In recent weeks, NRPA members have shared with us concern about the requirements regarding the hiring of seasonal employees contained in the new healthcare law, the Patient Protection and Affordable Care Act (PPACA; Pub. L. No. 111-148).
As originally written, the PPACA would have required employers, including local governments, to offer and provide health insurance to full-time seasonal employees or pay a significant penalty. With such broad-reaching economic effects, this requirement could have led local governments to reduce the number of seasonal employees or the number of hours worked by those employees in order to avoid providing insurance. A reduction in staff or hours could negatively affect an agency’s ability to provide services. Fortunately, the Internal Revenue Service recently released favorable guidance for employers who hire seasonal employees.
Before diving into the IRS regulations, it is important to understand the process involved in implementing the 2,500-page PPACA. In some areas, the legislation is specific, such as defining full-time as 30 or more hours per week. On the other hand, as is generally the case with legislation, some provisions of the bill were less prescriptive and intentionally structured to require interpretation by federal agencies. The PPACA designates Health and Human Services, Labor, Treasury, and the IRS as the primary agencies responsible for enforcing, interpreting, and implementing various sections of the law.
The text of the PPACA left many questions unanswered, making agency interpretation and regulation regarding compliance an extremely complex undertaking. Despite its importance, agency guidance was delayed when the Supreme Court reviewed a case challenging the constitutionality of the law. Now that the law has been upheld as constitutional, we are starting to see the release of much-needed guidance.
Employers, in determining whether they are in compliance with the law, need to take two separate steps. First, the employer must determine whether it is a “large employer” for purposes of the Act. Second, if the employer is determined to be a “large employer,” then the employer must determine whether it is offering and providing insurance to those employees eligible to receive health insurance. If the employer is found not to be offering and providing insurance in compliance with the Act, the employer will be assessed a monthly penalty.
How Large is Large?
The PPACA uses several calculations to determine who must comply with new coverage mandates. It requires “large employers,” those who employed 50 or more full-time or full-time equivalent employees during the preceding calendar year, to offer all full-time employees and their dependents affordable and comprehensive health insurance, as defined by the Act. For purposes of the Act, “full-time employees” are those who work an average of 30 or more of hours per week in any month. In making the “large employer” determination, an employer must include in its calculation seasonal employees who work 120 days or more per year, and must use a specified formula to calculate the number of “full-time equivalent” employees based on the number of hours worked by all part-time employees.
Beginning in 2014, if a large employer fails to offer or provide affordable and comprehensive health insurance to all full-time employees and their dependents, it will incur a penalty if one or more full-time employees receive a “premium tax credit” to assist the employee with paying for health insurance. Note that PPACA stipulates that employers need to offer and provide insurance only to full-time employees. Therefore, employers are not required to offer or provide health insurance to part-time employees and are not at risk for being assessed a penalty if a part-time employee receives a “premium tax credit.”
It is also important to note that the PPACA applies to local governments in the same manner as it does to private-sector employers, and it is likely that most local governments would qualify as “large employers,” thereby making them subject to a penalty for failure to offer or provide full-time employees with affordable and comprehensive health insurance. While employers will not begin to incur a penalty for noncompliance until January 2014, the determination of which employers are subject to the penalty will be based on the number of employees employed by the employer in 2013.
So, even if an employer knows that an employee has insurance through another means, the employer will need to offer that employee insurance and then follow the administrative procedures set forth in the law to report that the employee was offered insurance but chose to decline. Finally, the insurance that employers provide to their employees must meet certain standards—it must be “affordable and comprehensive” as defined by the law.
Full-Time Seasonal Employees
Once an employer determines it is a “large employer,” the next step is to ensure it is providing insurance to all employees eligible for health insurance. The PPACA, as written, appeared to require employers to offer insurance to full-time seasonal employees who work 120 days or more during the year. It further requires that the employee be offered the insurance within the first 90 days of that employment. So, this meant that a seasonal employee who was hired to work for 120 days and worked an average of 30 hours per week would need to be offered insurance on the 90th day of his or her employment and would then be eligible for health insurance benefits for 30 days. In addition to the obvious administrative nightmare and cost associated with insuring an employee for 30 days, this provision also subjected employers to obligations under the Consolidated Omnibus Budget Reconciliation Act (COBRA) upon the termination of the employee’s employment, thereby creating more administrative burdens.
Fortunately, recently released IRS guidelines (IRS Notice 2012-58; www.irs.gov/pub/irs-drop/n-12-58.pdf) grant employers much reprieve. These guidelines allow employers to use a “lookback/stability period” safe-harbor method to determine whether a seasonal employee is a “full-time employee,” and is thereby required to be offered and provided health insurance. Under this method, the determination as to whether an employee must be offered and provided health insurance is no longer based on the 120-day threshold, and employers are no longer required to offer employees health insurance on or before day 90.
Instead, employers may now create their own “defined measurement period” which can span between three and 12 months, and will be used to determine an employee’s full-time status. Employers have the flexibility to determine the start and end months for the defined measurement period. An employee who averages at least 30 hours of work per week during the measurement period will be considered a full-time employee; however, employers will not be required to offer health insurance during the measurement period.
All measurement periods are immediately followed by a “stability period,” and an employee determined to be full time during the measurement period would be treated as a full-time employee during the stability period, regardless of the number of hours the employee worked during the stability period. So, during the stability period, an employer would need to offer health insurance benefits to those employees determined to be full time during the measurement period even if the employee worked fewer than 30 hours per week during the stability period. If an employee was not a full-time employee during the measurement period, he/ she will not be treated as a full-time employee during the stability period. If the employer’s measurement period was between three and six months, then the subsequent stability period must be a period of six consecutive calendar months. For measurement periods in excess of six months, the stability period must be consecutive calendar months equal to the number of months in the measurement period.
This new approach is beneficial for employers with such seasonal employees as lifeguards and camp counselors since it allows employers to set the period of time used to calculate the employee’s average weekly hours. For example, suppose an individual works 540 hours during the course of 126 days (18 weeks or just over four months). Because this averages 30 hours per week, the individual would be considered a full-time employee. Under the new method, even though the employee only worked a little more than four months, the employer may choose to use a measuring period of six months (26 weeks) in order to calculate the employee’s average weekly hours. Doing so based on the employee’s 540 total hours would yield an average of approximately 21 hours per week, and would relieve the employer from having to offer or provide health insurance.
Keep in mind that because of the complexity of the legislation, the development of the final law really is a work in progress. In fact, the federal agencies with jurisdiction over the PPACA have already indicated we can expect future changes to the guidelines they have recently published. The good news, however, is that the IRS has stated that employers may rely on the guidance provided in Notice 2012-58 regarding seasonal employees through the end of 2014.
Nothing in this article should be construed as legal advice or a legal opinion. NRPA members are strongly encouraged to consult their attorneys and human resources professionals when interpreting relevant provisions of law or determining compliance strategies.
Stacey L. Pine is NRPA's Vice President of Government Affairs.