A full-time employee is defined differently by PPACA than other state and federal laws. Under PPACA, a full-time employee is one who works an average of 30 hours a week or more. Note that salaried employees are usually deemed full-time employees.
Project-based employees and variable hour employees typically require careful scrutiny, however, because their classification as a full-time employee or part-time employee could change based on the employer’s demand for their time.
The calculation of the 30-hour-per-week average is not performed on a week-by-week basis, but rather over a longer period of time prior to any requirement to offer healthcare benefits. Employers must utilize a measurement period, also known as a look-back period, to accurately gauge whether a variable hour or project-based employee actually averages 30 hours of work per week. These periods can vary in length from three to 12 months.
PPACA’s employer mandates do not apply to employees until they are classified as full-time employees. Thus, prior to such classification, employers have no obligation, regardless of the employer’s classification, to provide non-full-time employees with minimum essential coverage, affordability, or minimum value.
Even if an employee averages 30 hours or more per week on average, the employee may still fall under a seasonal worker classification and thus not qualify as a full-time employee. Employees who work 120 days or less in a given year are considered seasonal employees. Furthermore, independent contractors are not considered employees no matter how many hours per week or days per year they work.
Once an employee has been determined to be full-time, their applicable large employer must offer the employee minimum essential coverage within 90 days. The penalty for failing to offer coverage is the “A” tax. Note that small employers face no such obligation. Furthermore, if an employee has been determined to be full-time and subsequently receives a subsidy from a state exchange plan, their applicable large employer will face “B” tax liability.
Administrative issues may arise for employees transitioning from part-time status to full-time status. Part-time employees who receive subsidies from exchange plans do not create “B” tax liability for their employer. However, once the employee transitions to full-time, the employer faces “B” tax liability, even if the 90-day window to offer coverage is open. Employers must, therefore, be cautious about employees who transition from part-time to full-time. Removing subsidy access and subsequent “B” tax liability can be accomplished through employee self-reporting or employer appeal to the state exchange.
Under PPACA, full-time employees must be offered minimum essential coverage to prevent the “A” Tax of $2,160/employee/year (subject to certain conditions, as noted in Step One). Full-time employees must also be offered minimum value and affordability to prevent the “B” Tax (again subject to conditions, as noted in Step One) of $3,240/employee/year. Other employee classifications do not force these obligations on employers. Thus, only full-time employees should be of chief concern to employers. Other classifications do require attention, but such attention is usually focused on whether such employees qualify for alternative classifications aside from full-time.
“On average” has proven quite controversial and difficult to regulate. First, we shall discuss what working 30 hours per week “on average” is not. This rule does not imply:
- That an employee working more than 30 hours a week once is entitled to full-time status.
- That a salaried employee is automatically assumed to be full-time.
- That as soon as an employee is determined to be full-time, they are granted immediate access to the health plan. In fact, up to 90 days are permitted to transfer newly full-time employees to a health plan sponsored by the employer, a significant delay in obligations.
- The federal government recognized years ago that a process was needed to determine full-time status. These safe harbor processes are the monthly measurement method and the look-back measurement method.
The monthly measurement method is a retrospective, and therefore risky, safe harbor. The monthly measurement method examines the hours worked by an employee at the end of the month to determine if coverage should have been offered. The glaring problem with this method is that if coverage was not offered when it should have been, the employer faces a non-compliance event. For this reason, the monthly measurement method is generally disfavored by most employers. The look-back measurement method will be discussed in greater detail below for its extreme utility and savings opportunities for employers.
As noted above, when an employee qualifies as full-time, an employer has 90 days to extend coverage in a health plan to the employee. This rule applies whether an employee is deemed full-time upon hire or if a classification safe harbor is used to determine the employee’s status. Note that many employers will apply the 90-day rule by offering coverage to the employee in the month in which the 90th day occurs to prevent administrative headaches and potentially uncooperative insurance carriers.
LBMC can help you navigate through the extensive ACA requirements, determine any penalty exposure, and develop strategies to eliminate or reduce future penalty exposure.