Determining Full-Time Status under Affordable Care Act

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The Affordable Care Act, imposes a penalty on an “applicable large employer” that either fails to offer its full-time employees and their dependents the opportunity to enroll in certain minimum essential and/or affordable care coverage.  The ACA defines an applicable large employer, with respect to any calendar year, as an employer that employed an average of at least 50 full-time employees on business days during the preceding calendar year. For this purpose, the term “full-time employees” means the sum of the employer's full-time employees and full-time equivalent employees.  The IRS has now issued Notice 2012-58 which provides guidance on the determination of full-time status.

Existing Employees:  In a prior Notice, the IRS both described a possible approach to determining whether existing employees were full-time.  This approach would permit employers to use an optional “look-back safe harbor period” to determine whether ongoing (rather than newly hired) employees are full-time.  Practitioners responded favorably to this approach, and the IRS issued Notice 2012-58 which essentially adopts this approach.  Under the look-back method, an employer determines each ongoing employee's full-time status by looking back at a standard measurement period (3 to 12 consecutive months) chosen by the employer. The employer gets to determine the months in which the standard measurement period starts and ends, subject to a requirement that it be uniform and consistent for all employees in the same job category.  If the employer determines that an employee averaged at least 30 hours per week during the standard measurement period, then the employer would be required to treat the employee as a full-time employee during a subsequent “stability period”  without regard to the employee's number of hours of service during such stability period. The stability period would be a period of at least 6 months that is no shorter than the standard measurement period, and that begins after the standard measurement period.

Recognizing that employers may need time between the standard measurement period and the stability period to determine which ongoing employees are eligible for coverage and to notify and enroll those employees, Notice 2012-58 provides an optional administrative period safe harbor. This administrative period following the standard measurement period and may last up to 90 days. However, the administrative period between the standard measurement period and the stability period may neither reduce nor lengthen the measurement period or the stability period.

New Employees:  In a prior Notice the IRS had also described a possible approach to determining the full-time status of new employees working variable hours.   A variable hour employee is an employee where, based on the facts and circumstances on the date the employee starts work, it cannot be determined if the employee will work an average of at least 30 hours per week.  Under the possible approach described in the prior Notice, employers would be given 3 months (or 6 months in some cases), to determine whether a variable hour new employee is a full-time employee, without incurring a penalty under the ACA.  After considering this possible approach, many practitioners requested that employers be allowed to use a look-back measurement period of up to 12 months.   In response, the IRS expanded the proposed approach in a manner similar to that available for existing employees (by use of a 3 to 12 month look-back measurement period, a stability period, and the use of an administrative period).  The same rules would also apply to seasonal employees.  But once a new employee is employed for an entire measurement period, the employee must be retested for full-time status beginning with that standard measurement period at the same time and under the same conditions as other existing employees.

Reliance on the Notice:  Employers may rely on the safe harbors contained in Notice 2012-58 for compliance with the ACA at  least through the end of 2014.

If you have questions on how to determine full-time status of your employees for purposes of the ACA, or otherwise how to comply with the ACA, please call or email me at 937-223-1130 or Jsenney@pselaw.com.

AND ONE MORE THING.    We all face the prospect of a darker tax climate in 2013 for investment income and gains. Under current law, higher-income taxpayers will face a 3.8% surtax on their investment income and gains. Additionally, if the "tax break" sunsets go into effect, all taxpayers will face higher taxes on investment income and gains, and the vast majority of taxpayers also will face higher rates on their ordinary income. Plus, the tax break sunsets will increase estate and gift taxes. As a result, year-end gifts to family members can yield even greater overall family tax savings than in prior years.  Give me a call if you want to discuss gifting property or investments to your children or grand-children.  Jsenney@pselaw.com or 937-223-1130.