Below and in our next installment we respond to questions we have received from employers regarding this new guidance.
What guidance is provided in Notice 2012-58?
Notice 2012-58 generally describes certain safe harbor, look-back methods employers may use to determine which employees are “full-time employees” (i.e., those who work an average of at least 30 hours per week) who must be offered “minimum essential coverage” that satisfies certain affordability and minimum value requirements in order for the employer to avoid possible penalties under new Internal Revenue Code section 4980H. In doing so, it modifies and expands upon the guidance and safe harbors previously provided in earlier IRS guidance (IRS Notices 2011-36 and 2012-17). Most notably, the new guidance for the first time permits employers to use an up to 12-month look-back period to determine the status of new “variable hour” or “seasonal” employees. It also permits the use of certain “administrative periods” between the look-back period (referred to as a “measurement period” in the Notice) and the associated “stability period.”
What are the definitions of variable hour and seasonal employees for purposes of this new look-back guidance?
Notice 2012-58 provides generally that a new employee is a “variable hour employee” for these purposes if, based on the facts and circumstances at the date of service commencement, it cannot be determined that the employee is reasonably expected to work an average of 30 hours or more per week. It also provides that through at least 2014, employers may use a reasonable, good faith interpretation of the term “seasonal employee” for purposes of the new employee look-back rules.
What look-back rules apply to new variable hour and seasonal employees?Notice 2012-58 provides generally that an employer that offers a group health plan that limits eligibility for coverage to employees who are full-time may use an “initial measurement period” of between three and 12 months to determine if a new variable hour or seasonal employee averaged 30 or more hours of service per week during that period. If such a new employee is determined to work on a full-time basis during the initial measurement period, the employer must treat the employee as a full-time employee during a “stability period” that is the same length as the stability period under the look-back rules for ongoing employees and is at least six consecutive calendar months (but no shorter than the initial measurement period). If a new employee is determined not to work on a full-time basis during the initial stability period, the employer may classify the employee as not a full-time employee during a stability period that is not more than one month longer than the initial measurement period and does not exceed the remainder of the standard measurement period (plus any associated administrative period) in which the initial measurement period ends.
Do these look-back rules apply with respect to newly-hired employees who are reasonably expected to work on a full-time basis when they are hired?
No. Under the IRS guidance, it appears that new employees who are reasonably expected at their start date to work on a full-time basis generally must be offered coverage within three calendar months of employment for the employer to avoid the possibility of penalties under the employer mandate rules. Notice 2012-58 provides that an employer that offers coverage that is affordable and provides minimum value (as determined under the ACA employer mandate rules) to a new employee who is reasonably expected at his or her start date to work full-time before the end of the employee's first three calendar months of employment will not be subject to the employer mandate tax penalties.
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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.