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Wednesday, March 13, 2013

Unless you’ve been under a proverbial (or actual) rock for the last several months, you are probably aware that the health reform law has a really big tax that could hit employers for not offering (or not offering good enough) health coverage to their full-time employees and dependents, referred to as play or pay (or “shared responsibility”) rules.  We’ve discussed the proposed regulations previously here.  But starting with this post, we are going to cover these rules in digestible portions.   This will help you see some of the finer points of the rules, without having to swallow the entire regulations in a single sitting.  In this first post, we’ll cover how you determine full-time employees (so you know who has to be offered coverage effective January 1, 2014)in a Q&A format.  It’s worth noting the rules discussed here technically apply to all ongoing employees (we’ll touch on new hires later).

Q: So what’s full time?

For this purpose, “full time” means working an average of 30 hours per week or 130 hours per month.

Q: How do I determine if someone works an average of 30 hours per week?

To determine if someone is full-time, you measure his or her hours over a period (called the “standard measurement period”).  Then you take some time to do the math to figure out who is full-time and make the offer of coverage (this is the “administrative period”).  Finally, you treat them as full-time (or not) for a specified length of time (called the “stability period”).

Q: Okay, but what if I’m absolutely, positively, no-doubt-about-it sure that someone is going to work more than 30 hours per week?

Even if you know that someone is for sure going to be full-time, you still are technically treated as counting his or her hours, whether or not you actually count them.  That means that, if you don’t want to count someone’s hours and you know she will be full-time, you must treat her as full-time during your “stability period,” even if her hours are reduced during that period.

Q: What if I’m absolutely, positively, no-doubt-about-it sure that someone is going to work less than 30 hours/week (like my deadbeat cousin Harry)?

You should probably still his or her hours too.  Even Harry’s.  That is because, if you are wrong, and your employee goes on the Exchange and gets subsidized coverage, you could be hit with penalties.

Q: So what’s standard measurement period?

The standard measurement period is a period where you measure someone’s hours.  It can’t be longer than 12 months.

Q: Do I have to use the same standard measurement period for all employees?

No. You can vary the standard measurement periods.  You can have periods of  different lengths, and different starting and ending dates, for the following categories of employees;

(1)  union v. non-union

(2)  each group of union employees

(3)  salaried v. hourly

(4)  employees whose primary place of employment is in different States

Q: Once I count the hours, then what do I do?

If you determine someone worked at least 30 hours/week or 130 hours per month during the standard measurement period…

Q: Sorry to interrupt, but can we come up with an abbreviation for “standard measurement period”?  How about SMP?

Fine.

Q: So now, back to my earlier question…

Right.  If you determine that someone worked at least 30 hours/week or 130 hours per month during the SMP, then you have to treat him as full-time for the stability period.  The stability period for these full-timers must be at least 6 months and cannot be shorter than the SMP.

Q: What if it’s Harry?

Assuming Harry (or anyone else) doesn’t work at least 30 hours/week or 130 hours per month during the SMP, then you are not required to offer him coverage for the following stability period.  In this case, the stability period cannot be longer than the SMP.

Q: Do I have to figure this all out in one day and turn around and make an offer of coverage and somehow do all my enrollment and get the information to my carrier or TPA and start offering coverage IMMEDIATELY?!?!?

Calm down.  You can have an administrative period of up to 90 days to count the hours and make the offer of coverage.  The administrative period begins at the end of the SMP and ends at the beginning of the stability period.

Q: Can you give me an example?

Say you have a calendar year plan, you might want to have an SMP for ongoing employees that starts on October 15 of one year and ends on October 14 of the following year.  Then you would have from October 15 through December 31 as your administrative period.   And your stability period could be the calendar year.

Q: What if a full-time employee comes to me during the stability period and asks to have his/her hours cut?

You still have to treat the employee as full-time for the rest of the stability period.

Q: And if Harry decides to get off his tukus and actually do full-time work for a change?

You can treat Harry as not full-time for the remainder of that stability period.  (The same rule applies regardless of whether the employee is not full-time due to sloth or any other reason.)

Q: What if I have payroll periods that don’t perfectly line up with a month or year?

If you pick an SMP, like 12 months, and you have weekly, every-other-week, or semi-monthly payroll periods, you can start at the beginning of one payroll period instead of a specific date.  To do this, either the first payroll period needs to include the beginning date of your SMP or the last payroll period needs to include the ending date of your SMP, but not both.

Q: OH MY GOSH! I have a calendar year plan and I want to use a 12-month SMP, but it’s too late!  This stuff is effective January 1, 2014!  What do I do?

Calm down!  It’s not too late.  For this year only, the IRS is allowing a one-time shorter SMP for those employers wanting to use a 12-month SMP.  The transitional SMP must not be shorter than six months, has to start by July 1, 2013, and has to end no more than 90 days before the first day of the 2014 plan year.  So for example,  if you have a calendar year plan, you could start counting April 15, go through October 14, for your transitional SMP, and then have an administrative period through December 31.

Q: What about new hires?  And counting hours?  And fiscal year plans?  I have so many questions! 

We’ll cover those in a future post.

Related Links

Proposed Regulations under Code Section 4980H on Employer Shared Responsibility/Play or Pay Penalties

IRS Q&A on Employer Shared Responsibility Penalties

Other Health Care Reform Posts

Disclaimer/IRS Circular 230 Notice

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