees) and newly-hired seasonal employees 

Employer can track hours worked during an initial measurement period of 3-12 months, & if employee averages at least 30 hours/week employer must offer coverage during a stability period (of 6-12 months) that begins no later than 13 months + a fraction of a month after the employee’s start date 

Employees who are transitioning from newly-hired to ongoing 

Employer tracks hours during initial measurement period and then also during standard measurement period, and must offer coverage if employee averages at least 30 hours/week. The initial measurement period and standard measurement period usually will overlap, and coverage associated with the initial period must be offered for the full stability period, even if the employee averages less than 30 hours/week after the initial measurement period.   

Ongoing employees whose hours cannot reasonably be determined in advance (called “variable hour” employees) and ongoing seasonal employees 

Employer can track hours worked during a standard measurement period of 3-12 months, & if employee averages at least 30 hours/week employer must offer coverage during a stability period (of 6-12 months), regardless of the actual hours worked during the stability period. 

Ongoing employees who regularly work at least 30 hours/week 

Offer health coverage to employees & dependents 

Ongoing employees who work less than 30 hours/week 

No obligation to offer health coverage 

DEFINITIONS OF TERMS USED IN THE GUIDANCE
Variable hour employee is one for whom, based on the facts and circumstances as of the employee’s start date, the employer cannot determine if the employee is reasonably expected to work on average at least 30 hours per week. 
Seasonal employee is defined in PPACA in the context of whether an employer meets the definition of “large” employer, but is not defined for other purposes, such as the employer mandate (and the obligation to offer coverage, and to include the employee in penalty calculations).  Notice 2012-58 allows employers to use a reasonable, good faith interpretation of the term “seasonal employee” for these purposes, at least through 2014.
Ongoing employee is one who has been employed by the employer for at least one complete standard measurement period.  Standard Measurement period is a period between three and 12 months during which the employer tracks the hours of ongoing employees to determine if they worked on average at least 30 hours per week.  The employer sets the starting date and duration of the standard measurement period.

Stability period is a period during which all employees must be offered coverage if they worked on average at least 30 hours per week during the associated measurement period that preceded the stability period. The length of the stability period varies depending on the length of the measurement period and on whether an employee worked part-time or full-time during the measurement period.
Initial Measurement period is a period between three and 12 months during which the employer tracks the hours of newly-hired variable hour and seasonal employees to determine if they worked on average at least 30 hours per week.  The employer sets the duration of the standard measurement period, but the starting date for each employee is the employee’s employment start date.
Administrative period is a period (not to exceed 90 days) during which the employer can apply the data gathered during the measurement period, determine which employees are full-time, and notify and enroll these employees.NEW HIRES

The determination of when a new hire is full time depends on whether, as of the date of hire, the employee is reasonably expected to work full time (at least 30 hours per week), or is a variable hour or seasonal employee.1-      New Hires Who are Reasonably Expected to Work Full-time

