In our latest installment of Ask the Expert, brought to you by the team of industry experts at HR Hero®, we look at a recent question from a subscriber regarding benefits eligibility and requirements for temporary, full-time employees who are working as part of an internship program. Let’s see what our team of experts have to say…
Q: We have hired an intern for a set period of time, working full-time from May through July. Would they be eligible for any type of benefits (holidays, PTO, 401K, healthcare) during their internship?
A: Many employers hire students and/or temporary employees to work for specific periods of time (e.g., a semester, or several weeks to several months depending on a temporary project). Employers generally consider these employees to be temporary and not eligible for benefits.
There are, however, exceptions.
Paid interns who work 30 or more hours per week are considered full-time employees for Affordable Care Act (ACA) purposes. The ACA’s individual coverage mandate included a special exemption for “teachers and trainees” on a J-1 visa, but the employer mandate does not.
Therefore, if an employer is an applicable large employer (ALE) under the ACA (50+ full-time or full-time-equivalent employees), it generally must offer paid interns affordable, minimum value coverage or else face “shared responsibility” penalties. (Unpaid interns need not be offered coverage.)
If an intern is hired on a seasonal basis, the employer may use the special calculation method for determining whether seasonal employees are considered full-time. Employees are considered seasonal if their employment is expected to last 6 months or less, and the job typically starts and ends at about the same time each year. See the ACA analysis. In applying the definition of seasonal employee, whether the employee holds any particular visa is not relevant, the IRS has indicated.
For a new seasonal employee, an employer may use an initial measurement period of between 3 and 12 months, beginning on the employee’s start date or any date up through the first day of the first calendar month after the employee’s start date. The employer measures the new employee’s hours of service during the initial measurement period and determines whether the employee was employed on average at least 30 hours of service per week during this period.
In practice, this may mean that a one-time 3-month intern will not need to be offered coverage because their employment ends before the employer determines whether coverage is required. This assumes the employer is using the look-back measurement method, however. If the monthly measurement method is being used instead, paid interns must be offered coverage for the months they work full-time, instead a waiting period is still in effect (the ACA allows up to 90 days).
The terms of the J-1 visa program require that exchange visitors have medical insurance meeting certain thresholds (see the State Dept. website). This requirement is often met by specialized insurance products that would not necessarily meet ACA requirements, if they apply. However, some employers do offer health coverage that meets both J-1 and ACA requirements.
Outside the ACA context, there isn’t a lot of specific benefits guidance on seasonal employees. These employees may be offered a different level of coverage from other employees, because seasonal status is considered a bona fide employment-based classification under HIPAA’s nondiscrimination rules. (This can include a longer waiting period, provided it doesn’t exceed the 90 days allowed by the ACA.) Seasonal employees also can be excluded from the calculation when testing a health plan for income discrimination.
An employee must be allowed to participate in the employer’s 401(k) plan if the individual is at least 21 years old and completed one year of service. Therefore, it does not appear that short-term interns must be offered the 401(k) benefit. If you wish to exclude such individuals, however, make sure that is reflected in the plan document.
Private employers are not required to observe national holidays, except for banks that follow the closing schedule of the Federal Reserve Board. Granting paid time off for holidays in private employment is more a matter of custom and union contract negotiation than law.
Paid Time Off (PTO)/Vacation
There is no federal law that requires private employers to grant their employees vacation time. However, state laws may be another story.
For example, in Massachusetts if employers “promise” vacation, they are legally bound to provide it. Massachusetts courts have ruled that, under some circumstances, an employer’s assurance of paid vacation time, whether made in an employee handbook, given orally, or simply understood as a matter of common practice, may constitute an implied contract, which is binding and enforceable upon the employer. Additionally, under Massachusetts law, “wages” include vacation if the employer provides or has promised paid vacation. Thus, if an employer does provide or promises paid vacation, an employee who leaves the company must be paid for accrued, unused time. Accrued vacation time may not be forfeited.
The state Attorney General’s Division of Fair Labor and Business Practices has issued an advisory on employer vacation policies. The advisory notes that employers are free to devise their own system for vacation accrual. There are several different commonly used options for accrual:
- On a monthly basis
- On a pay-period basis
- Upon completion of a 6-month or 12-month period
The advisory also clarifies that accrued vacation may not be forfeited, nor can the accrual policy result in forfeiture. It is important to be clear and unambiguous when drafting such policies. Any vagueness in the policy is likely to be construed against the employer.
Employers may cap the amount of vacation allowed to be earned and may institute “use it or lose it” policies, but such policies must be written and clear. Also, employees must be provided with plenty of notice so that they have time to use accrued vacation. Changes to the policy must be made prospectively (Advisory 99/1).
Go By the Book
Finally, a company should review its policies and benefit plan documents to determine whether it is required to provide benefits to temporary employees and interns. The plan should define the criteria for eligibility for benefits. If an intern or temporary employee is not eligible for benefits, it is a good idea to state this in an offer letter to avoid any confusion or misunderstanding.
Keep in mind that even though an intern or temporary employee will only be working for a few months, the company must comply with employment laws including the wage and hour rules related to overtime.
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