Health care reform requires employers with 50 or more full time equivalent employees to provide their employees with minimum essential health coverage or pay a penalty. The penalty was originally set to be applied as of 2014, but the compliance date was extended to 2015. Even with the delay in the pay-or-play effective date, some employers will have to begin to count their employees now in order to be able to comply with the mandate in 2015.
An employee count may be difficult for an employer that engages a seasonal or part-time workforce, or for an employer that has a full-time threshold of more than 30 hours per week. The law considers employees who work an average of 30 or more hours a week to be full time, and employees who work less than 30 hours are considered a fraction of an employee.
There is more than one acceptable method for calculating employees’ hours to determine the number of full time employees. For hourly employees, the employer can use actual hours of service, plus holiday and vacation.
For non-hourly employees, the calculation is more complex. The employer can (1) count actual hours of service and hours for which payment is made or due for vacation, holiday, illness, incapacity, etc.; (2) use a days-worked equivalency method, crediting the employee with eight hours of service for each day for which the employee would be required to be credited with at least one hour of service; or (3) use a weeks- worked equivalency of 40 hours of service per week for each week for which the employee would be required to be credited with at least one hour of service.
It is not practical for employers to count employees hours on an ongoing month-to-month basis as intended under the law, because employers would not know if an employee was full time until the end of the month. At that point it would be too late to offer coverage for the month. Therefore, the IRS set forth certain safe-harbors that employers may use to determine employees’ full-time status.
The safe harbors use newly defined terms. A “measurement period” is the look-back period over which hours are calculated to see if the employee has 30 hours per week. The “standard measurement period” is for ongoing employees and the “initial measurement period” is for new employees. A “stability period” is the look-forward period for which an employee’s status as full-time or not is locked in. An “administrative period” is time after the end of the measurement period but before the stability period during which time the employer can enroll the employee in coverage.
An employer can use a measurement period that is between 3 and 12 months. An employer that wants to measure hours over a full year would likely have to start that measurement now, in order to have a year of counting hours and also allow time for the administrative period to enroll all full-time employees in coverage for the start of the 1/1/2015 plan year. Therefore, employers will have to set up a method now for counting their number of full time employees.