News & Events

It’s Time to Start Counting Full-Time Employees Under the Affordable Care Act

Submitted By Firm: Bond, Schoeneck & King, PLLC

Contact(s): Louis P. DiLorenzo, Thomas G. Eron

Author(s):

Amelia M. Klein and Steve Daley

Date Published: 3/6/2013

Article Type: Legal Update

Share This:

Beginning in 2014, the shared responsibility provisions (also called the employer mandate provisions) of the Patient Protection and Affordable Care Act (“ACA”) generally will require every “applicable large employer” to offer at least 95 percent of its “full-time employees” the opportunity to enroll in an affordable health plan. Failure to offer affordable health plan coverage will expose such an employer to potentially significant penalties.

Recently proposed regulations provide guidance to help an employer determine whether it is an “applicable large employer” and which employees must be considered “full-time employees.” The proposed regulations confirm that the number and mix of an employer’s full-time and part-time employees during the remainder of 2013 can make a significant difference in determining whether the employer will be an applicable large employer when the employer mandate becomes effective in 2014. Each employee’s status as a full-time or part-time employee in 2013 will also be important for applicable large employers because (depending on the measurement periods selected) employee hours during 2013 will determine which employees must be offered affordable health plan coverage in 2014.

It is definitely not too early to start to analyze the extent to which the ACA’s employer mandate will apply beginning in 2014.

“Applicable Large Employer” Status

An applicable large employer is an employer that employed, on average, at least 50 full-time employees, taking into account full-time equivalent employees (“FTEs”), during the preceding calendar year.1 Because the employer mandate is generally effective in 2014, an employer’s initial status as an applicable large employer will be based on the number of full-time employees and FTEs employed during 2013. For 2014 only, an employer can choose to make its determination of applicable large employer status by reference to any period of at least six consecutive calendar months in the 2013 calendar year, rather than by reference to the entire 2013 calendar year.

An employer’s status as an applicable large employer for a calendar year is determined by adding the number of the employer’s full-time employees for each calendar month in the preceding calendar year to the total number of FTEs for each calendar month in the preceding calendar year, and then dividing the sum of those two totals by 12. (Employers electing to use the optional shorter measuring period for 2013 would divide by the number of months in the chosen measuring period, rather than by 12.) If the result is not a whole number, the result is rounded down to the next lowest whole number.

If the monthly average produced by this calculation is less than 50, then the employer is not an applicable large employer for the current calendar year and the employer is not subject to the employer mandate provisions of the ACA for that calendar year. If the result of this calculation is 50 or more, then the employer is an applicable large employer for the current calendar year and is subject to the employer mandate for that year.2 Applicable large employer status must be determined each year.

“Full-Time Employee” and FTE Status

For purposes of determining applicable large employer status, the term full-time employee generally means, with respect to a calendar month, an employee who is employed an average of at least 30 hours per week. An employee who is credited with 130 or more hours in a month is treated as employed at least 30 hours per week, provided that this equivalency rule is applied on a reasonable and consistent basis. All remaining employees (i.e., employees who were not employed on average at least 30 hours per week during the month) are then included in calculating the employer’s FTEs for that calendar month.

The number of FTEs for each calendar month is determined by calculating the aggregate number of hours of service for that calendar month for all employees who were not employed on average at least 30 hours per week (disregarding hours in excess of 120 for any employee) and dividing the aggregate number of hours by 120. For example, if the aggregate of all hours for all employees who are not full-time employees is 1,680 in a particular month, then the employer has 14 FTEs for that month (1,680 ÷ 120 = 14).

If the employer in the foregoing example also has 40 full-time employees (i.e., 40 employees who each worked an average of at least 30 hours per week) for the same month, then the employer will be deemed to have employed 54 full-time employees for that month. The employer would do similar calculations for each month of the preceding calendar year (or elected shorter period for 2013) and then average the monthly totals. As noted above, if the monthly average is 50 or more, then the employer is an applicable large employer for the current calendar year. If the average is less than 50, then the employer is not an applicable large employer for the current calendar year.

Employees Who Must Be Offered Coverage

If an employer is an applicable large employer, then that employer generally must offer affordable health plan coverage to at least 95 percent of its full-time employees or face potentially significant penalties for failing to do so. For this purpose, full-time employees means only actual full-time employees; that is, only those employees who are actually employed on average at least 30 hours per week must be offered affordable health plan coverage. An applicable large employer will not face any mandate-related penalties for failing to offer health plan coverage to employees taken into account as FTEs.

