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Smart Benefits: New Full-Time Status Calculation Full of Confusion

Monday, December 24, 2012

 

Starting January 1, 2014, large employers with 50 or more full-time equivalent employees must offer full-time employees and their families health coverage. But what defines full-time under the new system?

Determining full-time status for employee health benefits may prove to be a full-time job for employers. That’s because the formula for measuring this status is about to get a lot more complicated.

Starting January 1, 2014, in conjunction with the advent of the state healthcare exchanges, large employers with 50 or more full-time equivalent employees must offer full-time employees and their families health coverage that is affordable and with a certain minimum value – or face possible penalties. 

What is Full-Time?

Employers will no longer be able to set their own parameters for full-time status. Instead, the federal government will require that employees who average at least 30 hours of service per week be considered full time.

As a result, employers who currently define full time as 31 or more hours, as many do, may add more healthcare costs to their bottom line. Employers in industries with high seasonality such as the marine industry, hospitality and tourism, restaurants and healthcare institutions will be most impacted.

Be Mindful of Measurement

The IRS has issued specific guidance for determining full-time status.

  • Ongoing Employee: Employers must select a fixed 3-12 month standard “measurement period” to use for determining whether each employee averaged at least 30 hours of work per week. The measurement period an employer chooses may vary depending on industry seasonality and turnover rates.

Once employees are designated as full time during the measurement period, employers must set a “stability period” – the greater of six consecutive months or the same number of consecutive months as the measurement period – during which coverage must be provided, even if the employees don’t work full time then.

To help employers determine who is eligible, employers can use an optional administrative period – up to 90 days between the end of the measurement period to the start of the stability period – during which to give employees the chance to enroll.  

  • New Employees: Slightly different formulas apply for new hires. The employer must establish an “Initial Measurement Period,” between three and 12 months to determine the employee’s initial eligibility. Once a new employee is deemed full time and eligible for coverage, the employer will need to measure their status going forward under the standard measurement period above.

Even though these time periods must be applied uniformly, different time periods can be used for different classes of employees such as union versus nonunion, salaried versus hourly, or for employees in different divisions or states.

Safe Harbor Protections

The IRS applies safe harbors that allow employers to avoid paying shared-responsibility penalties. Under the safe harbor rules, employers can use a look-back measurement period of up to 12 months to determine whether new variable hour employees or seasonal employees are full-time employees.

No Waiting Allowed

Employers will not be allowed to have waiting periods for benefits that exceed 90 day periods. Employers will need to determine if they use an employee’s actual start date or the first calendar month after that date to trigger the waiting period – the latter easier administratively for employers with high turnover since there will only be 12 dates to administer.

Start Tracking Today

Employers need to start planning now to determine the appropriate measurement periods. Employers who renew coverage on January 1, 2014, should consider planning for the first stability periods to coincide with that date and offer the coverage to newly eligible employees for a stability period that starts January 1, 2014. 

Employers who want assistance with tracking should connect with payroll companies. And benefit advisors can assist companies in understanding the new regulations to ensure they don’t face fines. Because the full-time status determination may be the most time-consuming, and costly, piece of healthcare reform yet.

Amy Gallagher has over 19 years of healthcare industry experience. As Vice President at Cornerstone Group, she advises large employers on long-term cost-containment strategies, consumer-driven solutions and results-driven wellness programs. Amy speaks regularly on a variety of healthcare-related topics, is a member of local organizations like the Rhode Island Business Group on Health, HRM-RI, SHRM, WELCOA, and the Rhode Island Business Healthcare Advisory Council, and participates in the Lieutenant Governor’s Health Benefits Exchange work group of the Health Care Reform Commission.

 

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