Employers may use look-back periods of up to 12 months, rather than a shorter period as initially established — to average out how many hours an employee works per week, which is a necessity when calculating an employer’s obligation under reform’s play-or-pay provisions.
IRS Notice 2012-58 may help some employers escape erroneous shared-responsibility payments under health reform.
The health reform law requires employers with 50 or more full-time employees to offer adequate health coverage to employees and their dependents or pay a penalty. Employees are full-time if they work 30 hours or more a week. The provisions take effect on Dec. 31, 2013.
Safe Harbor for Ongoing Employees
If employers can show an employee averaged 30 hours a week looking over the previous three to 12 months (the “standard measurement period,” which the employer may choose), then the employee will be treated as an FTE during the subsequent “stability period.” The stability period will represent the average hours the employee is expected to work on an annual basis, and possible months with fewer than 30 hours a week will be disregarded. The look-back period is not to exceed 12 months, but it does not have to be the calendar year.
The stability period (over which the average will be projected) must be at least six months and it may not be longer than the look-back period.
Rules for New Employees
Employers that sponsor a creditable health plan and offer coverage within three months to all employees who are reasonably expected to perform as full-time employees will not be assessed shared responsibility payments.
For new employees, employers may use an “initial measurement period” that is different from the standard period the employer must use for all ongoing employees.
- If the employee is determined to be full-time, then the stability period must be longer than six months but no longer than the initial measurement period, and it must start at the conclusion of the initial period.
- If the employee is determined to be part-time, the stability period may be up to one month longer than the initial measurement period, at which point that employee will join up with the standard measurement period schedule.
Background
In Notice 2011-36, IRS promised it would describe a “look-back/stability period safe harbor” method that would allow employers to determine whether or not an employee is full-time. In Notice 2012-17 the agency said it would allow a look-back period of three to six months to calculate whether variable hour employees are on average full-time or part-time. The latest guidance extends that period to 12 months.
IRS Exception to 90-day Limit on Enrollment
The agency also unveiled a related exception to the requirement that coverage must be offered to newly hired full-time employees within 90 days.
Employers may hold off offering coverage for up to 12 months, the new exception states, until it becomes clear the employee worked enough hours a week to be considered full-time. This applies in cases where the full-time/part-time status is unclear, or conditioned on the worker’s performance or availability, the IRS explains in Notice 2012–59. The new exception is void if the employer merely attempted to circumvent the 90-day rule.
In Technical Release 2012-01, the U.S. Department of Labor suspended enforcement of the employer responsibility payments for group health plan sponsors that don’t cover an employee the first three months after his or her date of hire. If an employer fails to make an offer of coverage within 90 days, a shared-responsibility payment can be assessed.
See this section of Thompson Publishing’s The New Health Reform Law: What Employers Need to Know for more on the employer shared-responsibility mandate.