By Lisa Klinger, J.D., and Susan Grassli, J.D.
A “seasonal employee” is “an employee who is hired into a position for which the customary annual employment is six months or less. The determination of which employees are seasonal employees has taken on new importance for “applicable large employers” (ALEs) because the Affordable Care Act (ACA) measurement method rules allow employers to treat full-time seasonal employees differently from full-time non-seasonal employees, for purposes of group health plan eligibility. Misclassifying employees as seasonal employees may result in penalties for an ALE.
- Explains the difference between a seasonal employee and a seasonal worker,
- Provides examples of seasonal employees and ambiguous categories (such as summer interns),
- Clarifies which Measurement Method to use for seasonal employees, and
- Provides action items for ALEs
The rules governing seasonal employees and seasonal workers are in the February 2014 final regulations on the Employer Shared Responsibility (ESR) provisions of the ACA. These rules are effective in 2015 for employers with 100 or more full-time employees and full-time equivalents, and in 2016 for employers with 50-99 full-time employees and full-time equivalents, if the employers qualify for the delayed effective date.
Seasonal “Employee” versus Seasonal “Worker”
The final regulations provide separate definitions of “seasonal employee” (section 54.4980H-1(a)(38)) and “seasonal worker” (section 54.4980H-1(a)(39)). The two definitions are different in substance as well in purpose.
- A seasonal employee is “an employee who is hired into a position for which the customary annual employment is six months or less.” “Customary” means an employee who typically works each calendar year in approximately the same part of the year, such as summer or winter.
- The definition of seasonal “employee” applies for purposes of determining whether a particular employee is full-time or not (See Step 4 of our “4 Steps to Compliance with the Employer Mandate” – request a copy from your Leavitt Advisor).
- A seasonal worker is one the employer employed for not more than four months (or 120 days) during the prior calendar year.
- The definition of seasonal “worker” applies for purposes of calculating how many full-time employees and full-time equivalents an employer has, which determines whether the employer is an “applicable large employer” (ALE) and thus subject to the ESR rules. (See Step 1 in our “4 Steps to Compliance with the Employer Mandate” – request a copy from your Leavitt Advisor)
This article focuses on seasonal “employees” and the ramifications for ALES.
Examples of Seasonal Employees
Following are three examples of employees who meet the definition of “seasonal employees”:
- A municipality hires lifeguards each summer to work at the beach or the public pools, from May through August (4 months).
- A ski resort hires ski instructors to work each year from October through March
- A farm hires “pickers” each year from July through November to pick vegetables and fruits (5 months).
If seasonal employment is extended in a particular year beyond its customary duration, the employee will not cease to be considered a seasonal employee. The preamble gives the example of a ski instructor whose customary annual employment is six months or less but who in a particular year works seven months due to an unusually long or heavy snow season.
Examples of Non-Seasonal Employees
If an employer hires a category of employees and considers them to be “seasonal” employees and considers the season to be eight months, the employees are not seasonal employees for purposes of the ESR provisions. Instead, they are regular full-time or part-time or variable hour employees, depending on their expected hours of service at date of hire.
Examples of Employee Categories that are Ambiguous
Two situations that arise fairly frequently and that are not entirely clear are:
- An employer hires an employee to work the summer season, and also hires that same employee to work the winter season.
- An employer hires students as full-time summer interns for three to four months, and might also hire some or all of the students part-time during the rest of the year.
Examples of the first situation might be a mountain/lake resort or recreation area that has summer sports and winter skiing, or a municipality that hires employees in the summer as parks and recreation employees and in the winter as snow plow drivers. This situation is not addressed in the final regulations, but when IRS regulators were asked this question at the May 2014 American Bar Association Benefits and Tax meetings, they did not hesitate in responding that such an employee would not be considered a seasonal employee. In pre-ACA regulations however, such employees would be considered “seasonal” employees if they are migrant farm workers who move with the seasons to follow the work that is available. Although not explicitly stated, this implies that employees who are not migrant workers would not be considered seasonal employees.
