What is the definition of full-time employee that applies under the PPACA mandate that requires employers to pay penalties if they do not provide health coverage to full-time employees?
PPACA generally requires employers with an average of at least 50 full-time employees that do not offer minimum essential coverage to full-time employees and have at least one employee receive a federal tax credit for coverage through an Exchange to pay a $2,000 annual fee for each full-time employee (calculated on a monthly basis). The penalty is calculated based on number of full-time employees after subtracting the first 30.
In addition, employers with at least 50 full-time employees that offer minimum essential coverage to full-time employees (and dependents) and have at least one full-time employee receive a federal tax credit for Exchange coverage (because the employer coverage does not provide minimum value or is unaffordable), are required to pay the lesser of $3,000 for each full-time employee receiving the credit or $2,000 per employee for each full-time employee, after subtracting the first 30.
PPACA defines full-time employee for these purposes as an employee who works 30 hours or more per week with respect to any month. This statutory language suggests that the determination of full-time employee status – and application of the employer mandate penalties – could be required on a month-to-month basis. Employers and trade associations representing employers have noted that applying these rules on a monthly basis would cause practical difficulties and that in many circumstances it would be impossible to predict which employees would meet the full-time employee threshold for a particular month.
The IRS and Treasury recently released Notice 2011-36 (the “Notice”), which outlines potential approaches for determining full-time employee status and requests comments on these approaches (see Regulators Seek Employer Input on PPACA Provisions). The Notice also requests comments on coordination of the employer mandate with the PPACA prohibition on waiting periods of greater than 90 days. The Notice provides helpful insights as to how future regulations are likely to define the term “full-time” employee.
In outlining possible approaches for determining full-time employees, the Notice notes that determining full-time employee status on a monthly basis "may cause practical difficulties" including "uncertainty and inability to predictably identify" which employees are considered full-time. It then requests comments on a possible "look-back/stability period safe harbor" approach that would allow employers to look back to a 3-month to one year (as chosen by the employer) "measurement period" to determine full-time employee status for a subsequent "stability period," regardless of the employee's actual hours of service during the stability period. The stability period would be a period of from 6 to 12 months that generally would track the length of the measurement period. For new employees and employees moving to full-time status, the Notice indicates that the safe harbor may apply only in limited form and requests comments on determining full-time status for such employees. The Notice also asks for comments on other alternative methods of determining full-time status.
In addition, the Notice indicates that the 30 hours per week for any month definition of full-time employee will be reformulated as "130 hours of service per calendar month" in the proposed regulations.
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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.