If a new hire is reasonably expected at his or her start date to work full-time, the employer must offer coverage as of the end of the first three calendar months of employment.  For example, for a new-hire who starts September 10, the first three calendar months would be September, October and November, so the employer must offer coverage that begins no later than December 1. During those first three months, the employer will not be subject to the employer responsibility payment under IRC 4980H (if the employee purchases coverage in the exchange and qualifies for a subsidy).   Additionally, the guidance provides that an employer will not be penalized if the employee does not enroll when first eligible because the employee does not take the required action (e.g., completing and submitting the enrollment form).
2-      New Hires Who are Variable Hour and Seasonal Employees
The safe harbor in the Notice allows employers to take a longer period of time before offering coverage to these employees, because the employer can first determine whether or not such employees are full time.  The safe harbor allows the employer to specify an initial measurement period of 3-12 months, during which the employer will track an employee’s hours.  The initial measurement period for each employee begins on his or her date of hire (so each new employee might have a different initial measurement period), but the employer sets the length of the initial measurement period, which must be the same length as the standard measurement period. 
For those employees who work on average at least 30 hours/week during the initial measurement period, the employer must offer coverage during an associated stability period that must be at least six months and no shorter than the measurement period. This applies even if the employee works less than full-time during the stability period, so long as the individual remains an employee.  Once an employee terminates employment, however, the employer is no longer required to offer regular group coverage, but the COBRA rules still apply.  They were not repealed or changed by PPACA.
For newly-hired employees who are not full-time during their initial measurement period, the associated stability period cannot be more than one month longer than the initial measurement period.  During the stability period, the employer need not offer health coverage to the employee even if the employee works at least 30 hours /week during the stability period.  Also, the employer will not be subject to a penalty during the stability period, even if the employee buys coverage in the exchange and receives a tax credit during that period.Generally, an employer also may have an administrative period of up to 90 days, during which time the employer notifies employees whether or not they were full-time during the measurement period and enrolls those who were. An employer who uses an initial measurement period of 12 months, however, cannot also impose a waiting period of three months after the 12-month measurement period. Instead, the safe harbor provides that the measurement period and the administrative period combined 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 (totaling, at most, 13 months and a fraction of a month).  For example, for an employee hired September 20 of year 1: if the employer uses an initial measurement period of September 20 to the following September 19 (of year 2), the administrative period can be no longer than September 20 – October 31 (of year 2), and the stability period must begin no later than November 1 (of year 2).

This illustrates the above example:  (click on the image below to view in full-size detail)

ONGOING  EMPLOYEES

An ongoing employee is one who has been employed by the employer for at least one complete standard measurement period.  For ongoing employees who are already enrolled in benefits, the safe harbor is not applicable. For ongoing employees whose hours vary or who are seasonal employees, the Notice includes a safe harbor similar to that for newly-hired employees.  1-      Ongoing Employees who are Reasonably Expected to Work Full-time

For ongoing employees who regularly work full-time, most employers currently determine benefits on a month-by-month basis, rather than by using a “look-back” measurement period. It’s not clear whether an employer could, if it wished, apply the safe harbor to ongoing employees who regularly work full-time.  It’s likely most employers would not choose to use the safe harbor for these employees anyway.  Also not clear under the Notice is when in 2014 an employer must offer coverage to ongoing full-time employees who were not previously offered coverage, either because they were in a non-benefit-eligible category of employees, or because they worked at least 30 hours a week but fewer hours than the employer’s prior threshold for full-time (e.g., 37.5 or 40). 
2-      Ongoing Employees Who are Variable Hour and Seasonal EmployeesThe safe harbor is much the same as the safe harbor for newly-hired employees, except that the employer will specify a standard measurement period of 3-12 months (during which the employer will track employees’ hours) and the standard measurement period will be the same duration and start and end date for each employee in the same category. (See below for allowable categories.)  An employer also may have an administrative period of up to 90 days, after the end of the measurement period. The administrative period cannot cause a gap in coverage, so it will usually overlap the beginning of each stability period.  (See diagram below.)

For those ongoing employees who work on average at least 30 hours/week during the standard measurement period, the safe harbor is the same as for newly-hired employees:  the employer must offer coverage during an associated stability period that must be at least six months and no shorter than the measurement period. 
For ongoing employees who are not full-time during the standard measurement period, the safe harbor is the same in most respects as the safe harbor for newly-hired employees:  the employer need not offer health coverage to the employee during the stability period even if the employee works at least 30 hours /week during the stability period.  Also, the employer will not be subject to a penalty during the stability period, even if the employee buys coverage in the exchange and receives a tax credit during that period. There is one difference, however: the associated stability period cannot be longer than the initial measurement period.  (In contrast, for new-hires it could be up to one month longer than the initial measurement period.)
The allowable categories of employees for which the employer can set different standard measurement periods are:
  • Collectively-bargained employees versus non-collectively bargained employees
  • Salaried employees versus hourly employees
  • Employees of different entities
  • Employees located in different States
One likely scenario for employers with calendar-year plan years who select a 12-month measurement period is: 
  • Standard Measurement period will be October 15 to the following October 14
  • Administrative Period will be October 15 to December 31
  • Stability Period will be January 1 to December 31.
This is illustrated by the following:  (click on the image below to view in full-size detail)
The reason the above schedule is likely is because the administrative period will include the open enrollment period, and employees who were determined to be “full-time” during the measurement period will then be enrolled as of the start of the next plan year.
EMPLOYEES WHO TRANSITION FROM NEWLY-HIRED TO ONGOING
The safe harbor for newly-hired variable hour and seasonal employees applies during an employee’s first year, and thereafter the safe harbor for ongoing employees applies.
The general framework for a newly-hired employee who transitions to an ongoing employee is that the employer can track the employee’s hours during the initial measurement period (which starts as of the employee’s date of hire), and then also during the first standard measurement period that begins after the employee’s date of hire. (These two measurement periods usually will overlap.) New-hires who work on average at least 30 hours per week during the initial measurement period must be offered coverage during the initial stability period, regardless of how many hours they work after the initial measurement period.  For any standard measurement period during which such employee also works on average at least 30 hours per week, the employee must be offered coverage during the associated standard stability period. 

