Starting in 2014, employers with 50 or more full-time equivalent employees will be required to provide full-time employees with affordable health care coverage that meets minimum requirements, or pay an annual penalty (known as the “shared responsibility” penalty). The health care reform act defines “full-time” as working 30 hours per week in any given month. Employers asked for guidance about applying this definition to variable-hour and seasonal employees.

New guidance issued in IRS Notice 2012-58¹ discusses a voluntary “safe harbor” method for determining whether these employees should be classified as full or part time — and when health insurance coverage for those deemed full-time must begin to avoid the shared responsibility penalty. 

The “safe harbor” method

A new employee is a “variable” employee if, based on the facts and circumstances at the employee’s start date, it is unclear whether the employee is reasonably expected to work an average of at least 30 hours per week.

Under the new IRS guidance, variable and seasonal employees start out in a “measurement period,” during which the hours they actually work are recorded. Then there’s an “administrative period.” In this period, the employer analyzes the employee’s hours, determines if the employee worked full or part time during the measurement period, and enrolls the employee in the health care plan (if he or she is eligible).

Finally, there is a “stability period,” during which the employee is considered and treated as full time or part time, as determined during the measurement period, even if his or her hours change during the stability period. Hours worked during the stability period are also averaged into the next measurement period which runs concurrently with the stability period. Details about these periods, for ongoing employees, are below:

The safe harbor method for ongoing variable-hour employees

Term	Length	Definition	Notes
Standard measurement period	3-12 months (chosen by employer)	Time period during which an ongoing employee’s hours are averaged to determine full- or part- time status	Ongoing employees are those who have been employed for at least one measurement period
Administrative period	Up to 90 days	Interval after the measurement period during which the employer can analyze an employee’s hours and, if full time, enroll eligible employee in the benefits plan	Optional, although employees must not be subjected to a waiting period longer than 90 days. Learn more.
Stability period	At least six months, and no shorter than the measurement period	Period during which the employer provides benefits to eligible employees as determined during the measurement period	Employee’s hours may change during this period, but the “full- or part-time” determination doesn’t change until the period ends

As long as the above requirements are met, measurement or stability periods can have different start dates, end dates or lengths for collectively bargained and non-collectively bargained employees, salaried and hourly employees, employees of different entities and employees located in different states.

• Arlina has been working variable hours at Company C. Her employer has implemented a 12-month standard measurement period, which begins October 15. It’s followed by an administrative period ending December 31. A 12-month stability period then begins on January 1. Every year after October 14 — the end of the measurement period — Company C averages Arlina’s weekly hours for the past 12 months. In October 2013, Company C determines that Arlina has worked an average of 30 hours per week during the measurement period and is therefore considered a full-time employee. The company arranges for her health care coverage to begin on January 1. From January 1, 2014, through December 31 (the 12-month stability period), Arlina receives health coverage, even though her hours reduce and she is no longer averaging 30 hours per week. In October 2014, when the new administration period starts, she will be determined to be a part-time employee. Her coverage will continue until December 31, 2014 — the end of the stability period. Company C is not liable under this scenario for any shared responsibility penalties.

Additional guidance to come

Employers can rely on the IRS’s safe harbor guidance through 2014. This guidance document requests public input on a variety of topics that will be used to help the agency issue additional guidance and develop final rules. These issues include: 

• How to determine an employee’s full- or part-time status on their start date.
  
  
• How to handle short-term assignment employees, temporary employees, employees in high-turnover roles, and other categories.
  
  
• How to define seasonal workers.
  
  
• How to coordinate different measurement/stability periods in a merger or acquisition.

What you need to know now

• Impact on employers — Employers, particularly those with a large variable-hour workforce, will need to implement new administrative practices, measurement systems, and communication standards to comply with these requirements. They will need to educate employees on how their full-time status is determined, and may wish to provide employees with a method for assessing their worked hours at various points.
  
  
• Impact on employees — Employees will need to understand how their status is determined, as well as when the measurement and stability periods begin and end. They will also need to know how their employment status impacts their access to employer-sponsored health coverage and, if necessary, how to obtain their own health coverage through the public exchanges or some other means.
  
  
• Impact on brokers — As always, brokers need to educate themselves on these requirements to continue to serve as trusted advisors on key employer questions.