Who should be offered coverage?

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By Chris Hadden, CPP

Greenshades Technical Sales Manager


So how do you define a full-time employee?

Chris Hadden, CPP
Chris Hadden, CPP

Perhaps someone who works 40 hours a week? Or maybe 37.5 hours a week?

Well, it’s time to redefine what a full-time employee means to your organization.

Under the Affordable Care Act (ACA), a full-time employee is any employee who averages at least 30 hours of service per week or 130 hours of service per month.

30 hours per week? That’s right, only 30 hours.

Therefore, if an employee is working less than 30 hours per week they are not full time, right? Not necessarily.

For ACA calculations, an employee’s full-time status is calculated based on ‘hours of service,’ which includes time for which the employee is entitled to when they are not actually working. Specifically, an employee must be credited with an hour of service for each hour the employee is paid or entitled to be paid for the performance of duties on the job. Additionally, an employee must be credited with an hour of service for each hour the employee is paid or entitled to be paid due to vacation, holiday, illness, incapacity, layoff, jury duty, military duty, or leave of absence.

So why should you care?

Any employee who is considered “full-time” under the ACA will need to be offered coverage. A full-time employee’s dependents must also be offered coverage under ACA requirements.

So how do you determine their full-time status?

IRS regulations allow two methods to determine full-time status:

  1. Monthly measurement – This method requires employers to treat an employee as a full-time employee in any month where that employee works, on average 30 hours per week or 130 hours per month
  2. Measurement/Stability period –This method allows employers to average each employee’s hours over a measurement period that can be up to 12 months.

Both options have pros and cons, however, much of it depends on what type of labor workforce you have.

Monthly measurement is great for companies that have consistent and reliable scheduled hours for their employees, however, this method can be extremely tedious and administrative for companies with high turnover and unpredictable schedules.

Many employers that employ a large number of variable hour or seasonal employees use the Measurement/Stability period method because it offers them a safe harbor period where no offer of coverage is required (i.e., the look-back measurement period). The downside of this method is that it may lock the employee into full-time status for an associated “stability period” (a period of time at least equal in length to the measurement period), even if that employee changes positions or transitions into a part-time schedule after the measurement period is over.

In 2015, at least 70% of all full-time employees and their dependents must be offered coverage. Starting in 2016, however, this threshold jumps up to 95%.

These requirements are challenging and are in no way simple for employers to administer. Because of this, the IRS has granted 2015 to be considered a ‘transition year,’ in which penalties and enforcement are in place, however, requirements are less stringent. While there may be some forgiveness in 2015 (up to 30% of full-time employees could be missed when offering coverage), 2016 will hit you hard if you are not prepared to understand who needs to be offered insurance within your organization.