Employee Designations Factors to Establish Full-Time Employee Status A new employee must be treated as a full-time employee for play-or-pay purposes if it is reasonable to assume that the employee will work on average at least 30 hours per week. The final regulations clarify that the reasonableness of this determination is to be based on the facts and circumstances present as of the employee’s start date. The regulations further state the reasonableness factors to be considered include the following: Whether the employee is replacing an employee who was (or was not) full-time; The extent to which weekly hours of service of employees in the same or comparable positions have varied above and below the 30-hour threshold during recent measurement periods; and Whether the job was documented or communicated to the new hire as requiring hours of service that would average 30 or more hours per week. Variable Hour Employees As we also know, a “variable hour” employee is an individual for whom an employer cannot determine, as of the employee’s start date, whether or not the employee is reasonably expected to average at least 30 hours of service per week because the employee’s hours are variable or otherwise uncertain. Per the final regulations, this determination also is to be based on the facts and circumstances existing as of an employee’s start date (taking into consideration the same factors as applicable to a full-time employee determination described above). An employer may adopt a wait-and-see approach (via the look-back measurement period method) to ascertain whether the employee does in fact average over 30 hours per week during the applicable measurement period. However, the final regulations confirm that for purposes of determining whether an employee is a variable hour employee, an employer may not take into account the likelihood that the employee may terminate employment before the end of an initial measurement period. Comment: See exception for “seasonal employees” discussed below. Part-Time Employees The proposed regulations did not expressly address the treatment of part-time employees who were not variable employees (i.e., employees who indisputably will not work on average at least 30 hours per week). The final regulations close this hole by essentially dictating that part-time employees are to be treated and tested on the same basis as variable employees. Comment: An employer will not be able to merely assume that a part-time employee will never earn full-time status based on hours. As a result, part-time employees will need to be included with variable employees for testing purposes. Seasonal Employees Under the ACA rules, an employee who regularly works at least 30 hours per week may nevertheless be treated the same as a variable employee (meaning an employer can apply the look-back, wait-and-see approach to test for full-time status) if the worker qualifies as a seasonal employee. This is an exception to the general rule that prohibits an employer from considering the likelihood of the employee not remaining in employment in establishing full-time employee status. The final regulations define a “seasonal employee” as an employee in a position for which the customary annual employment is six months or less. In turn, “customary” means that by the nature of the position, an employee in this position typically works for a period of six months or less, and that period should begin each calendar year in approximately the same part of the year, such as summer or winter. In certain instances, an employee can still be considered a seasonal employee even if the seasonal employment is extended in a particular year beyond its customary duration. An example provided by the regulations is a ski instructor who has a customary period of annual employment of six months, but who is asked in a particular year to work an additional month because of an unusually long or heavy snow season. In such a situation, the employee would still be considered a seasonal employee. Comment: This new seasonal employee status rule may be of particular interest to an employer. The key will be to identify the positions “for which customary annual employment is less than six months.” Measurement Periods Optional Monthly Measurement Period The proposed regulations implied that employers are effectively required to use the look-back measurement period method for determining whether or not an employee was full-time. The final requirements make clear that the look-back approach is an optional safe harbor, and that the statutory “monthly measurement period” is also available. This monthly measurement method requires employers to treat an employee as full-time for play-or-pay purposes for any month in which the employee works at least 130 hours. Different Categories An employer may elect to use a different measurement approach (i.e., it may apply either the look-back measurement method or monthly measurement method) for the following categories of employees: Salaried employees and hourly employees; Collectively-bargained employees and non-collectively bargained employees; Groups of bargaining unit employees covered under separate labor agreements; and Employees whose primary places of employment are in different states. Only the above employee categories are permitted. For example, an employer cannot use the look-back measurement method for variable hour employees and the monthly measurement method for employees with more predictable hours of service. Comment: An important exception to this rule applies in the case of an employee moving from full-time to part-time employee status, as discussed below. Change from Full-Time to Part-Time Employee Status One of the most interesting features of the final regulations is the new provision that will allow an employer to immediately apply the monthly measurement period method to a part-time employee who moves from a full-time position, with the result that the employee need not be treated as a full-time employee for the subsequent “stability periods.” General Rule By way of background, the proposed regulations (and now the final regulations) provide clear rules in regard to a part-time employee who moves to a full-time position. In that event, the employee must be offered coverage by the first day of the fourth calendar month following the change of position. However, the proposed regulations did not address the opposite situation – a full-time employee who moves to a part-time position. The final regulations add guidance in this regard. Under the general look-back measurement period rules, if an employee is deemed to be a full-time employee for a “stability period,” the employee must continue to be treated as a full-time employee even if the employee voluntarily or involuntarily moves to a part-time position. New Rule As an exception to this general rule, the final regulations permit an employer to apply the monthly measurement method to that employee if the employee experiences a change in employment status such that, if the