Communities: Regulatory & Compliance

Determination of Full-time Employees under PPACA

By Ron Bachman, Chairman of Editorial Advisory Board, The Institute for HealthCare Consumerism

An employer whose workforce exceeds 50 full-time employees for 120 days or fewer during a calendar year.

When: Beginning Jan. 1, 2014, employers with 50 or more full-time workers are required to provide health coverage or incur applicable penalties. At least through the end of 2014, employers may rely on the:

  1. safe harbor method for ongoing employees,
  2. rule for new employees reasonably expected to work full-time,
  3. safe harbor method for variable hour and seasonal employees, and
  4. safe harbor based on Form W-2 wages.

Employers will not be required to comply with any subsequent IRS guidance that is more restrictive until at least Jan. 1, 2015.

What: Determining the PPACA legally recognized number of full-time employees is critical to establishing compliance with aspects of PPACA requirements and exposure to certain coverage penalties.

A full-time employee with respect to any month is an employee who is employed on average at least 30 hours of service per week. To determine the number of full-time workers can be complicated.

  1. “Ongoing employees” - those who have been employed by the employer for at least one complete standard measurement period.
  2. New employees” - those reasonably expected to work full-time. Employers will not be subject to a penalty for failing to offer coverage to employees for the initial three months of employment.
  3. “Variable Employees” - those for whom it cannot be determined that the employee is reasonably expected to work on average at least 30 hours per week.
  4. “Seasonal Employees” - are those who perform labor or services on a seasonal basis, and retail workers employed exclusively during holiday seasons.

Executive Summary: The IRS has put out guidelines for the calculation of full-time employees. It is not as easy as one might assume. In addition there are safe harbor and transition rules that apply.

There are two safe harbor options allowed when determining an employee’s full-time status:

  1. Employers are given three months or, in certain cases, six months, without incurring a penalty, to determine whether a variable employee is a full-time employee.
  2. A “Look-back/stability period” (from three to 12 months) allows an employer to determine whether the employee averaged at least 30 hours per week. If the employee were determined to be a full-time employee during the measurement period, then the employee would be treated as a full-time employee during a subsequent “stability periods.”

Potential Penalties:

  1. $2,000 per worker for all full-time workers (in excess of 30) for employers who fail to offer all full-time employees the opportunity to enroll in its minimum essential benefits.
  2. $3,000 per affected worker is for employers who offer minimum essential coverage that is not affordable to a worker and the worker elects to receive a premium subsidy tax credit when purchasing coverage through a health insurance exchange. Coverage is considered affordable if the employee’s required contribution does not exceed 9.5 percent of the employee’s household income. The penalty is assessed only on those employees receiving a subsidy tax credit through an exchange.

An employer will not be subject to a penalty if the coverage offered to an employee is affordable based on the employee’s Form W-2 wages. This is often referred to as the affordability safe harbor.

In addition, use of any of the safe harbor methods described above are not required, but optional.

Actions: Employers will need to calculate the number of full-time workers related to PPACA requirements. It may be necessary to consider employment contracts and work schedules during 2013 in preparation for this 2014 requirement. Employers will need to be in compliance or incur penalties. Employers should check with their compliance and legal teams, insurance brokers, agents, consultants and insurers in preparation for the changes to be implemented in 2014.

For more details see IRS Notice 2012-58 at

    The information presented and contained within this article was submitted by Ronald E. Bachman, President & CEO of Healthcare Vision. This information is general information only, and does not, and is not intended to constitute legal advice. You should consult your legal advisors to determine the laws and regulations impacting your business.

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