The future of Obamacare no longer hangs in the balance. With the president’s reelection and Democrats retaining control of the Senate, the major parameters of the law will be retained.
The reforms scheduled to take effect in 2014 contain some positive regulatory developments concerning the employer mandate. You and your clients should take immediate note.
To refresh your recollection, beginning Jan. 1, 2014, the Affordable Care Act requires that all “large” employers offer “affordable coverage” to their “full-time employees” or pay a tax penalty of $2,000 to $3,000 per employee. A “full-time employee” is defined under the legislation as any employee who works more than 30 hours a week.
Determining the application of the mandate requirements is anything but straightforward. For example, a “large” employer is any employer who employs more than 50 full-time workers or full-time employee equivalents. There is a statutorily prescribed formula for converting part-time employee hours into “full-time equivalents.”
“Seasonal workers” (defined as workers who work fewer than 120 days per year and who fall within yet-to-be-prescribed permissible “seasonal worker” job classifications) are exempt from this calculation. But if you are a “large” employer subject to the mandate requirements, nothing in the statute exempts seasonal workers from the mandate’s coverage and penalty regime.
In an early set of implementing regulations, the Internal Revenue Service, which is charged with enforcing the mandate, dictated that the full-time employee assessment would be made retroactively on a month-by-month basis. A prorated portion of the annual penalty would have to be paid for any employee who worked “full-time” in any calendar month who did not receive an offer of affordable coverage.
For companies that maintain large part-time workforces, the retrospective nature of this assessment would have required very careful management to ensure the penalties could be avoided. Seasonal workers faced an even more daunting prospect because it was likely that employers would have been confronted with the mandate requirements for the parts of the year when they employed seasonal workers.
This fall the IRS finalized a safe harbor option that should greatly alleviate compliance issues, at least for now. The IRS notes in its guidance that employers can rely on it at least through 2014, which suggests the agency is reserving the right to later change the rules.
In essence, the guidance allows an employer to look back over a three- to twelve-month “measurement period.” Any employee who worked fewer than 30 hours per week, on average, over the course of that period would be classified as part-time. The worker would not be subject to the mandate’s requirements for a “stability period” for at least six months.
The rules require employers to apply periods uniformly but permit different periods to apply to:
- Collectively bargained employees and non-collectively bargained employees
- Salaried employees and hourly employees
- Employees of different entities and
- Employees of one employer located in different states.
Although the lexicon is a bit opaque, the rule should help because it addresses two primary problems with the initial mandate.
First, there will be no penalties for increased deployment of a part-time employee on a sporadic basis under the safe harbor. The safe harbor permits an employer to treat an employee that was, on average, part-time during the measurement period, as part-time during the entire stability period. This is regardless of how much the individual actually worked during the stability period (provided there has not been a job change into a full-time position).
Second, the safe harbor should go a long way toward alleviating seasonal worker mandate compliance issues because it will allow the seasonal worker’s hours to be averaged over the entire measurement period. This includes portions of the period when the seasonal worker may not be employed at all.
The IRS established a similar set of safe harbor rules for new employees (essentially allowing an employer either to make a good-faith classification of a new hire or to employ an initial measurement period methodology). The IRS also “clarified” that no mandate requirements apply to new hires during any initial waiting period. This is provided that the waiting period does not exceed 90 days (the ACA statutory maximum). Although you would think this should be self-evident, it was not, and this issue created a lot of analyst commentary and concern.
These developments obviously are no panacea. For example, if you have seasonal workers who work eight months a year for 60-70 hours per week, they will not be exempt from the mandate. But the safe harbor rules should be very helpful to a good swath of those who employ part-time and/or seasonal employees.
To best take advantage of these opportunities, your affected clients will be well served to evaluate and implement a safe harbor regime, and sooner rather than later.