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Determining which employees are classified as full-time employees plays a pivotal role in an employer's compliance with the Affordable Care Act's (ACA) employer shared responsibility provisions. Identifying full-time employees allows employers to establish their status as an Applicable Large Employer (ALE), ascertain to whom they must offer minimum essential coverage to avoid potential penalties, and gauge the magnitude of any liability for employer shared responsibility payments.
What Is a Full-Time Employee?
For ACA compliance purposes, a full-time employee is defined as someone who works an average of at least 30 hours of service per week or 130 hours of service per month in a calendar month. HR professionals and employers can utilize two distinct methods to determine a full-time employee's status:
- Monthly Measurement Method: Under this approach, employers assess each employee's full-time status on a month-by-month basis. A full-time employee, in this case, is one who accumulates at least 130 hours of service for each month.
- Look-Back Measurement Method: This method allows employers to establish a full-time employee's status based on the hours worked during a designated "measurement period." The results are then applied during the "stability period." It's important to note that this method is not used for determining ALE status.
Hour of Service Definition
Understanding the concept of an "hour of service" is crucial when determining full-time employee status. An hour of service includes:
- Any hour for which an employee is paid or entitled to payment for the performance of duties.
- Any hour for which an employee is compensated during periods of inactivity due to circumstances like vacation, holidays, illness, layoff, or military duty.
Certain categories of employees or services are excluded from the definition of an hour of service, such as volunteer employees, students performing work-study, members of religious orders, and compensation received for services not sourced in the U.S.
Special Categories of Employees
Some categories of employees pose unique challenges when it comes to tracking their hours of service. The IRS requires employers to use reasonable methods to determine these hours in compliance with the employer shared responsibility provisions. These categories include adjunct faculty, airline industry employees working layover hours, and employees who work on-call hours.
For more comprehensive details and guidance on these subjects, the IRS Questions and Answers page and ESRP regulations are valuable resources.
For assistance with ACA data collection and reporting, contact solutions@basusa.com.
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