Student interns (not hired through the federal work study program) are not specifically addressed in the law or regulations, but two opposing arguments can be made. One argument is that the “summer” intern does not meet the definition of “seasonal” employee because the intern could be hired at any time during the year to perform the same work. The contra argument is that summer interns are seasonal employees (especially if the employer does not intend to hire them on a part-time basis after the summer) because the “summer internship” can only be performed during the summer while students are on break from school. Employers who hire student interns full-time in the summer and part-time during the rest of the year might want to classify the two positions separately: a full-time summer-only internship position, and a part-time internship position that can be performed anytime during the year. Summer student interns who transition to part-time positions in the fall would have to be reclassified in the employer’s payroll system. Employers who wish to take this position should obtain a legal opinion from their own attorney.
Even if an employer considers internship employees to be regular full-time employees, it might be able to exclude from eligibility all summer interns (even if they work full-time), because the Code section 4980H(a) penalty does not apply to large employers who offer coverage to at least 70% of full-time employees in 2015 (and 95% thereafter). However, the 4980H(b) penalty would still apply if a full-time summer intern qualified for a subsidy to purchase insurance in the marketplace and was still employed full-time after three months. Since this is unlikely if the student is hired only for three to four months in the summer, an employer probably would not be subject to any penalties. Additionally, it is likely that many summer interns will have coverage available through a parent’s group health plan, although this is not always the case.
How to Track and Measure Hours for a Seasonal Employee
For a newly hired “seasonal employee” who is expected to work full-time (but only for the season), an employer can use the Look-back Measurement Method and track hours of service over the duration of the initial measurement period. The likely result is the employee would not qualify as a full-time employee so would not need to be offered health coverage. This is because an eligibility determination would not occur for 12 months, long after the seasonal employee is no longer employed.
On the other hand, for a non-seasonal employee who is reasonably expected at date of hire to work full-time, the employer must track hours monthly and offer health coverage by the first day of the fourth calendar month after date of hire. (To avoid penalties under the separate –but-similar ACA “90-day waiting period” rules, most employers will likely offer coverage by the first day of the third calendar month after date of hire.) This would apply, for example, for the employee who is hired to work full-time but only for eight months of the year. This employee would not meet the definition of “seasonal employee” under the regulations.
Reminder: How the Penalties Apply
As noted initially, misclassifying employees as seasonal employees may result in penalties for an ALE. Here’s a quick refresher on the potential penalties under Code section 4980H:
If at least one full-time employee buys health insurance in a public Exchange (Marketplace) and qualifies for a subsidy (either a premium tax credit or a cost-sharing reduction), the employer must pay a penalty. There are two different types of penalties.
- The Code section 4980H(a) penalty applies if a large employer offers coverage to less than 70% of its full-time employees in 2015 (or to less than 95% after the 2015 plan year).
- The Code section 4980H(b) penalty applies if a large employer offers coverage to at least 70% of its full-time employees (95% after 2015), but for some full-time employees the coverage is either not “affordable” or does not provide minimum value.
Neither penalty applies if the employee who qualified for a subsidy was a variable hour or seasonal employee who was in his/her measurement or administrative periods, nor does it include those employees who are in their stability periods but who did not qualify for coverage based on their hours worked during the associated measurement period.
Thus, if an employer incorrectly classifies a new full-time employee as a seasonal employee and tracks the employee’s hours over a look-back measurement period (rather than tracking hours monthly and offering coverage by the fourth month of employment), the employer will be subject to penalties if the employee gets a subsidy to buy coverage in the Marketplace during that look-back measurement period.
Summary and Employer Action Items
- The definition of seasonal employee is “an employee who is hired into a position for which the customary annual employment is six months or less.” “Customary” means an employee who typically works each calendar year in approximately the same part of the year, such as summer or winter.
- If you hire an employee who meets the definition of a “seasonal employee,” you can track their hours over their “initial look back measurement period” and not offer health benefits until the associated “initial stability period” if they averaged at least 130 hours/month during the initial measurement period. You do not have to offer benefits by the first day of the fourth month or within the ACA 90-day Waiting period.
- If a newly-hired full-time employee does not meet the definition of seasonal employee (e.g., an employee hired to work full-time for eight months), you need to track their hours monthly and offer health coverage within three or four months of hire. This applies even if the employee will be tracked using the Look-back Measurement Method once he/she transitions from a new-hire to an “ongoing” employee.
- If you hire a non-seasonal employee and you cannot reasonably determine at date of hire if they will be full-time, e.g. variable hours employees and part time employees, you can track their hours the same as you track hours of seasonal employees. (That is, you can track their hours over their “initial measurement period” and not offer benefits until the associated “stability period,” if the employee averaged at least 130 hours/ month during the measurement period.)