Among the many changes to employment policy and practice wrought by the Affordable Care Act (ACA), perhaps none is currently as hotly contested as the definition of “full-time employee” and the correlating “workweek.” Congress is considering amending the ACA to change what’s considered a “workweek” from 30 hours to 40 hours per week.
ACA and the full-time employee
When the ACA was passed on March 23, 2010, a “full-time employee” was defined as a worker who performs, on average, at least 30 hours of service per week, or 130 hours of service per month. “Hours of service” was defined to include not only hours worked but also hours accounted for by vacation time, holidays, time off due to illness or disability, jury duty, military duty, or leaves of absence. The information is used to determine whether an employer is a large employer subject to the ACA’s requirements.
If an employer is found to have 100 or more full-time employees or “full-time equivalents,” it will be subject to the ACA’s requirement that it offer all of those employees healthcare coverage that meets the standards of affordability and minimum essential coverage in 2015. The threshold will decrease in 2016 to 50 or more full-time employees or full-time equivalents. Employers that don’t comply with the ACA’s requirements are subject to penalties that could reach into the millions of dollars.
From ACA to SAWA
On January 8, 2015, the U.S. House of Representatives passed the Save American Workers Act of 2015 (SAWA) by a vote of 252-172. For purposes of the employer mandate to provide minimum essential healthcare coverage, SAWA would effectively amend the Internal Revenue Code to define “full- time employee” as someone who performs, on average, at least 40 hours of service per week.
Moreover, SAWA would change the ACA’s definition of “full-time employee” to an employee who “with respect to any month . . . is employed on average at least 40 hours of service per week.” Further, “full-time equivalents” would be redefined so that “an employer shall, in addition to the number of full-time employees for any month otherwise determined, include for such month a number of full-time employees determined by dividing the aggregate number of hours of service of employees who are not full-time employees for the month by 174.” If the changes are implemented, the number of full-time employees under the ACA would decrease, and many smaller companies that are on the cusp under the current definitions of full-time employee and full-time equivalents would be exempt from the law’s provisions.
SAWA is now before the Senate Committee on Finance. The Senate is expected to review and make a decision on the legislation in the near future. However, President Barack Obama has made it clear that he will veto any bill that changes the ACA’s current definition of full-time employee.
Similar legislation stalled in the Senate
The day before the SAWA passed in the house, the Forty Hours is Full Time Act of 2015 (FHFTA) was introduced in the Senate. Like the SAWA, the FHFTA would amend the definition of a “full-time employee” under the ACA to an employee who works an average of 40 hours per week. Currently, the bill has been referred to the Senate Finance Committee.
Why does it matter?
According to July 2014 Congressional Budget Office (CBO) estimates, if the ACA’s definition of full-time is changed from 30 hours to 40 hours, the federal budget deficit would increase by $45.7 billion from 2015 to 2024 because of lost penalties and uncollectable taxes. The CBO has also predicted that the U.S. economy will have the equivalent of 2.3 million fewer full-time workers by 2021, a loss that’s three times higher than previous estimates, as employers continue to transition their workforces to more part-time employees to avoid the ACA mandates.
The true repercussions of the proposed change in the definition of full-time employee on the American workforce and the economy cannot be accurately predicted at this juncture. Nevertheless, any changes would have a far-reaching impact on the way employers administratively track their employees as well as the way in which workforces are constructed in the future.