To provide some predictability in who must be offered coverage, the proposed regulations generally allow an affected employer to adopt a “standard measurement period” that will be the basis for determining if an employee is a full-time employee. If an employee is actually employed on average at least 30 hours per week during the standard measurement period, then the employee must be considered a full-time employee during the following “stability period” (regardless of the number of hours of service of the employee during the stability period, provided he or she remains employed). Conversely, an employee who was not actually employed on average at least 30 hours per week during the standard measurement period need not be considered a full-time employee during the following stability period (even if the employee works more than 30 hours per week during the stability period).

Each affected employer must select a standard measurement period of at least three months but not more than 12 months. For an employee who was a full-time employee during the standard measurement period, the following stability period must be a least six months long and may not be shorter than the standard measurement period. For an employee who was not a full-time employee during the standard measurement period, the stability period may not be longer than the standard measurement period.

In addition to the standard measurement period and the stability periods, an affected employer may designate an “administrative period” of up to 90 days between the end of the standard measurement period and the beginning of the next stability period. An employer may use the administrative period to determine full-time status, and notify and enroll eligible full-time employees. The administrative period may not lengthen or shorten the measurement or stability periods, nor create gaps in coverage.

The standard measurement period and stability period generally must be the same for all employees. However, an employer may use different periods for members of different bargaining units, collectively bargained and non-collectively bargained employees, salaried and hourly employees, and employees whose primary places of employment are in different states. Also, different members of the same controlled group may have different standard measurement, stability, and administrative periods.

As a practical matter, the stability period for many employers will likely be the plan year for the employer’s group health plan. Assuming a January 1 – December 31 plan year, an example of viable standard measurement, administrative, and stability periods would be as follows:

  • Standard Measurement Period - November 1 to October 31;
  • Administrative Period - November 1 to December 31; and
  • Stability Period - January 1 to December 31.

Applying these hypothetical periods to the 2014 plan year and to a hypothetical employee who has been continuously employed since 2011, the employer would determine the employee’s full-time status based on the employee’s average hours per week from November 1, 2012 to October 31, 2013. That determination would be made and, if applicable, health plan coverage would be offered, during the administrative period from November 1, 2013 to December 31, 2013 (which period likely would include the employer’s usual open enrollment period). The employee’s status - full-time or not full-time - would then be fixed for all of the 2014 plan year, regardless of the employee’s actual hours in 2014.

Special Rules for New Hires

The general rules summarized above apply to an employer’s on-going employees, who are those employees who have been employed for at least one standard measurement period. The proposed regulations provide special rules for determining whether and when a new employee (i.e., those employed for less than one complete standard measurement period) will be considered full-time for purposes of the employer mandate.

If, at the time of hire, a new employee is reasonably expected to be employed for 30 hours per week or more, the new employee must be considered full-time during the then current stability period. To avoid exposure to mandate-related penalties, such a new full-time employee must be offered affordable health plan coverage at or before the conclusion of the initial three calendar months of employment.

For new employees who are not reasonably expected to be employed for 30 hours per week or more (called variable hour employees), the employer must establish an “initial measurement period,” which begins on an individual employee’s date of hire and lasts at least three months, but not more than 12 months. Because new variable hour employees are likely to be hired on many different dates during a year, an employer will have to track many different initial measurement periods - each new employee will have his or her own initial measurement period.

If a new variable hour employee works on average at least 30 hours of service per week during his or her initial measurement period, then the employer must treat the employee as a full-time employee during the stability period that begins after the employee’s initial measurement period (and any associated administrative period). The first stability period for a new variable hour employee (which period will often be independent of the stability period that applies to on-going employees) must be a period of at least six calendar months and must be no shorter in duration than the initial measurement period. If a new variable hour employee does not work on average at least 30 hours per week during his or her initial measurement period, then the employer is permitted to treat the employee as not a full-time employee during the stability period that follows the initial measurement period. The stability period for such an employee must not be more than one month longer than the initial measurement period and must not exceed the remainder of the standard measurement period (plus any associated administrative period) in which the initial measurement period ends. (Initial and standard measurement periods may overlap, requiring the measurement of an employee’s service during both measurement periods.)

