Variable hour employees – those who work different numbers of hours from week to week — must be carefully monitored by employers, as they can have dramatic effects on the employer’s obligations under PPACA.

Depending on the number of hours a variable hour employee works per week on average, he or she may be classified under PPACA as either a part-time employee or a full-time employee. The method used to determine this classification is known as a look-back period.

If a variable hour employee is determined to work less than 30 hours per week on average, then the employee is deemed a part-time employee for the corresponding stability period. The employee will not cause an applicable large employer to have an obligation under either employer mandate.

If a variable hour employee is determined to work more than 30 hours per week on average, then the employee may be deemed full-time, presuming the employee is not a seasonal employee. Due to the employer mandates, full-time employees must be offered minimum essential coverage, affordability, and minimum value within 90 days of this determination. Failure to comply with these mandates results in “A” tax and “B” tax liability for the applicable large employer.

Project-based employees are a type of variable hour employees who can be particularly difficult to measure with a look-back period. Project-based employees are those whose employment is linked to specific projects by the employer. For example, a home health care aid may be assigned to serve a specific patient’s medical needs. Once the individual no longer requires the aid’s services, the employer may not use the employee’s services until he or she is assigned to a new patient.

A common question surrounding PPACA is the treatment of new hires. Assuming the position is not seasonal, is a new hire full-time or part-time? The answer depends on the employer’s reasonable expectations of the position. If the employer has a reasonable expectation upon hire than an employee will average 30 or more hours a week, then the position should be considered full-time upon hire. If the employer has an expectation that the employee will average less than 30 hours a week, the position should be considered part-time upon hire. However, if the employer in unable to make such a determination one way or the other, the position is considered variable hour, and the employee is considered a variable hour employee.

Variable hour employees are a PPACA-created concept, and thus the idea may be unfamiliar to some employers. However, obtaining familiarity is highly encouraged, as variable hour status can create a potential 13-month delay in offering coverage via the look-back measurement method. For high-turnover industries, a delay of that length could effectively equate to a denial of coverage outright.

Importantly, employers control the initial classification of variability. This control, however, is somewhat tempered by what an auditor or litigious challenger would deem reasonable. Employers are encouraged to use their best judgment in making determinations upon new hire, but legal opinions and records justifying such determinations are highly encouraged, as challenges from employees who feel entitled to coverage or the federal government are likely in the coming years. Legal precedent has yet to be created, and unfortunately for some employers, time and expense litigating such precedents will be necessary.

Relevant Citations:

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External PPACA Resources: