SECOND OPINIONS: Employer Shared Responsibility Requirements Proposed Regs – Part II

January 30, 2013 (PLANSPONSOR.com) - Treasury and the IRS recently published proposed regulations (78 Fed. Reg. 217 (January 2, 2013)) and new question and answer guidance on the employer "shared responsibility" requirements under Code section 4980H.
By PS

Below we address additional questions we have received from employers on these new requirements.   

What look-back period rules may be used for ongoing employees? 

An employer may look back over a standard measurement period of 3 to 12 months to determine whether an ongoing employee (i.e., one who has been employed for at least one standard measurement period) was employed on average at least 30 hours of service per week.  Employers may make certain adjustments at the beginning and end of the standard measurement period to accommodate weekly, bi-weekly or semi-monthly payroll periods.  If an ongoing employee works on a full-time basis during the measurement period, then the employer must treat the employee as full-time for a subsequent standard stability period of at least 6 consecutive calendar months (or, if longer, the length of the standard measurement period).  If an ongoing employee did not work on a full-time basis during the measurement period, then the employer may treat the employee as not full-time for a subsequent stability period the maximum length of which may not exceed the length of the standard measurement period. 

 

What look-back period rules may be used for new employees? 

The proposed regulations define “new employee” as an employee who has been employed for less than one complete standard measurement period.  In the case of a new employee who, at his or her start date, is reasonably expected to be employed on average 30 hours of service or more per week (and is not a seasonal employee), an employer must offer minimum essential coverage (that provides minimum value and satisfies the affordability requirements) at or before the end of the employee’s first three months of employment in order to avoid penalties.    

In the case of a new variable hour or seasonal employee, an employer generally may look back over an initial measurement period of 3 to 12 months that begins on any date between the employee’s start date and the first day of the first calendar month following the employee’s start date to determine whether the employee was employed on average at least 30 hours of service per week.  A variable hour employee is defined as an employee for whom the employer is unable to determine, at his or her start date, whether he or she is reasonably expected to be employed on average at least 30 hours per week.  The term seasonal employee is not defined in the proposed regulations, and employers may use a reasonable, good faith interpretation of the term seasonal employee until further guidance.  The preamble to the proposed regulations indicated that Treasury and IRS may adopt a specific time limit (e.g., up to 6 months)) for “seasonal” in future guidance.  

If a new variable hour or seasonal employee worked on a full-time basis during the initial measurement period, the employer must treat the employee as full-time for a subsequent stability period that must be at least 6 months and is no shorter than the initial measurement period.  If such an employee did not work on a full-time basis during the initial measurement period, the employer may treat the employee as not full-time during a subsequent stability period that must be not more than one month longer than the initial measurement period and must not exceed the remainder of the standard measurement period (plus any administrative period) in which the initial measurement period ends. 

An optional administrative period may be used before or after initial measurement period.  The administrative period cannot exceed 90 days and cannot reduce or lengthen the measurement or stability period.  The administrative period must overlap with the prior stability period (i.e., an ongoing employee enrolled in coverage because of his full-time status in a prior measurement period must continue to receive coverage).  The initial measurement period and administrative period combined may not extend beyond 13 months and a fraction of a month (i.e., beyond the last day of the first calendar month beginning on or after the employee’s first year anniversary).

Can an employer use look-back periods of varying lengths for different groups of employees?     

In general, the measurement, stability, and administrative periods must be uniform lengths for all employees.  An employer may, however, vary the period lengths for the following categories of employees:   

  • Each group of collectively bargained employees covered by a separate collective bargaining agreement; 
  • Collectively-bargained and non-collectively bargained employees; 
  • Salaried and hourly employees; and 
  • Employees whose primary places of employment are in different states. 

 

Are there any rules on changes in employment status in the proposed regulations? 

The proposed regulations provide that if a new variable hour or seasonal employee experiences a change in employment status (i.e., a material change in the position of employment or other employment status) during the initial measurement period that, had the employee begun employment in such new status, would have resulted in the employee being reasonably expected to be employed on average at least 30 hours a week, the employee generally will be treated as a full-time employee on the first day of the fourth month following the change in employment status (or, if earlier and the employee averaged more than 30 hours of service during the initial measurement period, the first day of the first month following the end of the initial measurement period and any administrative period).  This rule does not apply to ongoing employees.  

 

Got a health-care reform question?  You can ask YOUR health-care reform legislation question online at http://www.surveymonkey.com/s/second_opinions    

You can find a handy list of Key Provisions of the Patient Protection and Affordable Care Act and their effective dates at http://www.groom.com/HCR-Chart.html     

Contributors:  

Christy Tinnes is a Principal in the Health & Welfare Group of Groom Law Group in Washington, D.C.  She is involved in all aspects of health and welfare plans, including ERISA, HIPAA portability, HIPAA privacy, COBRA, and Medicare.  She represents employers designing health plans as well as insurers designing new products.  Most recently, she has been extensively involved in the insurance market reform and employer mandate provisions of the health-care reform legislation.  

Brigen Winters is a Principal at Groom Law Group, Chartered, where he co-chairs the firm's Policy and Legislation group. He counsels plan sponsors, insurers, and other financial institutions regarding health and welfare, executive compensation, and tax-qualified arrangements, and advises clients on legislative and regulatory matters, with a particular focus on the recently enacted health-reform legislation.  

PLEASE NOTE:  This feature is intended to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. 

«