The Affordable Care Act’s Employer Mandate: Part 2

Determining Full-Time Employees

This article is Part 2 in a series intended to provide an overview of the Employer Shared Responsibility provisions (also known as the “employer mandate”) under the Affordable Care Act (ACA). The employer mandate generally requires employers known as applicable large employers (ALEs) to offer medical coverage to full-time employees and certain dependents in order to avoid potential penalties. 

We covered how to determine whether an employer is an ALE in Part 1. This Part 2 will address how to determine who is an ACA-defined full-time employee (FTE).  This article assumes an eployer has already determined it is an ALE, and we will be using the terms ALE and employer interchangeably throughout.

Full-Time Employee Status Matters

Although ALE status is determined using both full-time employees and full-time equivalent employees (described in Part 1), the employer mandate penalties only take full-time employees into account. This is why it is so important to be able to identify the full-time employees. This article does not attempt to address all of the nuances that apply under the ACA’s measurement rules.

What’s in a Name?

Continuing from Part 1, the employer mandate is filled with many defined terms, including: 

1. Full-time employee (FTE) – An employee who is reasonably expected to work at least 30 hours per week on average and/or who does average at least 30 hours of service per week over the course of a measurement period.
   
   
2. Part-time employee (PTE) – An employee who is not reasonably expected to work at least 30 hours of service per week on average and/or who averages less than 30 hours of service over the course of a measurement period.
   
   
3. Variable-hour employee – A new employee with a flexible or uncertain work schedule preventing the employer from determining whether the employee will reasonably average more or less than 30 hours of service per week. Factors the employer should consider when classifying an employee as a variable-hour employee include:
   
   
   • Whether the individual is replacing an employee who averaged 30 or more hours of service per week;
   • Whether employees in the same or comparable position typically average 30 or more hours of service per week; and
   • How the position was advertised (i.e., as a full-time or part-time position).
     
     Please do not confuse a short-term or high turnover position with the definition of variable hour employee. If we know the employee will average 30 or more hours per week, the employee is not a “variable-hour employee” (but he or she might be a “seasonal employee”).
     
     Note: The term “variable-hour employee” only applies to the look-back measurement method (describe later in this article). Technically, an employee is only a variable-hour employee when initially hired. The variable-hour employee will subsequently measure and be classified as an FTE or PTE thereafter.
     
     
4. Seasonal Employee – An employee hired into a position customarily needed for six months or less and related to staffing needs that recur around the same time each year. These are not the same as temporary employees who are hired as needs arise throughout a year. A seasonal employee can be subject to measurement even if reasonably expected to average at least 30 hours of service per week, and the idea is the seasonal employee will be gone before having to be treated as an FTE for ACA purposes. 
   
   Note: The term “seasonal employee” only applies to the look-back measurement method.
   
   
5. Hour of service – Each hour for which an employee is paid for duties performed or entitled to payment for periods during which no duties are performed (i.e., vacation, holiday, illness, incapacity, disability,[1] layoff, jury duty, military duty, or leave of absence).
   
   
6. Break in service – A period of consecutive weeks in which the employee is not credited with an hour of service.
   
   
7. Limited Non-Assessment Period (LNAP) – A period during which an ALE will not owe an employer mandate penalty without regard to whether an FTE was offered coverage.  LNAPs include:
   
   
   • January through March of the first calendar year in which an employer is considered an ALE, but only for employees not offered coverage during the prior year.
   • A waiting period before coverage is effective.[2]
   • An employee’s first calendar month of employment if hired after the 1st of the month.
   • An employee’s initial measurement period and initial administrative period under the look-back measurement method (described later in this article).
   • If an employee in an initial measurement period transitions to a known FTE position, the three full calendar months following the transition qualify as an LNAP. In the real world, many employers will transition the employee to FTE status faster than the rules require.

Different Strokes for Different Folks Possible

Employers may use different measurement methods for the following categories – or combination of categories – of employees:

1. Salaried employees and hourly employees;
2. Employees located in different states (but not within the same state);
3. Collectively bargained employees and non-collectively bargained employees; and
4. Employees subject to different collectively bargained agreements.

In other words, an employer can use a different measurement method for salaried, non-collectively bargained employees than it uses for hourly, collectively bargained employees. This rule also permits an employer to use measurement periods that differ in length and/or their beginning and end dates for different categories of employees when using the look-back measurement method.  

Monthly Measurement Method (MMM)

Under the MMM, an employer measures an employee’s actual hours of service at the end of each calendar month. If an employee averages 30 or more hours of service per week (130/month) for a calendar month, the employee was an FTE for that month. Since coverage cannot be offered retroactively, an employer may be exposed for failing to offer coverage to an employee determined to be an FTE after-the-fact unless an LNAP applies. If an employer does not select a measurement method, the ACA rules default the employer to the MMM.

Weekly Rule: The MMM rules also permit employers to measure hours of service using a “weekly rule” method. Under this method, the employer can use the number of work weeks used for payroll purposes during a calendar month. This can result in some months having 4 weeks and others having 5 for measurement purposes. 

Look-Back Measurement Method (LBMM)

Under the LBMM, an employer can make certain employees[3] wait until the end of a measurement period to determine if they were FTEs after-the-fact. The employee’s FTE or PTE status is then locked in for a corresponding stability period. Unlike the MMM, an employer can avoid potential penalties by prospectively offering coverage during an FTE’s corresponding stability period.

An employee who is locked in as an FTE during a corresponding stability period cannot lose that status during the stability period while employed by the employer, even if the employee’s hours are reduced.[4] 

Remember: An employee’s FTE status is protected prospectively during a stability period because the employee retroactively measured as an FTE. Also, an employee who is reasonably expected to average 30 or more hours of service per week is a known FTE and should not be made to wait for measurement to determine FTE status.

Under the LBMM, there are separate measurement rules for new employees and ongoing employees.

New Employee
An employee who has been employed for less than one complete standard measurement period (defined below).

Ongoing Employee
An employee who has been employed for at least one complete standard measurement period or who was present when the first standard measurement period was implemented.

Putting it Together – The LBMM and When a New Employee Becomes an Ongoing Employee