employee had begun employment in the new position or status, the employee would have reasonably been expected not to be employed on average at least 30 hours of service per week (for example, the employee transfers to a part-time position of only 20 hours of service per week). The change to the monthly measurement method that is made so as to allow the employer to treat the employee as being part-time may not be effective prior to the first day of the fourth full calendar month in which the calendar month following the change in employment status occurs. Conditions to Special Rule This special change in status rule only applies if: The employee at issue was offered minimum value coverage for the entire period beginning on the first day of the calendar month following the employee’s initial three full calendar months of employment through the calendar month in which the change in employment status occurred; and The employee actually averages fewer than 30 hours of service per week for each of the three full calendar months following the change in employment status. Scope of Change Under this special rule, an employer may apply the monthly measurement method to an employee even if it does not apply the monthly measurement method to the other employees in the same category of employees. For example, an employer could apply the monthly measurement method to an hourly employee who moves to a part-time position, even if the employer uses the look-back measurement method to determine full-time employee status of all other hourly employees. If an employer elects this option, it may continue to apply the monthly measurement method for the employee (i.e., it may continue to treat the employee as part-time) through the end of the first full measurement period that would have applied had the employee remained under the applicable look-back measurement method. Example: The following is based on an example set forth in the regulations. Assume that an employer uses the look-back measurement method to determine the full-time employee status for all of its employees. On May10, 2015, the employer hires Alex as a full-time employee. The employer offers Alex coverage that provides minimum value. For its ongoing employees, the employer uses the look-back measurement period method, and has chosen to use a 12-month standard measurement period starting October15 and a 12-month stability period associated with that standard measurement period starting January1. Alex continues in employment with the employer and averages more than 30hours of service per week for all measurement periods through the measurement period ending October14, 2016. On February12, 2017, Alex experiences a change in position of employment with the employer to a position under which the employer reasonably expects Alex to average fewer than 30 hours of service per week. For the calendar months after February 2017, Alex averages fewer than 30 hours of service per week. The employer offers Alex coverage that provides minimum value continuously from September 1, 2015, through May 31, 2017 (i.e., through the three full calendar months following the change in position). Based on the above facts, effective June1, 2017, the employer may elect to apply the monthly measurement method to Alex. As such, it may treat Alex as a part-time employee for the remainder of the stability period ending December31, 2017, and for the entire 2018 calendar year (which is through the end of the first full measurement period following the change in employment status, plus the associated administrative period). Other Coverage Rules Rehired Employees The proposed regulations stated that an employer could treat a rehired employee as a new employee for play-or-pay purposes if the employee did not have an hour of service for at least 26 consecutive weeks before the employee returned to work. The final regulations reduce the period to 13 weeks (other than for educational institutions). The final regulations also continue to allow for the optional rule of parity. This rule permits an employer to elect to treat a rehired employee whose break in service is less than 13 weeks as a new employee if the number of consecutive weeks during which the employee was separated from service exceeds the greater of: Four consecutive weeks; or The number of consecutive weeks of the employee’s period of employment immediately preceding the separation from service. If the separation from service is less than four consecutive weeks, the employee will not be treated as a new employee, pursuant to this rule of parity. Coverage of Dependents The ACA exposes an employer to the no-coverage play-or-pay penalty if it fails to offer substantially all of its full-time employees “and their dependents” the opportunity to enroll in the plan and any full-time employee receives premium assistance for insurance exchange coverage. The term “dependent” does not include an employee’s spouse. Consequently, offering coverage to an employee’s spouse is not required. The proposed regulations defined a dependent for play-or-pay purposes as an employee’s biological child, stepchild, adopted child or foster child who is under 26years of age. The final regulations exclude stepchildren and foster children from the list of dependents required to be offered coverage. The stated rationale for excluding these children is that stepchildren are often eligible for coverage under the biological parent’s plan, and foster children often have coverage under a state program. 2015 Transition Relief Rules The final play-or-pay regulations offer a number of transition relief provisions for 2015. Most of the transition rules apply to small employers. Those that are applicable to large employer plans are discussed below. Relaxation of 95% Minimum Coverage Standard Under the general play-or-pay rules, an employer will be exposed to the “no coverage” penalty if it does not make health coverage available to at least 95% of its full-time employees. For 2015, the no-coverage penalty will not be assessed if an employer offers coverage to at least 70% of its full-time employees. As is the case with regard to the 95% standard, an employer may still be liable for the “inadequate coverage” play-or-pay penalty if it offers health coverage to at least 70% of its full-time employees (thereby avoiding the no coverage penalty), but at least one full-time employee who is not offered coverage (i.e., was not part of the 70% coverage group) receives a premium tax credit to help pay for coverage on an insurance exchange. Comment: This transition rule gives an employer a little leeway if it chooses not to cover all of its full-time employees for 2015. Calculation of “No Coverage” Penalty When calculating the $2,000 per year ($125 per month) per full-time employee “no coverage” penalty calculation, the number of full-time employees otherwise to be taken into account is reduced by 30. For 2015, the number of full-time employees taken into account for this penalty calculation is reduced by 80, rather than 30.