This is the third of four weekly Affordable Care Act
("ACA") Employer Mandate Alerts. Each Alert
highlights a planning consideration related to the Affordable Care
Act's requirement to provide coverage to full-time employees
(and their dependents) or pay a penalty (the "Employer
Mandate"). In addition, each Alert links to a summary, in a
question & answer format, discussing the scope and implications
to employers of the legal rules governing the Employer
Mandate.
In this third Alert, we have a Q&A addressing the
following topic: "What Are the Safe Harbors for Determining
'Full-Time' Status?" The Q&As can be found by
clicking on the hyperlink below. A separate hyperlink is provided
for the overarching Affordable Care Act summary Jones Day published
in August 2012.
To comply with the Employer Mandate and avoid a penalty, a large
employer must offer coverage to full-time employees and their
dependents. "Full-time employee" is generally defined as
an employee who has 30 or more hours of service per week. Employee
status is determined based on a common law test.
Limiting Employee Hours
The news has highlighted stories about employers considering limiting employee hours to less than 30 per week to keep their employees from being treated as full-time for purposes of the Employer Mandate. Based on current guidance, this may be a viable option for reducing the potential Employer Mandate liability. Of course, employers will need to consider whether this is a realistic strategy from a business perspective. In addition, employers should be aware that certain nondiscrimination laws may impact whether and how employee hours can be limited. First, ERISA section 510 (29 U.S.C. § 1140) prohibits "discrimination against a participant ... for the purpose of interfering with the attainment of any right to which such participant may become entitled under the plan...." At present, there is no regulatory guidance on how this section may apply to employer actions to limit employee hours when they would cause the affected employees to lose eligibility to participate in the employer's group health plan. Second, under current nondiscrimination rules for self-insured health plans, employees who work at least 25 hours per week may need to be taken into account in determining whether the health coverage improperly discriminates in favor of highly compensated individuals. Therefore, in making decisions about limiting hours or limiting coverage to employees with certain hours, employers should consider the impact of applicable nondiscrimination rules.
Proper Employee Classification
In addition, because the Employer Mandate rules use the common
law standard to define who is an employee, employers should take
into account all individuals who meet this definition when planning
how they will comply with the rules. Employee classification issues
already arise in the labor and employment area (for example, with
respect to withholding and employment tax liabilities). The
Employer Mandate adds another layer of potential consequences to
how workers are classified. In addition, the Employer Mandate will
give the IRS a new reason to look at an employer's worker
classification decisions. Therefore, employers should review their
employee classifications with these additional consequences in
mind.
We hope you enjoy these Affordable Care Act Employer Mandate
Alerts, and the practical observations contained within them,
and find them useful to your health benefits planning.
Q&As on Deciding Whether to Play or Pay Under the Affordable Care Act
The Affordable Care Act at 2-1/2—What Employers Should Expect Now
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