Rehired Employees

A rehired employee is treated as a new employee (and the initial measurement and stability period rules summarized above will apply), if either the period during which the employee is credited with no hours of service is at least 26 consecutive weeks, or the period with no credited hours of service (of less than 26 weeks) is at least four weeks long and is longer than the employee’s period of employment immediately preceding the period with no credited hours of service. A rehired employee who is not treated as a new employee must be treated as an ongoing employee and the measurement and stability period that would have applied to the employee had the employee not experienced a break in service would continue to apply upon the employee’s resumption of service. For such an employee, special employment break period rules may apply and require the employer to disregard the break, or impute hours for the break, when the employer determines the employee’s average hours for the measurement period.

Hours of Service

“Hours of Service” for purposes of these calculations include both hours paid for service, and all hours for paid-time off, consistent with the existing rules of the U.S. Department of Labor (at 29 CFR 2530.200b-2(a)) that generally apply to retirement plan eligibility and vesting determinations. For an employee who is paid on an hourly basis, each hour for which the employee is paid, or entitled to payment, must be counted. For an employee who is not paid on an hourly basis, an employer must calculate hours of service under one of the following methods: (a) counting actual hours based on records of hours worked and paid-time off hours, (b) using a days-worked equivalency under which the employee is credited with eight hours of service for any day the employee has at least one hour of service, or (c) using a weeks-worked equivalency under which the employee is credited with 40 hours of service per week for each week during which the employee is credited with at least one hour of service. Different methods may be used for different classes of non-hourly employees. The selected equivalency, however, must generally reflect the hours actually worked and the hours for which payment is made or due and may not substantially understate an employee’s hours, such as using the days-worked equivalency for any employee who works three 10-hour days per week.

In the preamble to the proposed regulations, the Internal Revenue Service recognizes that the hour of service rules apply imperfectly to employees whose compensation is not based primarily on hours worked (such as commission-based salespersons and adjunct faculty), or to employees whose hours are limited for safety purposes (such as certain transportation employees). Until further guidance is issued, employers of such employees (including educational organizations) must use a reasonable method for crediting hours of service to those employees (and others in similar positions). The selected method must be consistent with the purposes of the employer mandate. A method of crediting hours would not be reasonable if it took into account only some of an employee’s hours of service with the effect of re-characterizing, as non-full-time, an employee in a position that traditionally involves more than 30 hours of service per week. For example, it would not be a reasonable method of crediting hours in the case of an adjunct faculty member to take into account only classroom or other instruction time and not other hours that are necessary to perform the employee’s duties, such as class preparation time.

Summary

Because the employer mandate provisions of the ACA apply only to applicable large employers, every employer must first determine whether that status applies. For some employers, that will be an easy determination, either because the employer always employs far more than 50 full-time employees (in which case the employer is subject to the mandate as an applicable large employer) or the employer never employs more than a few employees during any year (in which case the employer mandate will not apply). For employers that are not certain about whether the average of its full-time employees and FTEs will equal or exceed 50 for any year, determining applicable large employer status is critically important. Those employers should be taking steps now to make preliminary determinations and take appropriate steps to avoid (or plan for) such status. Staffing during the remainder of 2013 can make a significant difference in determining whether the employer will be an applicable large employer when the employer mandate becomes effective in 2014. Staffing in 2013 will also be important for applicable large employers because (depending on the measurement periods selected) employee hours during 2013 will determine which employees must be offered affordable health plan coverage in 2014.

The concepts and calculations for determining applicable large employer status and full-time employee status are complex. This is a summary of some of the basic rules on these topics. Additional rules (not summarized here) apply for purposes of determining whether health plan coverage is affordable, whether the offered coverage provides minimum value, and the extent to which non-compliance with the employer mandate will result in a penalty being imposed on the employer. The Internal Revenue Service also is likely to issue further guidance that will address such topics as short-term employees, temporary staffing agencies, and high-turnover employment situations.

Stay tuned for further developments. However, it is definitely not too early to start to analyze the extent to which the ACA’s employer mandate will apply beginning in 2014.

http://www.bsk.com/media-center/2526-employee-benefits-itrsquos-time-start-counting-full-time-employees-under-the

Find an Employment Lawyer

In all 50 U.S. states, every Canadian province, and over 135 countries. View or print a complete ELA member list by clicking here.

Find an Immigration Lawyer

Facilitate employee transfers around the globe. View or print a complete ELA member list by clicking here.

Global Business Immigration Law Handbook

Your free resource for obtaining key business immigration law information worldwide.

Client Successes

Altra Industrial Motion Inc.

