IRS issues additional PPACA guidance on identifying full-time employees.

• Author: O'Malley, William P.
• Position: Patient Protection and Affordable Care Act

In Notice 2014-49, the IRS provided employers with helpful guidance regarding situations where an employer changes the measurement period or method it uses for determining if a variable-hour or part-time employee has become a full-time employee. In addition, the IRS asked for comments about whether the methods outlined in the notice should be applied to merger-and-acquisition (M&A) situations.

Under Sec. 4980H(a), an applicable large employer potentially will be liable for an employer shared-responsibility payment if (1) the employer does not offer health coverage to substantially all of its full-time employees and the dependents of those employees, and (2) at least one of the full-time employees receives a premium tax credit or cost-sharing reduction. In addition, if an employer offers health coverage to substantially all of its full-time employees, but at least one full-time employee receives a premium tax credit or cost-sharing reduction because the employer did not offer coverage to that employee or offered coverage to that employee that was unaffordable or did not provide minimum value, an assessable payment under Sec. 4980H(b) will apply.

Identification of Full-Time Employees

To comply with the employer shared-responsibility rules of Sec. 4980H and the related health insurance coverage reporting requirements of Sec. 6056, as enacted by the Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, an employer must be able to identify its full-time employees. For these purposes, Sec. 4980H(c)(4) provides an employee is a full-time employee for a calendar month if he or she averages at least 30 hours of service per week. Alternatively, under Regs. Sec. 54.4980H-1(a)(21)(ii), an employer may use 130 hours of service in a calendar month as the monthly equivalent of 30 hours of service per week. For many employers, this process is fairly straightforward; however, for employers that employ a large number of non-full-time, variable-hour, or seasonal employees, determining full-time employees presents a challenge.

Regulations

In February 2014, the IRS issued final regulations (T.D. 9655) on the Sec. 4980H employer shared-responsibility requirements. The regulations provide two methods for determining whether an employee has sufficient weekly or monthly hours of service to be considered a full-time employee. The first method is the monthly measurement method, which requires an employer to determine each employee's status as a full-time employee for a month by counting the employee's hours of service for the particular month.

The second method is the lookback measurement method, under which an employer may determine the status of an employee as a full-time employee during a future period (referred to as the stability period) based on the employee's hours of service in a prior period (referred to as the measurement period). The IRS created the lookback method as an acknowledgment that the statutorily provided monthly measurement period was, for certain employees, impractical because, by the time the employer could determine whether an employee was full-time, it would be too late to offer the employee coverage for that month.

Lookback Method

The lookback method requires an understanding of several concepts, including the "standard measurement period," the "stability period," and an "administrative period." Different rules apply for ongoing employees than to new part-time, variable-hour, or seasonal employees.

Ongoing employees: The following definitions apply for ongoing employees:

A "standard measurement period" is a period of at least three but not more than...