The following illustration shows how the initial measurement and stability periods may overlap with the standard measurement and stability period: 

(click on the image below to view in full-size detail)


ISSUES STILL UNDER CONSIDERATION
The guidance requests comments by September 30, 2012, on the following issues that are still under consideration with respect to identification of full-time employees:
  • Possible safe harbor methods for determining full-time status of short-term assignment employees, temporary staffing employees, and employees hired into high-turnover positions
  • Whether to develop additional guidance to help employers determine, as of an employee’s start date, whether the employee is reasonably expected to work on average at least 30 hours per week
  • Following a merger or acquisition, what rules should apply to address coordination of differing measurement and stability periods of the employers during the transition period
  • How to define “seasonal worker” for purposes of IRC section 4980H and the practicality of using different definitions for different purposes (such as determination of large or small employer, versus determination of full-time status for an employee of a large employer).
NOTICE 2012-59:  GUIDANCE ON THE 90-DAY WAITING PERIOD 

When does it Apply?

PHS Act section 2708 provides that, for plan years beginning on or after January 1, 2014, a group health plan or health insurance issuer shall not apply any waiting period that exceeds 90 days.  Thus, the 90-day waiting period does not go into effect as of January 1, 2014, but, rather, as of the first day of the first plan year beginning on or after January 1, 2014.In 2004 regulations, the Departments defined a waiting period to mean the period that must pass before coverage for an employee or dependent who is otherwise eligible to enroll under the terms of a group health plan can become effective. Being eligible for coverage means the individual has met the plan’s substantive eligibility conditions (such as being in an eligible job classification or achieving job-related licensure requirements specified in the plan).  Thus, IF the employer voluntarily offers coverage to part-time employees, the employer 90-day waiting period applies to them.  Additionally, the 90-day waiting period applies to small employers (under 50) who offer coverage to their employees, even though small employers are not subject to the employer shared responsibility provisions under IRC section 4980H.

Eligibility conditions that are based solely on the lapse of a time period can last for no more than 90 days. Other eligibility conditions (e.g., part-time workers are eligible after they have worked at least 1200 hours) are allowed, unless they are designed to avoid compliance with the 90-day waiting period limitation.

As noted previously, the 90-day requirement is met so long as an employee may elect coverage that would begin within 90 days.  A plan or issuer will not be penalized or considered to be in violation merely because an employee takes additional time to elect coverage.

How the Waiting Period Rules Apply to Variable Hour Employees where a Specified Number of Hours of Service per Period is a Plan Eligibility Condition

If a group health plan conditions eligibility on an employee regularly working a specified number of hours, and it cannot be determined whether or not a newly-hired employee is reasonably expected to work that number of hours per pay period, the plan may take a reasonable period of time to determine whether the employee meets the plan’s eligibility condition.  To make this determination, the employer (whether or not it is a large employer) may use a measurement period that is consistent with IRC section 4980H, as specified in Notice 2012-58.  This means coverage must be effective no later than 13 months from the employee’s start date, plus the time from the first day until the next calendar month if the employee’s start date is not the first day of a calendar month.