Altra Industrial Motion Inc. has multiple locations in the U.S., as well as Central America, Europe, and Asia. The Employment Law Alliance has proved to be a great asset in assisting us in dealing with employment issues and matters in such diverse venues as Mexico, Australia, and Spain. We have obtained excellent results using the ELA network for matters ranging from a multi-state review of employment policies to assisting with individual employment issues in a variety of foreign jurisdictions.

In one instance, we were faced with an employment dispute with a former associate in Mexico that had the potential for substantial economic exposure. The matter had been pending for over a year, and we were not confident in the employment advice we had been receiving. I obtained a referral to the ELA counsel in Mexico, who was able to obtain a favorable resolution of the dispute in only a few days. Based on our experiences with the ELA, we would not hesitate to use its many resources for future employment law needs.

American University in Bulgaria

In my career I have been a practicing attorney, counsel to the Governor of Maine, and CEO of a major public utility. I have worked with many lawyers in many settings. When the American University in Bulgaria needed help with employment litigation in federal court in Syracuse, New York, we turned to Pierce Atwood, the ELA member we knew and trusted in Maine, for a referral. We were extremely pleased with the responsiveness and high quality of service we received from Bond Schoeneck & King, the ELA's firm in upstate New York. I would not hesitate to recommend the ELA to any employer.

David T. Flanagan
Member of Board of Trustees 

Arcata Associates

I really enjoyed the Conducting an Effective Internal Investigation in the United States webinar.  We are in the midst of a rather delicate employee relations issue in California right now and the discussion helped me tremendously.  It also reinforced things that you tend to forget if you don't do these investigations frequently.  So, many, many thanks to the Employment Law Alliance for putting that webinar together.  It was extremely beneficial.

Lynn Clayton
Vice President, Human Resources

Barrett Business Services, Inc.

I recently participated in the ELA-sponsored webinar on the Employee Free Choice Act.  I was most impressed with that presentation.  It was extremely helpful and very worthwhile.  I have also been utilizing the ELA's online Global Employer Handbook.  This compliance tool is absolutely terrific. 

I am familiar with several other products that purport to provide up-to- date employment law information and I believe that this resource is superior to other similar compliance manuals.  I am delighted that the ELA provides this free to its members' clients.

Boyd Coffee Company

Employment Law Alliance (ELA) has provided Boyd Coffee Company with a highly valued connection to resources, important information and learning. With complex operations and employees working in approximately 20 states, we are continually striving to keep abreast of specific state laws, many of which vary from state to state. We have participated in the ELA web seminars and have found the content very useful. We appreciate the ease, cost effectiveness and quality of the content and presenters offered by these web seminars.  The Global Employer Handbook has provided our company with a very helpful overview of legal issues in the various states in which we operate, and the network of attorneys has helped us manage issues that have arisen in states other than where our Roastery and corporate headquarters are located in Portland, Oregon.

Capgemini Outsourcing Services GmbH

As an international operating outsourcing and consulting supplier Capgemini has used firms of the Employment Law Alliance in Central Europe. We were always highly satisfied with the quality of employment law advice and the responsiveness. I can really recommend the ELA lawyers.

Hirschfeld Kraemer

As an employment lawyer based in San Francisco, I work closely with high tech clients with operations around the globe. Last year, one of my clients needed to implement a workforce reduction in a dozen countries simultaneously. And they gave me 48 hours to accomplish this. I don't know how I could have pulled this off without the resources of the ELA. I don't know of any single law firm that could have made this happen. My client received all of the help they needed in a timely fashion and on a cost effective basis.

Stephen J. Hirschfeld
Partner 

Hollywood Entertainment Corporation

As the Vice President for Litigation & Associate General Counsel for my company, I need to ensure that we have a team of top-notch employment lawyers in place in every jurisdiction where we do business. And I want to be confident that those lawyers know our business so they don't have to reinvent the wheel when a new legal matter arises. With more than 3400 stores and 35,000 employees operating in all 50 U.S. states and across Canada, we rely on the ELA to partner with us to help accomplish our objectives. I have been delighted with the consistent high quality of the work performed by ELA lawyers. I encourage other in-house counsel to use their services, as well.

Ingram Micro

Ingram Micro is the world's largest technology distributor, providing sales, marketing, and logistics services for the IT industry around the globe. With over 13,000 employees working throughout the U.S. and in 35 international countries, we need employment lawyers who we can count on to ensure global legal compliance. Our experience with many multi-state and multi-national law firms is that their employment law services are not always a high priority for them, and many do not have experts in many of their offices. The ELA has assembled an excellent team of highly skilled employment lawyers, wherever and whenever I need them, and they have proven to be an invaluable resource to our company.

