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Relief from Potential Penalties in the Affordable Care Act

Many “large” employers may be subject to penalties when their employees purchase coverage on the Exchange. Some of you currently don’t offer coverage and are concerned about the $2,000 per person penalty for each full-time employee (after the first 30), others may be concerned that their coverage may be deemed “unaffordable” and be penalized $3,000 for each person who accesses coverage and credits on the Exchange.

Guidance (Notice 2012-58) recently released by HHS outlines options for employers who have employees that are not easily identified as full-time due to their work hours and schedules. You are familiar by now with the definition of a Full-Time Employee (reasonably expected to work on average at least 30 hours per week). A new Employee definition has been introduced in this guidance: a “Variable Hour” employee is one whom you cannot determine is reasonably expected to work on average at least 30 hours per week. This is important for employers who have work forces with more than 50 Full-Time Equivalent employees who could be subject to penalties for failing to offer affordable health coverage.

If you have been struggling to figure out how you will comply with the employer mandate to offer coverage because you have employees who vary their hours frequently, such has in the retail and restaurant industries, this guidance may provide some relief from penalties.

Here are some new terms:

Variable Hour Employee: an employee whom you cannot determine is reasonably expected to work on average at least 30 hours per week.

Initial Measurement Period: The period of time a new employee’s hours will be averaged to establish if they are Full Time or not. This may also be referred to as the “look-back period”.

Standard Measurement Period: The period of time you will use each year to establish who is full-time after the Initial Measurement Period for new hires. This may also be referred to as the “look-back period”.

Stability Period: The period of time after a Variable Hour Employee must be offered coverage, regardless of hours, after the Measurement Period.

Administrative Period: time between full-time determination after measurement period and before coverage is effective.

For employees identified as “Variable Hour”, you will need to measure their hours over an Initial Measurement Period of 3-12 months. If the average is over 30 hours per week, you will need to offer benefits for the greater of 6 months or the Measurement Period, regardless of what their average hours may change to. You can have an Administrative Period of up to 3 months plus a partial month following the Measurement Period as long as the benefits are effective within 13 months of the beginning of the Measurement Period.

For example: If you hire someone with uncertain hours on 10/8/2012, you could average their hours over 12 months and benefits would have to be offered by 12/1/2013 for the following 12 months if the average was over 30 hours per week, regardless of the average hours during this “Stability” period.

Following the “Initial Measurement Period” and the initial “Stability Period”, you can establish a “Standard Measurement Period” equal to the same length of time as your Initial Measurement Period. Most companies who choose a 12 month measurement period, will likely use the Standard Measurement period as October 1 through September 30th with benefits offered effective January 1st each year for 12 months for those identified as eligible based on upon their average hours.

My recommendation is that plans establish Measurement Periods of 12 months and Stability Periods of 12 months for those employees that they do not initially identify as Full-time. This will allow for some natural culling as turnover is usually high during this initial period. Then an annual Standard Measurement Period of 12 months should be established 3 months prior to the plan anniversary date. This will allow the communications to be combined with the standard open enrollment messaging for long term employees in this category.

The guidance does allow for multiple methods of establishing Measurement Periods and Stability Periods based upon varying categories of employees including:

1) Collectively bargained employees and non-collectively bargained employees;

2) Salaried employees and Hourly employees;

3) Employee of different entities; and

4) Employees located in different States

Please note that employers can still identify employees as “Full-Time” for eligibility to begin based on the plan eligibility which cannot be more than 90 days beginning 1/1/2014.

The options described here for “Variable Hour” employees will be particularly attractive to those businesses who have established much longer waiting periods than 90 days because of the amount of turnover they currently have. Keep in mind that scheduling will be an important initial determining factor as if you schedule someone to work from 8 to 5 Monday through Friday, it should reasonably be determined that this is a Full-Time Employee anticipating working at least 30 hours per week.

If you are concerned about how you will count, track and manage the complicated reporting requirements included in the Affordable Care Act, call Tilson at 800.276.3976. We can provide you consulting and outsourcing options so you can focus on the business of your business and get a step ahead.

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