Benefits

Ask the Expert: Managing Benefits for Employees with Fluctuating Hours

Question: How should we handle new employees if their hours aren’t what we had planned. For example – if we hired someone for full-time and offered them insurance after their waiting period, but then realize a few months later that that person was not working 30 hours per week. Since there is no look back period to look at, what do we do with that? Or vice versa – we hired an employee as part-time and they had been averaging over 30 hours/week. How do we administer their benefits?

Answer from the experts at HR Hero:

When a new employee is hired, an applicable large employer (ALE) must make a reasonable determination whether the employee is and is expected to remain full-time. Once a new employee who is reasonably expected at the employee’s start date to be a full-time employee (and is not a seasonal employee) becomes an ongoing employee, the following rules apply:

Employers generally may use a safe-harbor method that includes a measurement period selected by the employer, referred to as the “standard measurement period” (26 CFR 54.4980H-3(d)(1)).

The standard measurement period is a defined time period of at least 3, but not more than 12, consecutive calendar months chosen by the employer. An ongoing employee is generally an employee who has been employed by the employer for at least one complete standard measurement period.

Under the safe-harbor method for ongoing employees, an employer determines each ongoing employee’s full-time status by looking back at the standard measurement period. The employer has the flexibility to determine the months in which the standard measurement period starts and ends as long as the determination is made on a uniform and consistent basis for all employees in the same category.

If the employer determines that an employee averaged at least 30 hours per week during the standard measurement period, the employer treats the employee as a full-time employee during a subsequent stability period, regardless of the employee’s number of hours of service during the stability period, as long as he or she remains an employee.

For an employee whom the employer determines to be a full-time employee during the standard measurement period, the stability period is a period of at least 6 consecutive calendar months that is no shorter than the standard measurement period and that begins after the standard measurement period and any applicable administrative period.

Employee Starts Part-Time

Conversely, if the employee starts out part-time, or if his her ultimate status is uncertain (variable-hour), the employer may determine whether the new employee is a full-time employee using an initial measurement period of between 3 and 12 months (as selected by the employer) (26 CFR 54.4980H-3(d)(3)).

This period begins on the employee’s start date, or any date up to and including the first day of the first calendar month following the employee’s start date (or the first day of the first payroll period starting on or after the employee’s start date, if later). The employer measures the hours of service completed by the new employee during the initial measurement period and determines whether the employee completed an average of 30 hours of service per week or more during this period.

The stability period for such employees must be the same length as the stability period for ongoing employees. As is the case with a standard measurement period, if an employee is determined to be a full-time employee during the initial measurement period, the stability period must be a period of at least 6 consecutive calendar months that is no shorter in duration than the initial measurement period. The stability period must begin immediately after the end of the measurement period and any applicable administrative period.

If a new variable-hour, seasonal, or part-time employee is determined not to be a full-time employee during the initial measurement period, the employer is not required to treat the employee as a full-time employee during the stability period.

Finally, the employer also may apply an administrative period of up to 90 days before the start of the stability period. For this purpose, the administrative period includes all periods between the start date of a new variable-hour, seasonal, or part-time employee and the date the employee is first offered coverage under the employer’s group health plan, other than the initial measurement period.

Due to the complexity of interaction between these various measurement periods, if additional guidance is needed, your client may wish to consult with local benefits counsel to ensure that the chosen initial measurement periods and following stability periods are effective, consistent, and compliant.