Konami Gaming

Our company, Konami Gaming, Inc., is growing rapidly in a very diverse and highly regulated industry. We are aggressively entering new markets outside the domestic U.S., including Canada and South America. I have had the recent opportunity to utilize the services provided by the ELA. The legal advice was both responsive and professional. Most of all, the entire process was seamless since our Nevada attorney coordinated the services and legal advice requested. I look forward to working with the ELA in the future, as it serves as a great resource to the legal community.

Jennifer Martinez
Vice President, Human Resources

Nikkiso Cryo, Inc.

Until recently, I was unaware of the ELA's existence. We have subsidiaries and affiliates throughout the United States, as well as in Asia, the Middle East and Europe. When a recent legal issue arose in Texas, our long-time Nevada counsel, who is a member of the ELA, suggested that this matter be handled by his ELA colleague in Dallas. We are very pleased with the quality and timeliness of services provided by that firm, and we are excited to now have the ELA as an important asset to help us address employment law issues worldwide.

Palm, Inc.

The ELA network has been immensely important to our company in helping us address an array of human resources challenges around the world. I strongly encourage H.R. executives who have employees located in many different jurisdictions to utilize the ELA's unparalleled expertise and geographic coverage.

Stacy Murphy
Former Senior Director of Human Resources

Rich Products

As the General Counsel for a company with 6,500 employees operating across the U.S. and in eight countries, it is critical that I have top quality lawyers on the ground where we do business. The ELA is an indispensable resource. It has taken the guesswork out of finding the best employment counsel wherever we have a problem.

Jill K. Bond
Senior Vice President/General Counsel, Shared Services and Benefits

Ricoh Americas Corporation

We have direct sales and service offices all over the U.S., but have not necessarily had the need in the past for assistance with legal work in every state where we have a business presence. From time to time, we suddenly find ourselves facing a legal issue in a state where we have no outside counsel relationship. It has been a real benefit to know that the ELA has assembled such an impressive team of experts throughout the U.S. and overseas.

A few years ago, we faced a very tough discrimination lawsuit in Mississippi. We had never had to retain a lawyer there before. I was absolutely delighted with the Mississippi ELA firm. We received an excellent result. They will no doubt handle all of our employment law matters in Mississippi in the future. I have also obtained the assistance of several other ELA firms around the U.S. and have received the same outstanding service. The ELA is a tremendous resource for our company.

Roberts-Gordon LLC

Our affiliated companies have used the Employment Law Alliance in connection with numerous acquisitions, and have always been extremely pleased with our ability to obtain the highest quality legal advice on due diligence issues from jurisdiction to jurisdiction. We have found the Employment Law Alliance firms to be not only first rate with respect to their legal advice but also responsive and timely in assisting us with federal and state law issues critical to our due diligence efforts. We consider the Employment Law Alliance to be an important part of our team.

Rockwell Collins, Inc.

We have partnered with many ELA firms on the development and execution of case management strategies with very positive results. We have been very pleased with the legal advice and counsel provided by the law firms we have utilized who are affiliated with the Employment Law Alliance. The ELA firms we have worked with are customer focused, responsive, and thorough in their approach to handling labor and employment law matters.

Elizabeth Daly
Assistant General Counsel

Sanmina-SCI

Sanmina-SCI has facilities strategically located in key regions throughout the world. Our customers expect that we will provide them with the highest quality and most sophisticated services in the marketplace. We have that same expectation for the lawyers with whom we do business. With operations in 17 countries, we need to be certain that we have a team of lawyers working together to address our employment law needs worldwide. The ELA has delivered exactly what it promised-- seamless and consistent high quality services delivered in each locale around the globe. It has quickly become a key asset for our human resources department.

Starwood

We own, manage, and franchise hotels throughout the U.S. and in more than 90 countries. With more than 145,000 employees worldwide, ensuring that we comply with the complex web of local labor and employment laws in every one of these jurisdictions is a daunting task. The Employment Law Alliance has served as an important resource for us and we have benefited greatly from its expertise and long reach. When a legal dispute or issue has arisen in some far-flung place, Employment Law Alliance lawyers have always provided responsive, practical, and cost-effective assistance.

Wilmington Trust Corporation

Wilmington Trust has used the ELA to locate firms in California, Washington State, Georgia, and Europe. Our experience with the ELA lawyers with whom we have worked has always been one of complete satisfaction and prompt, practical advice.

Michael A. DiGregorio
General Counsel  

Loading...